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Watch: Market Movers Americas: Oil production, climate policy to be key energy themes in 2021

In this week's Market Movers, we will be taking a look ahead to 2021 and some of the themes S&P Global Platts sees driving commodity markets in the Americas.

* Oil fundamentals: Middle class to remain under pressure

* Permian Basin: Lower production to continue in 2021

* Climate policy: Biden's picks show focus on clean energy future

* Natural gas: Production weakness to keep Henry Hub elevated

* Coal: Prices to get a boost from natural gas market

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In this week's Market Movers, we'll look ahead to 2021 and some of the themes S&P Global Platts sees driving commodity markets in the Americas.

First off, oil fundamentals. 2021 demand is expected to rebound by over 6 million b/d, but consumption is forecast to remain more than 2 million b/d below 2019's 102 million b/d, according to S&P Global Platts Analytics. Why so? Well, the real engine of oil demand is the global middle class – and they continue to face pressure from dual headwinds of wealth inequality and the ongoing COVID-19 crisis, according to Chris Midgley, our Global Head of Analytics.

Permian Basin crude production has declined this year, primarily due to lower demand caused by the pandemic. With investors shying away from fossil fuels, market watchers are now debating if the Permian has peaked or whether it's just a temporary blip.

The Permian produces about 4 million b/d, down from its 5 million b/d peak in April.

Our analytics division sees the basin's production continuing to fall in 2021 and remaining lower until 2023, when the trend should reverse. By 2025, Permian output is projected to climb to around 6.5 million b/d. But how much are buyers willing to pay for the oil?

President-elect Joe Biden's energy team is already confirming his election promise to focus on climate impacts and be proactive in moving to a cleaner energy future. His picks, unveiled last week, to lead the Energy, Interior and Transportation departments, and the EPA have records promoting renewable energy development and emissions regulations. For a new climate czar post, he tapped former EPA Administrator Gina McCarthy, the architect behind the Obama-era Clean Power Plan and ambitious fuel efficiency standards.

S&P Global Platts Analytics has estimated that Biden's policy goals on electric vehicles could increase the number of light duty electric vehicles on the road by 10% while presenting a downside risk to refined product of less than 240,000 barrels of oil equivalent per day.

Elevated price volatility and trade volume at the US benchmark Henry Hub this autumn will likely continue into 2021 as domestic production weakness keeps the market off balance.

In December, daily changes in the Henry Hub settlement price – calculated in absolute value – are elevated compared to recent history. For a cash-market index that has seen minimal volatility in recent years, the trend during this fourth quarter has been notable.

In September and October, when the uptick in market volatility began, daily changes in the Henry Hub cash settlement averaged 12 cents and 13 cents/MMBtu, respectively. In the 17 months prior to that, daily price changes at Henry Hub ranged from a monthly average low of 2.3 cents to a high of 6.1 cents.

While price volatility has moderated a bit this month, it still ranks among the highest recorded levels since January 2018, when extreme cold weather and strong heating demand moved the Henry Hub daily price index an average of 41 cents each day.

The US thermal coal market is expected to experience a modest recovery in 2021, driven by a rise in natural gas prices. The EIA projects a 20% jump in production year on year to 624 million st, along with a 23% increase in power burn, as Henry Hub is forecast to average $3.13/MMBtu throughout the year, $1 above the 2020 average. However, the long-term outlook for thermal coal remains grim as gas and renewables continue to increase their power generation share and ESG initiatives push for more coal-fired power plant retirements.

For more on all the issues affecting commodity markets from wherever you are, make sure to check out Platts LIVE at the address displayed on your screen.

Thanks for kicking off your Monday with us and have a safe festive period.