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Energy commodity report: January 20, 2011

All prices unless otherwise stated are for the close of January 19.
2012 baseload German power: €51.80/MWh, down 0.59%
2012 CIF ARA Coal: €118.62/t, up 0.47%
Front month UK natural gas: GBp55.77/therm, down 0.12%
EU emission allowances (EUAs) for December 2011 delivery: €14.38/t, down 1.57%
Certified Emission Reduction(s) (CERs) for December 2011 delivery: €10.96/t, down 1.62%
Brent crude oil futures for front-month 2010 delivery: US$98.40/bbl, down 0.5% as of GMT 8:45, January 20
WTI crude oil futures for front-month 2010 delivery: US$91.42/bbl, down 0.3%, as of GMT 8:45 January 20

Latest buzz

Wednesday saw the already impressive spread between WTI and Brent crude widen further, with crude for February delivery on the NYMEX settling US¢52, or 0.6%, lower at US$90.86/bbl, while Brent rose by US¢36 to close at US$98.16/bbl. The decline in the US is thought to be due to the restart of the Trans Alaska Pipeline, coupled with a report from the American Petroleum Institute that indicated that US crude inventories had risen by 3.5Mbbl, with gasoline and distillate stocks rising by 1.9Mbbl and 0.9Mbbl, respectively. Further pressure came from the news that home construction in the US fell by 4.3% in December to the lowest level seen in over a year, together with the release of a report on Chinese inflation later today. The latter prompted concerns that the central government might take further measures to reduce overheating, which in turn could reduce the pace of fuel demand.

Other recent news weighing on the market, includes a report from the IEA, which has suggested that Saudi Arabia has boosted oil production in an effort to stabilise oil prices. The kingdom’s output in December was estimated at 8.6Mbpd, up 100,000bpd on November. If true, the news will be welcomed in several quarters. For example, the London-based Center for Global Energy Studies had said that “The center said, “despite OPEC insisting otherwise, the CGES is still of the view that $90/bbl oil could prove too expensive for the global economy at this stage of the recovery, especially given the fragile nature of many governments’ balance sheets.”

Natural gas performed strongly on Wednesday, on speculation that today the EIA will report a larger-than-average draw-down in gas inventories as a result of the recent cold weather. Natural gas for February delivery rose by US¢13.6, or 3.07%, to settle at US$4.561/MBtu on the NYMEX. A Dow Jones poll has predicted a withdrawal from storage of 234bnft3 for the week ended January 14, compared to the five-year average for the week of 133bnft3.

In its most recent Short Term Energy Outlook, the EIA predicted that inventories could amount to 1.774tnft3 by the end of the current heating season on March 31. Extra upward pressure is coming from forecasts from the National Weather Service, which are predicting below average temperatures for the East and Midwest over the January 24-28 period.

South African thermal coal prices for delivery into Europe remained essentially unchanged on Wednesday, with a March loading cargo trading at US$121.00/t and two April loading cargoes trading at US$120.00/t.

With the flooding in Queensland, Australia, subsiding and the reopening of some rail lines, some of the impetus for higher prices, appears to have dissipated. However, some market participants have reported late arrival of Colombian cargoes and with more rain forecasted for Indonesia, the market is expected to remain tight. A key issue will be whether Chinese companies continue to import or resell cargoes for immediate profit. One view is that the latter will continue in small quantities, while the pace of domestic demand for coal will continue to increase Chinese imports of the fuel.

The carbon markets have received a shock to the system, thanks to the news that 500,000 EUAs (worth around €7m) have been stolen from Blackstone Global Venture’s Czech registry account. Other thefts have been reported from registries in Austria, Greece, Poland and Estonia in recent days.  The situation has triggered the closure of all carbon spot trading in Europe until January 26. Meanwhile, the CER market has been rattled by the news that the EU will postpone CER quality restrictions to May 1, 2013. The policy announcement weighed down the Mar13 CER contract, which eventually lost 2.88% to settle at €10.78/t.

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