In a recent release of its Commodity Markets Outlook, the World Bank has issued a stark warning regarding the potential for a substantial increase in oil prices. The institution asserts that if the current conflicts in Israel and Ukraine were to escalate into a “large disruption,” oil prices could surge by as much as 75%, reaching a historic high of $157 per barrel.
The report outlines three distinct risk scenarios based on the scale of the disruption in the oil market: a “large,” a “medium,” and a “small” disruption. According to the findings, should daily oil supply decrease by 6 million to 8 million barrels, prices are projected to soar within a range of $140 to $157 per barrel. A “medium” disruption would lead to crude prices between $109 and $121 per barrel, while a “small disruption” could still trigger a notable increase, ranging from $93 to $102 per barrel.
Ayhan Kose, the World Bank’s deputy chief economist, has emphasized the potential ramifications of a “severe oil price shock,” including the risk of food insecurity, particularly in the Middle East and other vulnerable regions around the globe. Kose expressed concern that such a shock could exacerbate existing food price inflation, which is already a pressing issue in many developing countries.
As for the immediate market outlook, the World Bank anticipates that crude oil will average around $90 per barrel in the current quarter, with a projected decline to an average of $81 per barrel in 2024. Presently, West Texas Intermediate (CL=F) and Brent (BZ=F) futures have been trading around $82 and $88 per barrel, respectively, as of midday Tuesday. These figures represent an 8% decrease over the past 10 days.
Earlier this month, an attack by Hamas on Israel caused a sharp 4% surge in oil prices in a single day. This spike was attributed to the potential involvement of Iran, a significant oil-producing nation, in the conflict.
The World Bank also noted that the impact of the Middle East conflict on commodity prices has been tempered by the more diversified global oil supply market, as well as by individual countries’ petroleum reserves and reduced overall dependency on oil.
Given the ongoing uncertainty in the Middle East, investors are advised to closely monitor the markets in order to assess the potential impact of these events on both oil prices and the overall well-being of the global population.
Source: Yahoo Finance
