Commodities: Oil up as UN vote on Libyan no-fly zone draws near

Prices unless otherwise stated are for the close of March 16.

2012 baseload German power: €57.88/MWh, down 0.48%
2012 CIF ARA Coal: €132.13/t, up 2.22%
Front-month UK natural gas: GBp64.80/therm, down 0.46%
EU emission allowances (EUAs) for December 2011 delivery: €17.25/t, up 0.23%
Certified Emission Reduction(s) (CERs) for December 2011 delivery: €13.05/t, down 0.08%
Brent crude oil futures for front-month 2010 delivery: US$113.05/bbl, up 2.2%, as of 11:00 GMT, March 17
WTI crude oil futures for front-month 2010 delivery: US$99.84/bbl, up 1.7%, as of 11:00 GMT, March 17

Latest buzz

Oil has risen in early morning trade, after the US has signaled that it favours foreign intervention in Libya against Muammar Gaddafi’s forces and UBS chose to raise its 2011 Brent crude forecast to US$103.75/bbl from US$85/bbl. The Obama administration has said that it is willing vote at the UN to authorize the imposition of a no-fly zone over Libya and other military actions designed to protect Libyan civilians. However, UN approval is unlikely, given opposition from China, Germany and Russia, with the latter two countries wary of promoting military interventionism. Additional support is coming from the situation in Bahrain, where at least five people have been killed in clashes between demonstrators and security forces. The Petroleum Association of Japan has said that it expects crude processing capacity to rise to 3.4mbpd by the end of March, compared to the 2.7mbpd seen immediately after the earthquake on March 11.

Wednesday saw the expiry of Brent crude for April delivery, which finished trading up US$2.10, or 1.9% at US$110.62/bbl.  WTI for April delivery rose by US$0.80, or 0.8% to settle at US$97.98/bbl. The positive direction owed much to the EIA’s “This Week in Petroleum” report. It indicated that total crude inventories rose by 1.7mbbl to 350.6mbbl for the week ending 11/03/11, while those at Cushing fell by 0.3mbbl to 40mbbl. Oil imports rose from the 8.3mbpd reported in the previous week to 8.681mbpd. National gasoline stockpiles dropped by an impressive 4.2mbbl. Gasoline inventories in the West Coast, where the price of gasoline was US$3.841/gal or US¢27.4 above the national average of US$3.567/gal, rose by 300,000bbl, suggesting that the high prices may be impacting on demand for the fuel.  National Distillate stockpiles fell by 2.6mbbl to 152.6mbbl.

US natural gas prices fell slightly on Wednesday, with the contract for April delivery settling down by US¢0.3, or 0.1% at US$3.938/mBtu on the NMYEX. The lack of movement was due to the scarcity of new information affecting the market, with weather forecasters still predicting mild weather for most of the US over the next two weeks, but with below normal temperatures for the West Coast. A Dow Jones poll is predicting that the EIA will today report a 44bnft³ withdrawal from storage for last week, compared to the five-year average of 58nft³. Some support has come from expectations that Japan will need more LNG, despite the fact that the US is not a major LNG importer and lacks the export capacity needed to capitalise on tighter LNG supplies in the international market.

After hitting an intraday high on Wednesday of €17.76/t, the Dec11 EUA contract began to look overbought and spent most of the day drifting down to eventually settle at €17.25/t. Both German power and natural gas prices offered little in the way of support, given that the front month UK Gas and 2012 German baseload power contracts fell by nearly 0.5%, while coal prices rose by 2.22%.

CER contracts spent much of the day following their EUA counterparts with the result that CER-EUA spreads staying relatively constant throughout the day. The Dec11 spread finished at -€4.20, while the Dec12 spread ended the day at -€4.96.