Certified Emission Reduction (CER) futures on Multi-Commodity Exchange of India (MCX) are likely to trade lower this week tracking a weak crude, analysts and traders said. Oil, which rose towards $124 a barrel on Monday rebounding from a seven-week low, primarily on technical buying and short-covering, may not see much upside as worries of slowing fuel demand continued to loom over the market. Weak demand dragged crude prices down from their record peak of over $147 a barrel on July 11. "Crude oil is seen under pressure on slowing demand... this will weigh on CER futures," said Mandar Pote, an analyst with Angel Commodities Broking Pvt. Ltd. CER futures track crude oil.

However, increasing demand for Indian CERs from some U.S. firms, preparing for voluntary emission reduction, may cap losses. "We have seen increasing number of enquiries for Indian CERs from American firms," said a senior official with a large CER trader based in Mumbai. CERs are project-based offset credits traded under the Kyoto Protocol's Clean Development Mechanism scheme. India is the world's second biggest source of the tradeable pollution permits and carbon credit revenue may touch 150billion rupees in 2012, according to Ernst & Young.

In longer-term prices are looking very good due to shortage in CER supplies, said the trader. Investment bank Societe Generale recently raised its price target for UN-approved carbon emission offsets and cut supply estimates through 2012. SocGen sees average CER prices at 19.50 euros a tonne this year, which may rise to an average of 27.00 euros in 2012. The bank forecast a total offset supply of 1.95 billion tonnes of carbon dioxide over Kyoto's first commitment period(2008-2012), down from an estimate of 2.53 billion published in March.