With a sluggish US economy where the fiscal cliff remains a major concern in 1H13 and a recession-hit Eurozone burdened by unaffordable energy import costs, it is clear that most support for global oil demand hinges on the consumption of emerging markets. The economic benefits of globalisation, urbanization and industrialization have led to major advances in productivity, positively impacting on oil demand in these parts of the world.

As the world oil demand improves gradually, non-OPEC supply sees modest advances with spare capacity in OPEC oil production expected to remain limited in 2013. As a result, average Brent crude oil prices of US$110/bbl for 2013, edging up slightly to US$112/bbl in 2014, according to Bank of America Merrill Lynch (BoAML) predictions. With monetary pressures building, Brent is expected to touch US$120/bbl in the next six months. “The biggest swing factor for Brent could be the return or further loss of Iran’s idled oil output. Still, we see natural cap to Brent prices of US$140/bbl in 2013, the point at which energy as a share of GDP reaches nine per cent,” says BoAML.

Meanwhile, refining and export constraints combine with a surge in shale oil production to potentially isolate North American crude markets. Consequently, WTI crude oil prices averaging US$90/bbl in 2013, rising to US$92/bbl the following year.

In the US, natural gas balances are tightening gradually in 2013 as industrial demand improves and production falls slowly. Nevertheless, if current high stocks persist into the 2Q13 prices could fall to US$3/mBtu. Average Henry Hub gas prices in 2013 are predicted to be around US$3.75/mBtu, rising to US$4.20/mBtu the year after. Demand is not expected to see any structural improvement until 2015.

The UK’s sharply falling domestic production renders its gas prices vulnerable to occasional Norwegian supply problems and tight global LNG markets. For the 2013-14 winter, National Balancing Point (NBP) prices are forecast to rise as non-compliant coal-fired power generation capacity is taken out of circulation.

Unchanged from last month, seaborne thermal coal still battles with heavy physical oversupply while much-needed production cuts are delayed by a steep contango. BoAML sees thermal coal prices on a slow falling trend with average 2013 Newcastle prices forecast at US$95/t.