SINGAPORE – Oil prices are likely to decline gradually this year and next as record crude prices weaken demand, the World Bank projected Wednesday.
"If you look at the fundamentals, there is scope for lower oil prices," said Hans Timmer, co-author of the bank's annual "Global Economic Prospects" report, at its launch in Singapore. "We forecast more or less a sustained, gradual decline."
A barrel of light, sweet crude surpassed $100 a barrel on the New York Mercantile Exchange for the first time last week.
The World Bank's report predicts that a barrel of crude oil will cost $84.10 on average this year and fall by 6.8 percent to $78.40 a barrel in 2009. It estimates that the average price of crude oil last year was $71.20 a barrel.
The forecasts are based an average of three benchmark oil prices: Dubai, Brent and West Texas Intermediate.
"On the demand side, what you are seeing is that the high oil prices start having an impact, in the sense that it slows down demand for oil," Timmer said. "You see that in high income countries, there's actually no growth any more in oil demand."
As demand wanes, OPEC countries have had to reduce their production by a million barrels over the last three quarters to a year to keep prices high, the economist said.
"What they are seeing is that the global economy is pretty much resilient, and can absorb the high prices, so there's no reason for them to bring the prices down," Timmer said.
Non-OPEC members, particularly in Africa, were helping to boost supply. In sub-Saharan Africa, crude oil production rose 14.3 percent in 2004, an additional 7.6 percent in 2005, and 8.1 percent in 2006, excluding Nigeria, where militant violence forced the shutdown of several facilities.
Timmer noted, however, that the oil market was a volatile one in which "every external shock can result in large change."
Surging economies in China and India fed by oil and gasoline have sent prices soaring over the past year, while tensions in oil producing nations like Nigeria and Iran have increasingly made investors nervous and invited speculators to drive prices even higher.