World Bank sees oil averaging $76/b in 2010, $76.60/b in 2011

World Bank sees oil averaging $76/b in 2010, $76.60/b in 2011

London (Platts)--21Jan2010/159 am EST/659 GMT

Oil prices are likely to average $76/barrel this year and $76.60/b in 2011, up from an estimated $61.80/b in 2009, the World Bank said Thursday in its annual Global Economic Prospects report.

The bank had forecast in December 2008 that oil prices would average $75/b in 2009, but slashed that figure in March 2009 to $47/b.

NYMEX February crude futures settled at $77.62/b Wednesday.

The bank warned that the global economic recovery now underway would slow later this year as the impact of fiscal stimulus waned. It said financial markets remained "troubled" and that private sector demand lagged amid high unemployment.

Although oil prices have risen alongside the recovery and partly as a result of OPEC crude production cuts, the bank does not expect significant increases in prices over the next few years.

"Given the large inventory overhang and the modest increases in oil demand expected over the next few years, real oil prices are not expected to rise substantially," it said, although it added that the oil sector remained sensitive to both demand and supply developments and that "a significant disruption to global supply could result in a sharp, if temporary, rise in prices once again."

Furthermore, it warned, "unless significant additional reserves are discovered over the longer term, OPEC's pricing power will continue to increase."

The bank said that oil demand in OECD countries had been falling for more than four years and was expected to see "little or no growth" in 2010, while non-OECD demand had increased after a decline in the first quarter of 2009 and was projected to resume its trend growth rate in 2010.

In its December 2008 report, the bank had said that "despite concerns that recent price spikes might signal future supply shortages, the report finds that supply should more than meet demand over the next 20 years."

LONGER-TERM 'MORE CLOUDED'

In its latest report, however, it said that while prompt supply was ample, the longer-term prospects were "more clouded," with non-OPEC supply outside the former Soviet Union "fairly stagnant" as increased Brazilian, Canadian and West African production was offset by big declines in US and North Sea output.

In addition, it said, "although much higher prices now have prompted increased investment, growth from new developments has been sluggish, partly because of high costs in 2007?08 caused by shortages of equipment and skilled labor, and because of numerous project delays."

The bank also said that because national oil companies controlled three quarters of known reserves, major international oil companies had been forced to invest in higher-cost developments such as oil sands and deepwater, which increased both costs and the amount of lead time needed before projects came on stream.

"Ultimately, however, alternative energy sources such as coal, natural gas, nuclear power, and various renewables are likely to prevent real oil prices from rising without end," it said, adding: "Industry estimates suggest that at current real oil prices, demand and supply should remain in balance for the foreseeable future."

The 2010 report warns, meanwhile, that "while the worst of the financial crisis may be over, the global recovery is fragile" and that "the fallout from the crisis will change the landscape for finance and growth over the next 10 years."

The bank sees global GDP, which fell by 2.2% last year, to grow by 2.7% in 2010 and 3.2% in 2011.

"Prospects for developing countries are for a relatively robust recovery, growing 5.2% this year and 5.8% in 2011 -- up from 1.2% in 2009," it said. "GDP in rich countries, which declined by 3.3% in 2009, is expected to increase much less quickly -- by 1.8% and 2.3% in 2010 and 2011."

--Margaret McQuaile, margaret_mcquaile@platts.com