World Bank projects crude oil to average $57 per barrel in 2015

The World Bank has revised upward its 2015 crude oil price forecast to $57/barrel from $53/b in April, with demand higher than expected in the second quarter, particularly in the US. However, large inventories and rising output from OPEC “suggest prices will likely remain weak in the medium-term,” John Baffes, the World Bank’s senior economist, said in a statement. The bank said it expects the price to rise to $61/b in 2016 as supply growth slows.

The price projections are included in the organization’s latest quarterly Commodity Markets Outlook. It noted that the US rig count is down 60 percent since its November high, but oil production continues to grow more than 1 million bpd year on year.

“OPEC output also continues to surge, with June production 1.5 million b/d higher than a year earlier, with most of the gains in Iraq and Saudi Arabia,” the outlook said.

Global oil consumption rose 1.9 million b/d, or 2 percent, year on year in the first quarter, the bank said, estimating that second-quarter demand increased 1.4 million b/d, or 1.5 percent.

The bank said it expects world oil demand growth to slow in the second half of the year, with the total annual global growth projected at 1.4 million b/d. The growth will slow further in 2016 to 1.2 million b/d, the report said.

Brent drops below $55

Brent crude dropped below $55/bbl for the first time in more than three months while US prices traded in a bear market amid a persisting surplus. Brent lost as much as 0.9 percent in London. West Texas Intermediate was steady after closing more than 20 percent below the peak reached in June, meeting the common definition of a bear market. US crude supplies remain almost 100 MMbbl above the five-year average after an unexpected increase through July 17.

Oil’s rebound from a six-year low in March has faltered on signs a global surplus will persist. Prices have been swept up in a broad selloff of raw materials, which have fallen to a 13-year low amid concerns that economic growth will stagnate in China, the biggest consumer of energy, metals and grains.

Brent for September settlement dropped as much as 47 cents to $54.80/bbl on the London-based ICE Futures Europe exchange, and traded at $54.93. It last traded below $55 on April 2.

WTI for September delivery rose 20 cents to $48.65/bbl in electronic trading on the New York Mercantile Exchange. The contract slid 74 cents to $48.45. Prices are heading for a fourth weekly decrease, the longest slump since March. The volume of all futures traded was about 30 percent below the 100-day average.

Foreign investment in Iran will take time

The imminent return of Iran to global oil could reshape global oil markets, but foreign investments will only return to the country in the 2020s, according to a new report by business consultancy Deloitte.

The firm says the historic agreement between Iran and the P5+1 countries earlier this month, which paves the way for lifting sanctions on Iran’s oil business, is expected to see a fairly rapid increase in Iranian exports, starting early next year.

But, Deloitte says Iran will not need as much help as some perceive to ramp up production, with foreign investment returning to Iran, but not until the 2020s.

Deloitte’s report comes just a day after Iran’s Minister of Petroleum Bijan Zangeneh said Iran would increase its oil recovery to 4.7 MMb/d “in the near future” and unveil its new Iran Petroleum Contract (IPC), aimed at attracting foreign investment into existing oilfields to increase output, in August.

Bijan Zangeneh, Minister of Petroleum said: “Iran has the biggest hydrocarbon reserves in the world and deems itself responsible for the world’s energy security,” Zangeneh said, according to Iran’s National Oil Company, which says sanctions sliced Iranian oil production by half. “Oil production is expected to reach 4.7 MMb/d in the near future,” he added.

According to Deloitte, total Iranian crude oil production in 2016, on an annual average basis, will likely range from 3-3.7 MMb/d. The firm says, in 2011, the last full year before the sanctions on oil exports, Iranian crude oil production averaged about 3.7 MMb/d, with exports estimated at 2.2–2.3 MMb/d. For 2014, Iranian crude oil production averaged about 2.8 MMb/d and exports averaged close to 1 MMb/d (domestic crude oil refining accounted for the remainder of production).

The report said “Iran’s National Oil Company has a long history of successful development and operations. It has highly qualified and experienced engineers and managers, adequate technology, and the direct experience of working in Iran. Even if foreign investment arrives slowly, Iranian oil production has good prospects for a revival during the next decade.”

FRANK UZUEGBUNAM