Commodities: natural gas up on lower than expected injection into storage

Prices unless otherwise stated are for the close of April 13.

2012 baseload German power: €58.40/MWh, up 0.59%
2012 CIF ARA coal: €130.17/t, up 0.68%
Front-month UK natural gas: GBp59.51/therm, up 0.50%
EU emission allowances (EUAs) for December 2011 delivery: €16.79/t, up 0.90%
Certified Emission Reduction(s) (CERs) for December 2011 delivery: €12.96/t, up 1.41%
Brent crude oil futures for front-month 2010 delivery: US$121.99/bbl, down 0.0%, as of 10:00 GMT, April 15
WTI crude oil futures for front-month 2010 delivery: US$107.83/bbl, down 0.6%, as of 10:00 GMT, April 15

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Crude oil benefited on Thursday from a boost in buying activity supported by a lower dollar. Yesterday also saw the release of data with long-term significance for the oil markets. It appears that the public spending increases in Saudi Arabia aimed at alleviating the pressure for reform have boosted the kingdom’s break-even price for oil by an estimated 23%, putting oil prices on a firmer footing. According to Banque Saudi Fransi’s chief economist, Saudi Arabia did not cut production of its light crude blends introduced as a possible substitute for Libyan oil.  New economic data from China was mixed from the perspective of energy traders, with GDP growth of 9.7% reported for 1Q2011, down from the 9.8% seen in 4Q2010, but above the 9.5% predicted by surveys from Dow Jones and Reuters. However, the consumer price index rose by 5.4% in March, up from the 4.9% seen in February and above analysts’ expectations. Particularly worrying is the news that food prices are up 11.7% on year in March. The news suggests that the country may soon adopt a tougher monetary policy, which could well impact on future energy consumption growth.

Bank of America Merrill Lynch has warned that there is a 30% chance that the price of Brent crude could rise to US$140/bbl, possibly even US$160/bbl next year.

“With oil demand expanding rapidly and Libya production down by at least 1 million barrels per day, we forecast (the) Brent crude oil price to average $122 a barrel in the second quarter, and believe prices could briefly break through $140 in the next three months,” said Sabine Schels, a commodity strategist at BoA Merrill Lynch.

“Under our upside risk scenario, Brent prices could average this year between $125 a barrel and $160 a barrel,” she added.

Front-month WTI rose by US$1 to settle at US$108.11/bbl on the NYMEX on Thursday, while ICE Brent crude fell by US¢33 to finish at US$122/bbl.

Front-month US natural gas futures rose by US¢7.1 to settle at US$4.212/mBtu on the NYMEX, in response to the news that for the week ended April 8, estimated net injections into storage totalled 28bnft³, compared to the 34bnft³ expected by analysts. The injection into storage was in line with the five year average of 28bnft³.

South Korean LNG imports rose by around 10% in March to 3.8Mt compared to the 3.4Mt seen a year ago, according to data released by the Korea Customs Service. Coal imports were up 14% at 10Mt for the month, compared to 8.8Mt a year ago.

Physical coal prices firmed slightly on Thursday, following a rise in US oil prices in response to a Sunoco refinery and the weaker dollar. Physical European demand is still weak but over in Asia there are signs that Chinese buyers are returning to the market. This week has seen China’s benchmark thermal coal prices hit a three-month high of US$120.92/t, with coal inventories at the port of Qinhuangdao falling for the sixth straight week to 6.4Mt, down from the 8.47Mt seen in early March, thanks to demand from power utilities who are preparing for summer demand.  Some power utilities in southern coastal provinces have started to book imports for delivery starting in May from Indonesia, which is currently the only source of imported coal cheap enough to compete with domestic coal prices in China, with a discount of US$2-4/t on a landed basis. Should China step up its appetite for imported coal, the current premium commanded by Richards Bay coal over that from Newcastle will likely evaporate. Two June-loading Newcastle cargoes traded at US$120.50/t and US$122.50/t.

A 0.68% in 2012 CIF ARA coal prices translated into higher German 2012 baseload power prices and provided carbon prices with a boost, giving the Dec11 EUA contract just enough impetus to move out of Wednesday’s €16.50-16.70/t trading range and finish the day up 0.9% at €16.79t. A number of banks and utilities, including Barclays and GDF Suez, have said that they are looking to raise their trade volumes on the BlueNext platform to help boost confidence in the spot market, in the wake of the theft of over 3m EUAS between November and January.

CER contracts performed strongly, with the Dec11 and Dec12 contracts climbing up by 1.41% and 1.51% by the end of trading. Consequently, CER-EUA spreads tightened with the Dec11 spread narrowing by €0.03 to finish at -€3.83 and the Dec12 spread tightening by €0.07 to settle at -€4.80.