China has been importing significantly more oil from Iran than allowed under its waiver, and could continue doing so, said the report.
The World Bank has cut its crude oil price forecast for the current year 2019 and the next year 2020, despite the looming uncertainty over supplies from Iran following the US President Donald Trump’s sanctions.
Crude oil prices are expected to average $66 a barrel in 2019 and $65 a barrel in 2020, a downward revision from the October forecast, said World Bank in its Commodity Markets Outlook Report. This would be on the back of weaker than expected global growth outlook, rising US production and OPEC restraint, the report said.
However, adding a note of caution, the World Bank said that policy uncertainty can alter the outlook on crude oil prices. “The outlook for commodity prices is sensitive to policy-related risks, especially for oil,” said Ayhan Kose, Director of the World Bank’s Prospects Group. The outlook for oil could be swayed by a number of policy outcomes, including the extension of production cuts by the Organization of the Petroleum Exporting Countries (OPEC), removal of waivers to the US sanctions on Iran, and looming changes in marine fuel emissions regulations, Ayhan Kose said.
Iran uncertainty looms large over crude oil price outlook
The World Bank also notes an uncertainty in the outcome of the US sanctions on Iran. This is because it is not clear how quickly countries will comply with the removal of waivers and there is also possibility of countries ignoring the sanctions. For instance, China has been importing significantly more oil from Iran than allowed under its waiver, and could continue doing so, said the report.
On the other hand, increased levels of spare capacity in OPEC nations and adequate inventories would provide a buffer against unexpected shutdowns, the report added. Earlier, oil prices climbed because of lower supplies from OPEC. “Oil prices have risen 34 percent since the start of the year, amid production cuts by the Organization of the Petroleum Exporting Countries (OPEC) and other producers, and supply disruptions elsewhere,” said the World Bank in the report.
The World Bank noted a rise in the consumption of crude oil by 1.1 percent in the first quarter of 2019, of which China, India and the US accounted for most of the increase. It expects a 1.2 percent rise in consumption in 2019. The demand for oil in 2019 will be largely driven by China and India, the report added.
The report cites some geopolitical risks too which may affect the oil outlook such as conflict in Libya and Venezuela, and passage of No Oil Producing and Exporting Cartels Act or NOPEC under US congress which may be used to sue OPEC for collectively reducing output.