Commodities: US oil inventories up, Chinese demand takes Australian coal higher

Prices unless otherwise stated are for the close of May 4.

2012 baseload German power: €59.22/MWh, down 0.35%
2012 CIF ARA coal: €132.81/t, down 0.16%
Front-month UK natural gas: GBp56.35/therm, up 0.81%
EU emission allowances (EUAs) for December 2011 delivery: €17.09/t, down 0.64%
Certified Emission Reduction(s) (CERs) for December 2011 delivery: €13.08/t, down 0.38%
Brent crude oil futures for front-month 2010 delivery: US$122.83/bbl, up 0.3%, as of 11:15 GMT, May 5
WTI crude oil futures for front-month 2010 delivery: US$111.06/bbl, up 0.1%, as of 11:15 GMT, May 5

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The EIA has reported that US crude inventories rose in the week ended April 29 by 3.4mbbl to 366.5mbbl, 5.9mbbl above the levels seen in the same week last year. Inventories at Cushing, the physical delivery point for WTI, rose by 100,000bbl to 40.5mbbl. Gasoline stockpiles fell by 1.1mbbl to 204.5mbbl, significantly below the 224.9mbbl recorded a year ago, while distillate inventories fell by 1.4mbbl to 145.1mbbl. Average retail gasoline prices rose to US$3.963/gal as of May 5, while on-highway diesel prices averaged US$4.124/gal.
The rise in crude inventories hit sweet light crude for June delivery, which lost US$1.81 to settle at US$109.24/bbl on the NYMEX on Wednesday, while ICE Brent crude fell by US$1.26, or 1.03% to finish at US$121.19/bbl.

In addition to US inventory levels, oil was also pressured by the CME Group’s decision to raise the margin requirement to trade silver, forcing some investors to sell other commodities, along with new data that has raised questions over the strength of the American economic recovery. The Institute for Supply Management reported that its service sector index had risen at its slowest pace for eight months in April, while the private payroll processor ADP announcement that 179,000 new private sector jobs were added in April, well below economists’ expectations. However, some support came from the US dollar, with the dollar index falling to around 73.069, compared to the 73.127 seen in late trading on Tuesday.

Natural gas futures fell for a third day on Wednesday, with gas for June delivery falling by US¢9.3 to settle at US$4.577/mBtu on the NYMEX. The decline has been attributed by analysts to the continuing moderate outlook for temperatures across much of the US and rebounding nuclear output, which rose by 2.1% compared to Tuesday’s levels to 70,385MW or 69% of capacity. A Bloomberg poll has predicted that the EIA will today report an injection in storage of 67bnft³ for the week ended April 29, compared to the five-year average of 78bnft³.

The China Coal Transport and Distribution Association has said that power station coal prices are likely to rise this month, before stabilising, due to low inventories at ports. Prices at Qinhuangdao port have recently hit two years highs, with stockpiles dropping to a yearly low, according to data from the Association released on May 3.

The Dec11 EUA spent Wednesday morning trading in a €17.15-17.20/t range, before a large trade pushed it to an intraday high of €17.22/t. The contract failed to find support at this price, given a 0.35% drop in the value of the 2012 German baseload power contract, which was sparked by lower coal prices. The situation is likely to boost Chinese demand for coal imports and the country’s appetite has already pushed the price of Australian thermal coal on the globalCOAL Newcastle index to US$122.75/t as of May 2, up from the US$122.23/t seen last week and the US$122.27/t seen on April 29.

A Singapore-based coal trader said that “There is some upside on Chinese demand as there is a shortage of coal everywhere in the country. China faces low coal stocks for electricity and power demand will be increasing with summer around the corner.”

CERs faired better than their EUA counterparts, with both the Dec11 and Dec12 contracts falling by 0.38%. As a result, the Dec11 and Dec12 CER-EUA spreads finished the session at -€4.01 and -€4.96, respectively. Taking direction from UNEP Risø’s upward revision of its CER issuance forecasts, both Barclays Capital and Société Générale have increased their estimates for 2011 CER issuance to 200m and 210m, respectively.
Point Carbon has said that large emission sources under the EU ETS used a record 137Mt of UN carbon credits to meet their emission targets in 2010, up 68% on 2009, and representing 7.1% of all credits surrendered in 2010. The research firm’s senior analyst, Stig Schjolset, said that the increase was probably due to the EU’s decision to ban the use of CERs generated by HFC23 and N2O destruction projects within the EU ETS from May 2013.