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Oil prices likely to stay low throughout 2016, says World Bank

The World Bank has lowered its forecast for oil prices this year, saying crude will continue to trade at depressed levels throughout 2016.

The Bank has played down the likelihood of further falls, with the average oil prices expected to stabilise at just below $40 a barrel [1]. The predicted price for 2016 was reduced from $51 to $37 a barrel which, in comparison, closed at $31.45 on 26 January [2].

According to Bloomberg, a barrel of oil cost less than one salmon in Norway, or less than a cauliflower in Canada [3].

OPEC has said it expects oil prices to hit rock bottom soon. Abdallah El-Badri, Secretary General at OPEC said: “The market definitely will achieve a new balance, because the oil prices nowadays by no means are sustainable” [3].

Saudi Arabia has repeatedly rejected requests to curb its production without action from others, while Russia has been shown to be pumping at record levels, meaning the supply/demand ratio is likely to push prices down further [2].

SEB Analyst Bjarne Schieldrop agrees, and has said of the coming year: “We are going to trough several times this spring. It’s a terrible situation in the physical market and stocks are just going to pile up more, so we will get these reels down again. We haven’t seen the end of that process of being ‘deep in the ditch’. Medium term, there will be gradual improvement, but at least this first half of the year will be ugly” [4].

Three US shale oil companies have had to slash their 2016 capital spending plans more than expected in a bid to survive the $30-a-barrel price [4].

Head of Astenbeck Commodities, Andrew Hall, took an optimistic outlook and said the market was ‘ripe for a jump’ [4].

 

[1] The Guardian. ‘Oil prices to stay near current level throughout 2016, World Bank says’. theguardian.com

[2] The Week. ‘Oil price: ‘we’re going to see more fireworks’. theweek.co.uk

[3] The Independent. ‘One salmon costs more than a barrel of oil’. independent.co.uk

[4] Reuters. ‘Oil falls as rising inventories wipe out optimism over supply’. uk.reuters.com