The World Bank previously forecast crude oil prices at $53 per barrel in 2017. As of Thursday, the World Bank had upped its previous prediction to $55 per barrel citing the Organization of the Petroleum Exporting Countries’ (OPEC) anticipated output agreement that would help to reduce excess supply. The prediction is an average of Brent, Dubai, and West Texas Intermediate crudes. The bank maintained its original July forecast of $43 a barrel for crude in 2016.
According to a quarterly outlook report by the World Bank, Commodity Markets Outlook, energy prices (including prices for coal, natural gas, and oil) are estimated to increase by almost 25 percent in 2017, much bigger than the increase previously expected. “We expect a solid rise in energy prices, led by oil, next year,” said John Baffes, “However, there is considerable uncertainty around the outlook as we await the details and the implementation of the OPEC agreement, which, if carried through, will undoubtedly impact oil markets.” Baffes is a senior economist for the World Bank.
If OPEC follows through with the agreement, it will mark the group’s first output cut since 2008. Through the agreement, OPEC hopes to limit production to a range between 32.5 and 33 million barrels a day. For comparison, the record output in September was 33.6 million barrels a day. The agreement comes after a long period of output without restraints or limitations.
On Wednesday, Saudi Arabia’s energy minister, Khalid al-Falih, said oil markets were nearing the end of a downturn as supply and demand began to rebalance.
One of the biggest crude gluts in history has shaken up the global market for over two years with prices surging to $100 back in 2014 and falling to lows of $27 in early 2016. Since then, prices have more or less settled around $50 per barrel thanks in part to a drop in non-OPEC production and supply outages in a few OPEC nations.
The World Bank stated that a recovery was predicted for many commodities in 2017 including agricultural prices and metals as demand increases and supplies decrease. Metals and minerals prices are projected to increase by 4.1 percent next year. Zinc prices are estimated to grow by over 20 percent following the closure of several large zinc mines and cuts in production.
The price of gold is expected to slightly decrease in 2017 to $1,219 an ounce as interest rates are projected to grow. Gold is very sensitive to growing rates that lift the opportunity cost of holding non-yielding assets like bullion while boosting the dollar. On Thursday, spot gold had increased by almost 0.3 percent while oil prices dropped by 2 percent thanks to a stronger dollar.
“Low commodity prices hit commodity-exporting emerging and developing economies hard but now appear to have bottomed out,” said Ayhan Kose, the World Bank’s Director of Development Prospects, “Growth in this group of economies is expected to be near zero for the year. Where feasible, policymakers should pursue growth-enhancing strategies, such as investments in infrastructure, health and education, in the context of a credible medium-term fiscal plan.”