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Ongoing uncertainty over the Covid-19 pandemic has kept rising oil prices in check, according to the World Bank.
While prices have been supported by ongoing production curtailment by the Organization of the Petroleum Exporting Countries and their allies, also known as OPEC-plus, the rise in oil prices has been dampened in part by uncertainty about the evolution of the pandemic and its potential impact on future developments. oil demand, the World Bank said in Global Economic Outlook.
Prices have risen on increased demand as vaccine programs roll out and economies recover. Brent and West Texas Intermediate have both recently risen above $70/barrel.
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World Bank researchers expect oil prices to average $62/barrel in 2021 and 2022, based primarily on projected moderate fuel consumption. Meanwhile, the US Energy Information Administration recently noted that Brent crude averaged $68/barrel in May, up 25% from January, and now expects the benchmark for the year to average around $60.
The World Bank said a key risk to its forecast is the rate at which OPEC-plus can increase production, noting that the cartel currently has spare capacity of up to 9 million b/d, equivalent to 9% of global consumption in 2019.
More drilling by oil and gas producers out of the Lower 48 could also pose a risk to the price forecast, the World Bank noted.
In the longer term, the outlook for oil and other energy commodities will depend on the pace of the transition to renewables, researchers said.
The 198-page report outlines the potential for a global economic recovery from the pandemic in the coming months. It forecast the global economy to grow at 5.6% this year, its strongest post-recession rate in 80 years.
However, the World Bank also said the recovery appears uneven. Major economies, led by the United States, are expected to recover, while emerging markets and emerging economies (EMDE) still struggle to contain the pandemic.
Increased Covid-19 caseloads, barriers to vaccination and a partial withdrawal of macroeconomic support are offsetting some of the benefits of stronger external demand and increased commodity prices in some EMDEs, according to the study.
While low-income oil-exporting countries like Chad and South Sudan will benefit from higher oil prices, those higher prices could also lead to a surge in global oil supply from the United States or OPEC-plus countries if their production deal fails. . That could lead to lower prices and revenue shortfalls in low-income countries, according to the report.
Lower than assumed oil prices, however, would benefit net oil importers, researchers say.
The organization also noted that the rise in oil prices and the faster-than-expected recovery supported increased economic activity in Middle Eastern oil-exporting countries. For example, Iran avoided a projected contraction in fiscal year 2020-2021, which ended in March, while a contraction in Saudi Arabia’s oil industry was offset by an increase in activity outside of oil production. Meanwhile, activity in Qatar and the United Arab Emirates increased earlier this year amid a successful vaccination campaign.
Rising oil prices and a recovery in demand are expected to lead to a current account surplus and a rise in inflation among many oil exporters, World Bank researchers said.
Overall, global output is projected to be about 2% lower than pre-pandemic projections by 2022, and per capita income losses incurred last year will not be fully reversed in about two-thirds of EMDEs. .
The report suggested that a more equitable rollout of vaccines would be needed to contain the pandemic at a global level, especially in low-income countries.
The legacy of the pandemic exacerbates the challenges policymakers face as they strike a balance between the need to support the recovery while ensuring price stability and fiscal sustainability, researchers say. As the recovery becomes more entrenched, policymakers should also continue efforts to promote growth-enhancing reforms and steer their economies on a green, resilient and inclusive development path.
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