By Peter OBIORA InvestAdvocate
Lagos (INVESTADVOCATE)-The International Monetary Fund (IMF) has reported that crude oil prices are projected to fall to $97.3 in 2016 amidst geopolitical tensions, according to the latest World Economic Outlook (WEO).
The IMF in the report said commodity prices are expected to decline in inline with futures markets and crude oil prices are projected to average $102.8 a barrel in 2014 down 1.3 percent from 2013 and dropping $99.4 in 2015.
‘’This pattern is consistent with strong increases in non-OPEC production,’’ the WEO report said.
It said risks to oil prices are tilted toward the upside given the wide range of supply outages and ongoing geopolitical tensions. ‘’The largest concerns are escalating violence within Iraq and the dispute between Russia and Ukraine,’’ the Fund affirmed.
According to WEO report, the downside, reduced tensions and a recovery in output from affected areas, including the Islamic Republic of Iran, could weigh heavily on oil prices, as would slower demand.
In terms of natural gas, the WEO said the markets are much less integrated than oil markets, given the cost and logistical difficulty of trading gas across borders. ‘’The limited integration of gas markets is evident from substantial price differences across regions despite increasing liquefied natural gas trade,’’ the global lender added.
The IMF says global natural gas production and consumption have increased steadily and are projected to do so even more rapidly in the medium term. It added that three (3) major developments of the past few years have had particularly important implications for gas and energy markets: the shale gas revolution in the United States, the reduction in nuclear power supply following the Fukushima disaster in Japan, and the geopolitical tensions between Russia and Ukraine.
‘’The Financial Express of India an online media in its editorial titled Editorial: Build reserves, and wait’’ said given the number of times IMF forecasters have got it wrong—the latest WEO has a separate section on this—it is very likely that even the lowered forecasts of global growth may not come true.
The editorial said to take oil prices for instance, the fact that US oil production has jumped while oil demand growth has slowed is certainly a factor in lowering prices—and the winding down of QE means there is less speculative inflows into crude markets—but the fact that heightened global tension has not affected the markets is worrying. ‘’In other words, the IMF is indicating that, there is the possibility that, once US interest rates start rising, markets could get spooked,’’ The Financial Express affirmed.
The IMF also said Food prices are projected to decline by 4.1 percent in 2014 and by 7.9 percent in 2015 and to remain broadly unchanged in 2016. ‘’This projection reflects favourable harvest conditions for the current year, as discussed earlier,’’ the Fund said.
The global lender recently revised downward global growth rate for 2014, citing new shocks, such as the euro area crisis, high unemployment, the legacies of the pre-crisis boom and the subsequent crisis, such as high private and public debt.
The update of the IMF’s WEO issued recently projects the world economy will grow at 3.3 percent this year, down 0.1 percent from its July forecast, and the global growth projection for 2015 was lowered to 3.8 percent down 0.2 percent from the July forecast.
