Energy Commodity Report: January 28, 2011

All prices unless otherwise stated are for the close of January 27.

2012 baseload German power: €51.42/MWh, down 0.02%
2012 CIF ARA Coal: €115.57/t, up 0.30%
Front month UK natural gas: GBp54.84/therm, down 2.07%
EU emission allowances (EUAs) for December 2011 delivery: €14.73/t, down 1.21%
Certified Emission Reduction(s) (CERs) for December 2011 delivery: €11.15/t, down 1.33%
Brent crude oil futures for front-month 2010 delivery: US$98.00/bbl, up 0.6% as of GMT 08:45, January 28
WTI crude oil futures for front-month 2010 delivery: US$85.54/bbl, down 0.0%, as of GMT 08:45 January 28

Latest buzz

Thursday saw oil hit by a barrage of bearish economic data. US Labor Department figures indicated that applications for jobless benefits rose by 51,000 to 454,000 last week, while the number of those still collecting benefits rose by 94,000 in the week ended January 15 to 3.99m. Compounding the bleak picture for the US economy, orders for durable goods fell in December and disappointing financial results from Amazon.com, Proctor & Gamble and Colgate-Palmolive. Front-month WTI came up US$1.69, or 1.94% to settle at US$85.64/bbl, while Brent crude fell by US$0.52, or US$0.53%, to finish at US$97.39/bbl. The spread between the two contracts at the close hit a record US$11.75, with a combination of high inventories at Cushing, the physical delivery point for WTI, and a subsequent drift toward Brent by speculators. As of writing, it has risen further to US$12.46.

Tanker-tracker Oil Movements is predicting that OPEC will boost shipments throughout mid-February in order to help meet American and European demand, with total volumes (excluding Ecuador and Angola) rising by 1.4% to 23.67mbpd.

The current level of Saudi oil production is increasingly a source of division between the IEA and OPEC. Nobuo Tanaka told the Reuters news agency that: “We think from what we learnt in our study there’s a gap from what they report and what they produce. Is it intentionally? I don’t know. But we are simply saying that Saudi is producing more than they report.”

The IEA said earlier this month that Saudi oil production in December increased by 100,000bpd from a revised November estimate of 8.5mbpd. More recently OPEC Secretary-General Abdullah al-Badri said “”According to information I receive from Saudi Arabia it is almost the same production as last month, so I don’t see any increase in Saudi Arabia. I don’t know where the IEA got this number from but also the market reaction was negative.”

Given the difference in motivation, it is not hard to see why these two organisations might not agree on oil production statistics. The IEA was established with the goal of maintaining energy security for OECD countries, which implies a desire for low energy prices, while a clear goal of OPEC is to maximise the value of the group’s oil reserves and production.

Despite slightly exceeding analysts’ expectations, a 174bnft³ withdrawal from storage in the week ended January 21 failed to set the US natural gas market alight. Inventories currently stand at 2.542tnft³, 1.2% above the five-year average. Gas for February delivery fell by US¢17.5, or 3.9%, to US$4.316/mBtu on the NYMEX, a four-week low. Despite the forecasters from MDA Earthsat are predicting warmer than usual temperatures across the Northwest, Texas and the Gulf Coast, with close to average temperatures expected for the eastern half of the US.

A vote for strike action at Colombia’s largest coal exporter, Cerrejon, has pushed up European coal prices for prompt cargoes by around US$3/t. Around 96% of employees represented by the National Union of Coal Industry Workers voted for a walkout. Latin American workers are increasingly turning to industrial action in order to protect their earning power, which is increasingly being hit by inflation. The union is seeing a wage increase of 7.5-8% in a two-year contract. A March delivery DES ARA cargo traded at US$118.50/t on globalCOAL, US$3.00/t from Wednesday’s trade.

After initially rising above €15.00/t, the Dec11 EUA contract slid back in the afternoon, in response to unfavourable movements in coal and natural gas prices. The Dec11 CER contract followed a similar pattern, rising to €11.43/t in morning trade, before falling back on the news that the UN has issued 5.6m CERs to seven CDM projects. The CER-EUA spreads narrowed slightly, with the Dec11 and Dec12 spreads finishing at -€3.58 and -€4.28, respectively. ICE has announced that the suspension in spot trades will remain in place until February 7 at the earliest.