Energy commodity report: January 25, 2011

All prices unless otherwise stated are for the close of January 24.

2012 baseload German power: €51.32/MWh, up 0.04%
2012 CIF ARA Coal: €115.47/t, down 0.47%
Front month UK natural gas: GBp55.35/therm, up 0.42%
EU emission allowances (EUAs) for December 2011 delivery: €14.59/t, up 0.76%
Certified Emission Reduction(s) (CERs) for December 2011 delivery: €11.05/t, up 0.55%
Brent crude oil futures for front-month 2010 delivery: US$96.55/bbl, down 0.1% as of GMT 08:30, January 25
WTI crude oil futures for front-month 2010 delivery: US$87.61/bbl, down 0.0%, as of GMT 08:30 January 25

Latest buzz

Benchmark sweet light crude on the NYMEX has fallen to its lowest price in nearly eight weeks, due to a combination of renewed speculation that OPEC may boost production to stabilise prices. Also weighing on the market are concerns that tomorrow’s oil and oil product inventory report from the EIA will show a increase in crude stockpiles. According to a Bloomberg poll, analysts are expecting US crude inventories to rise by 1.25Mbbl. The turn in market sentiment suggests that in the absence of new bullish data, speculators may start to unwind what appears to be a surprisingly large net long holding. It is also thought that WTI’s attractiveness is waning, due to the large spread between it and Brent crude. In addition, while Brent is thought to be a flawed yardstick for international oil prices, due to its reliance on depleting oil fields in the North Sea and the fact that several players such as Hetco hold large physical positions, it is still thought to be better than WTI, given the latter’s use of the landlocked Cushing terminal for physical delivery and the fact that demand is driven by the US economy. As the US has been the most affected by the global financial crisis and one of the slowest to recover, this trait has not entered WTI to traders with an international focus.

For those with their eye on the longer-term picture, Bank of America Merill Lynch’s latest Gloal Energy Weekly report struck a few warning notes. It claims that total global energy consumption is currently around 7.9%, up 1.2 percentage points from last year. It hit 9% during both the second oil crisis in 1980 and in 2008, where it briefly spiked to 12% when oil rose above US$145/bbl. The report expects Brent crude prices to average around US$115/bbl this year, before rising to US$130/bbl in 2012. However, it argues that a “sharp spike in oil prices above US$115/bbl this year remains an unlikely possibility, due to high inventories, the prospect of a uptick in Iraqi oil production and OPEC spare capacity holding at around 5.4Mbpd, among other factors.

Natural gas for February delivery settled down US¢15.6, or 3.3% lower at US$4.580/MBtu, despite further forecasts for cold weather across the US over the next few weeks. The fact that prices rose by 5.7% over the course of last week, suggests that yesterday’s decline was triggered by profit-taking. According to meteorologists with WSI Crop, temperatures will be below normal in states east of the Rocky Mountains over the January 30-February 8 period, while those at Commodity Weather Group have said that the current cold snap is likely to persist throughout much of February.

European and South African coal prices fell by US$2/t to their lowest levels since early December, in response to lacklustre demand. While flooding in Australia pushed some utilities into the market last month, traders report that the combination of lower power prices and poor dark spreads are weighing on the market, with European demand back to the low levels prior to the crisis. However, bad weather is still impacting on supplies from South Africa, Indonesia and Colombia and current estimates suggest that it will be many months before Australia output recovers.

Coal shipments from Australia’s Newcastle port fell by almost 22% last week, to 1.8Mt, down from the 2.3Mt seen in the previous week, according to the Newcastle Port Corporation. Australian thermal coal prices on the globalCOAL weekly index settled at US$124.25/t for the week to date on Monday, down from the US$130.77/t. The number of vessels queuing at the port has been holding steady at 20, while the average waiting time has fallen from 13.5 days to 12.9.

The Dec11 EUA contract spent most of Monday trading in a near €0.20 range, eventually finishing up 0.76% at €14.59/t. Volumes were down by over 50% compared to Friday, with just 7802 contracts traded. The Dec12 and Dec13 contracts being most affected. The EU is now expecting around half of the national registries to resume trading on Wednesday, thanks to the implementation of new security measures designed to counter fraud. Over in the CER markets, the Dec12 contract made up 68% of trades as traders grew more interested in trading in the CER-EUA spread, after it widened by €0.05 on Friday to finish at -€4.14/t. While the Dec11 and Dec12 contracts rose by 0.55% and 0.65% respectively, the Dec13 contract continued its decline, falling by 0.37% as the EU’s decision to delay the phasing out of CERs generated from industrial gas destruction projects until May 2013, is still hitting their perceived value.