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MENA Quarterly Economic Brief, July 2016

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  • Shantayanan Devarajan
  • Lili Mottaghi

Abstract

This issue of the World Bank MENA Quarterly Economic Brief seeks to understand the factors behind the new normal of the oil market to discern the evolution of world oil prices in the future, and their implications for the economies of the Middle East and North Africa (MENA). Our findings show that the oil price crash of 2014 was preceded by a significant increase in the size and frequency of volatility of oil prices. This volatility in turn contributed to the accumulation of oil inventories, attributing to the decline in oil prices. Noting that, historically, oil price slumps have lasted longer than spikes, we suggest that the current situation in the oil market may persist because of the changing behavior of market players, and the fact that overall oil demand is weak and not expected to rebound anytime soon. We expect the world oil market to work through its current oversupply and rebalance in early 2020 at market-clearing prices that are close to the marginal cost of the last producer (US shale oil producers). Oil prices are likely to be in the range of $53 - $60 a barrel and stay there for several years. The new normal for oil prices will prove difficult for MENA oil producers and could end up overhauling the existing social contract.

Suggested Citation

  • Shantayanan Devarajan & Lili Mottaghi, "undated". "MENA Quarterly Economic Brief, July 2016," World Bank Publications - Reports 24684, The World Bank Group.
    • Handle: RePEc:wbk:wboper:24684
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    References listed on IDEAS

    as
    1. Shanta Devarajan & Lili Mottaghi, "undated". "MENA Quarterly Economic Brief, July 2015," World Bank Publications - Reports 22294, The World Bank Group.
    2. Salant, Stephen W, 1976. "Exhaustible Resources and Industrial Structure: A Nash-Cournot Approach to the World Oil Market," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 1079-1093, October.
    3. Richard J. Gilbert, 1978. "Dominant Firm Pricing Policy in a Market for an Exhaustible Resource," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 385-395, Autumn.
    4. Daniel Huppmann and Franziska Holz, 2012. "Crude Oil Market Power—A Shift in Recent Years?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    5. Shantayanan Devarajan & Lili Mottaghi, "undated". "MENA Quarterly Economic Brief, January 2016," World Bank Publications - Reports 23705, The World Bank Group.
    6. Lili Mottaghi, 2015. "MENA Quarterly Economic Brief : Plunging Oil Prices," World Bank Publications - Reports 21462, The World Bank Group.
    7. Sabine Bockem, 2004. "Cartel formation and oligopoly structure: a new assessment of the crude oil market," Applied Economics, Taylor & Francis Journals, vol. 36(12), pages 1355-1369.
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    Cited by:

    1. Quy-Toan Do & Shantayanan Devarajan & Anne Brockmeyer & Lili Mottaghi & Clement Joubert & Kartika Bhatia & Mohamed Abdel-Jelil, "undated". "Middle East and North Africa Economic Monitor, October 2016," World Bank Publications - Reports 25087, The World Bank Group.
    2. Shantayanan Devarajan & Lili Mottaghi, "undated". "Middle East and North Africa Economic Monitor, April 2017," World Bank Publications - Reports 26305, The World Bank Group.
    3. Shantayanan Devarajan & Lili Mottaghi, "undated". "Middle East and North Africa Economic Monitor, October 2017," World Bank Publications - Reports 28395, The World Bank Group.

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