World Bank says oil prices to fall gradually through 2009 to $75

The World Bank entered the increasingly-divided debate on where oil prices are headed Wednesday by announcing in its Global Economic Prospects 2008 report that oil prices will fall gradually through 2009 to about $75, then fall toward $50 per barrel, in the longer-term.

“In the longer term, the oil market balance is expected to loosen and prices are projected to fall toward $50 per barrel,” the World Bank wrote in its report. Oil closed Wednesday down 74 cents to $95.59.
The bank said that because OPEC has limited spare capacity and is holding down production, oil prices will likely remain quite elevated and volatile. However, high prices and increasing environmental concerns should continue to moderate growth in demand.

The Washington, D.C.-based international bank said it sees finely balanced markets in 2008-2009, then rising upstream investment in oil producing countries (OPEC and non-OPEC) should result in new supplies that exceed the growth in demand.

Economist David H. Wang said a considerable portion of the oil bull’s thesis rests on increasing oil demand in emerging markets, particularly in China, and continued strong gasoline demand in the United States. China’s demand is expected to remain solid, Wang said. Gasoline consumption increases in the U.S. may slow – – perhaps even decline slightly in 2008 – – if projections of a U.S. recession prove to be correct.

“Now, if China’s oil use slows down simultaneously, then we will have a price break, and large oil price declines are possible,” Wang said. However, Wang added that he is not in the “cyclical theorist” camp and sees oil’s price moderating only slightly in 2008, to about $85 per barrel by year’s end.

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