Oil prices stable, coal falling says BoAML energy forecast

In the second half of 2012 oil prices carried out a successful balancing act between maintaining supply and avoiding to destabilise the global economic recovery. The US fiscal cliff, Europe’s sovereign and banking crisis as well as China’s potential hard-landing have prevented any real direction from the market in 2H12. Bank of America Merrill Lynch (BoAML) sees it likely that oil prices will continue to trade in the current range during 1H13, although it does not rule out price rises.
 
With global oil consumption modestly improving, limited spare OPEC capacity but better non-OPEC supply in 2013, BoAML expects average Brent crude oil prices of US$110/bbl for 2013, edging up slightly to US$112/bbl in 2014. However, monetary pressures may see a hike to US$120/bbl in the next six months and Iran’s idled oil output may yield some surprises. However, the bank does not expect Brent prices to rise this year to about US$140/bbl, or nine per cent of GDP.
 
In North America, surging shale oil production coupled with infrastructure and exports constraint are expected to isolate the local markets. Average WTI crude oil prices are forecast around the US$90/bbl market in 2013, rising to US$92/bbl the following year.
 
With domestic production in the UK on a steep declining trend, natural gas prices in the country have become more vulnerable to the few Norwegian supply issues as well as the tight world LNG markets. The forced retirement of non-compliant coal-fired power generation capacity is expected to increase winter 2013-14 NBP prices.
 
Over in the US, supply remains high while demand is contracting and inventories remain elevated, putting downward pressures on US natural gas forward prices. Average Henry Hub gas prices in2013 are predicted to be around US$3.75/mBtu, rising to US$4.20/mBtu the year after.
 
Seaborne thermal coal still reels with heavy physical oversupply while a steep contango delays much-needed production cuts. BoAML sees thermal coal prices on a slow falling trend with average 2013 Newcastle prices forecast at US$95/t.