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WB expects drop in 2012 oil prices

The World Bank expects the prices of oil and other commodities to drop in the wake of gloomy global economic growth forecasts for 2012.

The Washington based financial body said that "Simulations suggest that 4-percentage-point decline in global growth could be expected to result in 24% decline in energy and a 5% decline in food prices mainly reflecting the impact of lower energy prices on production costs."

The World Bank anticipates the price of crude to average USD 98 per barrel this year down 6% from the 2011 average of USD 104 per barrel and USD 97.1barrel in 2013.

The international financial institution however highlighted that its crude price forecasts would depend on both supply and demand factors as well as geopolitics.

In the Middle East and North Africa, although political turmoil has eased, there remains the possibility that oil supply from one or more countries could be disrupted while mounting tensions between Iran and high income countries could yield a sharp uptick in prices because of disruption to supply routes, or because of sanctions imposed by high-income countries that shift demand away from Iran toward other producers.

However, the continuation of political unrest in the Middle East and North Africa could lead to further disruption of supplies and higher oil prices in the shorter term especially given low stocks and a market short of light and sweet crude.

Mr Barack Obama president of US signed into law fresh economic sanctions against Iran's Central Bank in an apparent bid to punish foreign companies and banks that do business with the Iranian financial institution.

The bill requires foreign financial firms to make a choice between doing business with Iran's Central Bank and oil sector or with the US financial sector. The legislation will not go into effect for six months in a bid to provide oil markets with time to adjust.

Energy experts said that the sanctions could lead to a major hike in crude oil prices and disrupt the interests of the US and its allies that depend on oil imports from Iran.