Commodities: Oil up on surprise US crude inventory draw-down

Prices unless otherwise stated are for the close of April 20.

2012 baseload German power: €58.55/MWh, up 1.19%
2012 CIF ARA coal: €130.27/t, up 1.16%
Front-month UK natural gas: GBp58.47/therm, down 0.03%
EU emission allowances (EUAs) for December 2011 delivery: €16.98/t, up 0.95%
Certified Emission Reduction(s) (CERs) for December 2011 delivery: €13.15/t, up 1.00%
Brent crude oil futures for front-month 2010 delivery: US$124.27/bbl, up 0.3%, as of 09:00 GMT, April 21
WTI crude oil futures for front-month 2010 delivery: US$112.03/bbl, up 0.6%, as of 09:00 GMT, April 21

Latest buzz

Sweet light crude for May delivery on the NYMEX gained US$3.17, or 2.9%, to settle at US$111.45/bbl on Wednesday, while ICE Brent crude rose by US$2.52, or 2.1%, to finish at US$123.85/bbl. Much of the momentum came from a weaker dollar, news that existing US home sales were up by 3.7% in March and further rioting in northern Nigeria, in response to the reelection of President Goodluck Jonathan, which have so far killed at least 153 people and increased the chances of further attacks by armed groups on Nigeria’s oil infrastructure. The country’s oil exports are particularly vital for the US, given their high quality and the loss of Libyan exports of sweet light crude.

Today, oil prices are advancing  on the back of rising Asian equities and an unexpected drop in US crude inventories as reported by the EIA. According to the agency’s “This Week in Petroleum” report, US crude stockpiles fell by 2.32mbbl to 357mbbl, the first decline since February and in stark contrast to the 1.3mbbl stock-build predicted in a Bloomberg poll. Gasoline inventories declined by 1.58mbbl to 208.1mbbl, the lowest level seen since the week ended November 12. The average retail price of unleaded gasoline in the US rose to US$3.837/gal.

“The overhang of US crude and oil product inventories… is now at its lowest level since the end of 2008. Cushing inventories have fallen, and we continue to see WTI as being underpriced relative to Brent,” said analysts at Barclays Capital in a research note.

Also giving crude positive momentum is the downward trajectory of the US dollar. The Dollar Index has dropped for a third day, down 0.4%, to 74.11 and is currently 8.7% below where it stood a year ago.

US natural gas on the NYMEX added US¢4.8, or 1.1%, to settle at US$4.310/mBtu, as weather forecasts continued to predict high temperatures for the South over the April 24-28 period. Further upward momentum came from the news that natural gas shipments to US and Canadian power plants rose for a third day, increasing by 0.2% to 14.7bnft³. Market participants are expecting the EIA to announce a 51bnft³ increase in natural gas inventories for the week ended April 15, today.

According to the SXCOAL industry data website, coal with a heating value of 5500kcal/khg rose for a third week in China to CNY785-795/t (US$121.83/t), while 6000kcal/kg NAR coal held steady at CNY845/t. Demand from power plants is rising as utilities are seeking to restock in advance of high summer demand. Coal inventories at the port of Qinhuangdao fell for the seventh consecutive week, down 7% to 5.96Mt, taking the total monthly decline to 19.6%. Prices have also been boosted by warnings that an increasing number of regions are suffering from coal shortages and that power rationing may begin this month, due to the supply situation and low hydropower generation.

Wednesday saw the Dec11 EUA contract progress steadily before it eventually closed at its intraday high of €16.98/t, up 0.95%. Its advance appeared to have been triggered by growing sentiment that markets had been oversold in response to S&P warning over US debt and carbon benefitted from the rise in both equities and commodities. Higher coal prices lifted the 2012 German baseload power contract up 1.19%, while a surge in oil prices appeared to provide the upward momentum in carbon prices in the last two hours of trading.

CER futures also made gains, with the Dec11 and Dec12 contracts settling up 1.00% and 1.09%, respectively. However, the CER-EUA spreads widened, with the Dec11 and Dec12 spreads widening to -€3.83 and -€4.83 at the end of trading. Japan’s environment ministry has released data indicating that the country’s greenhouse gas emissions could increase by 10% by 2020, due to the March 11 earthquake and the subsequent shutdown of many of the country’s nuclear reactors.

The EU has reopened Lithuania’s carbon emissions registry, meaning that all 30 countries participating in the EU ETS are now back online, three months after attacks by hackers forced the shutdown of all spot trading on January 19 and resulted in the theft of 2m emissions certificates.

Connie Hedegaard, European Commissioner for Climate Action, said: ”Following the criminal activities earlier this year, tightening the security of the registries system has been the top priority. I am glad to see that all registries are now up and running with enhanced security measures in place. Together with Member States and through a regular dialogue with stakeholders, we are working on a set of measures to further improve security on all fronts such as a delivery delay mechanism, improved management of registry accounts and detection and quick response mechanisms. With these measures and a more unified approach for the third phase of the ETS due to start in 2013, we have definitely strengthened the integrity of the European carbon market. And we will continue our intensified dialogue with relevant stakeholders on key implementation issues.”