Commodities: Oil Inventories at Cushing hit new record, physical coal prices down on LNG imports, surplus cargoes

Prices unless otherwise stated are for the close of March 30.

2012 baseload German power: €58.60/MWh, down 1.20%
2012 CIF ARA Coal: €128.91/t, down 0.88%
Front-month UK natural gas: GBp60.06/therm, down 1.78%
EU emission allowances (EUAs) for December 2011 delivery: €17.05/t, up 0.12%
Certified Emission Reduction(s) (CERs) for December 2011 delivery: €12.84/t, up 0.16%
Brent crude oil futures for front-month 2010 delivery: US$116.43/bbl, up 1.1%, as of 10:15 GMT, March 31
WTI crude oil futures for front-month 2010 delivery: US$105.29/bbl, up 1.0%, as of 10:15 GMT, March 31

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In its latest “This Week in Petroleum” report, the EIA has said that total US crude inventories have risen by 2.9mbbl to 355.7mbbl for the week ending March 25^th. It also reports that inventories at Cushing, Oklahoma, the physical delivery point for WTI, have risen to a new record of 41.9mbbl, close to full capacity. This news is likely to support the currently high Brent-WTI spread, which as of writing stands at US$11.14/bbl in Brent’s favour.

Refinery inputs fell slightly to 14.332mbpd, from 14.349mbpd, due to routine maintenance, while imports rose to 9.128mbpd from 8.987mbpd. Gasoline inventories fell by 2.7mbbl, while demand for the fuel dropped from 9.074mbpd to 8.866mbpd, due to higher retail prices. President Obama yesterday announced plans for initiatives aimed at reducing US dependence on oil imports and promised that by 2015, the federal government would only buy alternative-fuel vehicles. Distillate inventories rose by 700,000bbl, while demand dropped from 3.771mbpd to 3.637mbpd, possibly due to the approach of spring cutting into heating oil demand and reduced air travel to Japan.

Brent crude closed yesterday at US$115.10/bbl, in session dominated by a lack of trading activity with just 224,000 lots traded and slightly over 348,000 lots of WTI traded, 56% below the 30-day average. Traders will be looking to the release of Canadian GDP index and US containing claims index data later today, as well as the Chicago PMI, which is expected to report a drop in manufacturing activity.

US natural gas futures rose on Wednesday on the back of forecasts for colder weather and a winter storm in the Northeast, with the contract for May delivery rising by US¢9.2 to settle at US$4.355/mBtu on the NYMEX, up 2.2%. Some additional support came from President Obama’s speech, which called for greater use of natural gas. A Bloomberg poll is expecting the EIA to report a 2bnft³ withdrawal from storage for the last week, today, compared to the five-year average draw-down of 22bnft³ and the 12bnft³ decline seen a year earlier. The EIA reported a 3.7% drop in US gas production in January, yesterday, to 74.39bnft³, as result of low temperatures impacting on drilling in New Mexico and Wyoming.

Delivered Europe DES ARA (API2), FOB South Africa and FOB Newcastle physical coal prices have come under pressure from the offering of surplus cargoes and higher LNG imports, causing all three to drop by around US$1.00/t on Wednesday. Other factors also putting downward pressure on the market include an oversupply situation in Europe and the absence of prompt demand from India and China. FOB Newcastle has fallen to around US$119.25/t on globalCOAL, after previously holding firm in a US$120-125/t range. Utility selling has risen this week with UK, French and Germany companies all expected to offload surplus cargoes over the next few months. Macquarie Bank has lowered its FY2011 contract price forecast for Australian coal exports to Japan by US$20/t to US$125/t, to compensate for lower demand caused by the March 11 earthquake and tsunami. However, with spot prices below US$120/t, there remains significant downside potential.

The Dec11 EUA spent most of Wednesday trading in a €16.95-17.05/t range, while briefly testing €16.90/t and €17.10/t. The contract seemed to pay little attention to a large drop in the value of the 2012 German baseeload contract, possibly given the imminent release of verified emissions data for the EU ETS on Friday. Shortly after the same event last year, EUAs rose by 27% and it is likely that some traders are hoping for a similar rally to occur. A German auction of 570,000 EUAs on the EEX cleared at €16.99/t.

Both the Dec11 and Dec12 contracts both advanced by 0.16%, while the Mar13 and Dec13 contracts were unchanged from Tuesday. The Dec11 and Dec12 CER-EUA spreads finished Wednesday at -€4.21 and -€5.04. Societe Generale has said in a research note that CER and ERU substitution, from companies participating in the EU ETS, is likely to rise by 50% for 2010 compliance, given concerns that the EU might ban certain types of Kyoto credits after 2012.