World Bank and Credit Suisse slash oil price forecast for 2016

Both the World Bank and Credit Suisse recently reduced its oil price forecast for 2016. This is amid increasing supply of oil and low demand prospects from emerging markets.

While the Washington-based institution forecast crude oil prices at $37 (£26, €34) a barrel for 2016 by using an average of Brent, Dubai and West Texas Intermediate (WTI) oil prices equally weighted, Credit Suisse projected that Brent will average $36.25 a barrel and WTI Crude will trade at a premium of $1.50 to Brent in 2016.

The new figures indicate a sharp decline from World Bank's earlier forecast of $51 a barrel and Credit Suisse's earlier forecast of $51.25 for Brent and $47.50 for WTI.

John Baffes, lead author of the World Bank's commodities markets outlook, said: "Low prices for oil and commodities are likely to be with us for some time. While we see some prospect for commodity prices to rise slightly over the next two years, significant downside risks remain."

Other economists at the World Bank said resumption of Iran's exports post the removal of sanctions, continued US production and a mild Northern Hemisphere winter will result in increased supply of oil despite a weak demand. They also predicted that oil prices would recover gradually in 2016 but at a slower pace than in previous years that witnessed sharp declines such as 1986, 1998 and 2008.

Apart from oil, the World Bank projected the prices of 36 other commodities, citing the same reason of weak demand from emerging markets.

Jan Stuart, global energy economist at Credit Suisse, said: "Oil prices have collapsed early this year amidst rising recession fears and 'panic' levels of risk-appetite. Until inventories actually begin to draw there is no fundamental support for spot prices; meaning that the same macro-headwinds that helped crash prices in the last four weeks can again depress oil until, in our view, inventories begin to draw."

Apart from these two institutions, analysts at HSBC too cut its crude oil price forecast over the next three years, over a prolonged supply glut.

Oil prices, which were trading higher than $115 a barrel about 2 year ago, recently slipped to sub $30 levels. Today (27 January), WTI crude oil was trading down 1.88% at $30.86 a barrel, while Brent crude was down 1.35% at $31.37 a barrel at 3:35am GMT.