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Energy commodity report: January 12, 2011

All prices unless otherwise stated are for the close of January 11.

2012 baseload German power: €53.99/MWh, up 0.50%
2012 CIF ARA Coal: €120.75/t, down 0.45%
Front month UK natural gas: GBp55.87/therm, up 1.69%
EU emission allowances (EUAs) for December 2011 delivery: €14.31/t, up 0.56%
Certified Emission Reduction(s) (CERs) for December 2011 delivery: €10.94/t, up 0.27%
Brent crude oil futures for front-month 2010 delivery: US$98.31/bbl, up 0.7% as of GMT 8:30, January 12
WTI crude oil futures for front-month 2010 delivery: US$91.69/bbl, up 0.6%, as of GMT 8:30 January 12

Latest buzz

Benchmark oil for February delivery on the NYMEX rose by US$1.86, to settle at US$91.11/bbl on Tuesday, as the market remains shaken by the prospect of supply disruption triggered by the closure of the Trans-Alaskan pipeline since Saturday. Operators are currently attempting a temporary restart to prevent the crude within the pipeline from freezing while a bypass of the leaks is completed. Market participants are currently awaiting the EIA’s This Week in Petroleum bulletin, which is expected to report a 500,000bbl decline in US crude oil inventories. Since the opening of trading today, NYMEX crude has continued to make gains, rising to US$91.69/bbl as of writing. Meanwhile, Brent crude appears to be edging ever closer to US$100/bbl. However, Portugal’s bond auction today has the potential to rein in current enthusiasm. Should it fail or disappoint, then it could drive up the value of the US dollar, which in turn would work to push down oil prices.

The EIA has predicted in its latest Short-Term Energy Outlook that the oil market will tighten over the next two years, with annual consumption growing by 1.5Mbpd on average, while non-OPEC supply increases by less than 100,000bpd a year. The agency now expects global oil demand to rise by 1.45Mbpd in 2011, or 1.7%, followed by 1.63Mbpd, or 1.9%, in 2012, to a new record of 89.65Mbpd.

“Consequently, EIA expects the market will rely on both inventories and significant increases in production of crude oil and non-crude liquids in OPEC member countries to meet world demand growth,” it said. “While onshore commercial oil inventories in the Organization for Economic Cooperation and Development (OECD) countries remained high last year, floating oil storage fell sharply in 2010, and EIA expects OECD oil inventories will decline over the forecast period.”

The agency has upwardly revised its price forecast for spot WTI crude in 2011, by US$7, to US$92.bbl. It now expects that WTI to average US$93/bbl in 2011, hitting an average of US$99/bbl in 4Q11 and averaging US$98/bbl in 2012.

Non-OPEC crude and liquid production is projected to grow by 160,000bpd in 2011 and 20,000bpd in 2012, with growth concentrated in China, Canada and Brazil along with the new entry of Ghana. Mexican production is expected to fall by 200,000bpd in 2011 and 80,000bpd in 2012, while the UK oil output is forecast to drop by 120,000bpd in both 2011 and 2012.

The EIA expects OPEC spare crude capacity to decline from the 4.7Mbpd seen at the end of 2010 to 4.3Mbpd at the end of 2012.

“Should OPEC not increase production as global consumption recovers, oil prices could be significantly higher,” the EIA warned.

Preliminary data indicates that US petroleum and non-petroleum fuel consumption rose by 350,000bpd, or 1.9%, in 2010, with most of the grow coming from distillate fuel oil, with demand rising by 130,000bpd, and motor gasoline, with demand rising by 60,000bpd or 0.7%. Total US fuel consumption is expected to rise by 160,000bpd, 0.8% in 2011 and 170,000bpd, or 0.9%, in 2012, amounting to 19.4Mbpd by year-end 2012.

US crude output grew by 150,000bpd in 2010 to 5.51Mbpd, but is expected to fall by 20,000bpd in 2011 and 130,000bpd in 2012.

Natural gas futures in New York, settled higher for the first time in five days, on the back of higher oil prices and new forecasts which have predicted colder weather in store for the Midwest. Natural gas for February delivery rose by US¢8.2, or 1.9%, to settle at US$4.481/MBtu on the NYMEX. According to the Commodity Weather Group, temperatures in the Midwest could be 10-15˚F below normal over the January 22-24 period. A Bloomberg poll is predicting a 145bnft3 withdrawal from storage, according to the median of 11 analysts, compared to the five-year average of 108bnft3. In its Short-Term Energy Outlook, the EIA has cut its forecast for 2011 natural gas production by 1%, to 61.38bnft3pd, down from the 62.01bnft3pd predicted in December.

Both Wood Mackenzie and Deutsche Bank have predicted that thermal and coking coal prices could spike as a result of the flooding in Queensland, Australia. Wood Mackenzie warns that thermal coal prices could breach the 2008 high of US$197/t, while hard coking coal spot prices could rise above US$400/t. Meanwhile, Deutsche Bank is expecting hard coking coal to average US$265/t this year, up 11% on its previous estimate, with contract prices potentially reaching US$300/t, in 2Q11, before dropping to US$260/t next year. The bank also predicts that thermal coal prices at Richards Bay, South Africa, will average US$121 in 2011, up from a previous estimate of US$118/t. Deutsche Bank has left its forecast for 2012 unchanged at US$140/t.

EUAs and CERs regained some lost ground on Tuesday, bolstered by a steady energy complex, and with coal and natural gas prices moving in positive directions for carbon. The 2012 German baseload contract was given vital support via increased demand from Nordic regions. CERs advanced despite news that issuance requests for January amount to 40m. Some participants believe that at around €11/t, little profit can be generated from CDM projects. The UN has announced that it has issued over 500m CERs under the CDM. Currently, there are around 2740 CDM projects, 855 of which have received credits. On Monday, 1.3m CERs were issued to an Indian HFC-23 destruction project, while 3.5m were issued in the previous week. As a result Barclays Capital has scaled down its price forecast for CERS for the first half of this year to €13/t, down from €14/t.

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