Energy Commodities: 26/01/2010

Unless stated otherwise, all prices are for the close of January 25

Brent crude oil futures: US$73.01/bbl, down 0.9 per cent, as of GMT 09:45, January 26
WTI crude oil futures: US$74.45, down 1.0 per cent, as of GMT 09:45, January 26
German power: €49.56/MWh, up 1.00 per cent
Coal: €96.50/t, down 0.26 per cent
Natural Gas: GB 36.95p/therm, up 5.57 per cent
EUAs for December 10 delivery: €13.45/t, up 2.44 per cent
CERs for December 10 delivery: €11.80/t, up 2.25 per cent

Latest Buzz
After closing up 72 cents at US$75.26/bbl, front month NYMEX crude now appears to be retreating, primarily as traders appear to be holding off until the results of the US Federal Open Market Committee (FOMC) meeting are announced on Wednesday and which will forecast US economic growth, employment and inflation, as well as determining the appropriate level of credit availability.

Interestingly, Goldman Sachs latest weekly commodities report has made the point that China and by extension, Asia, is increasingly driving the oil markets with a 1.6mbpd rise in crude imports, almost perfectly off-setting a 1.5mbpd decline in US demand. The report states that:

” Furthermore, recent data on crude loadings suggest that close to 14 mn barrels of West African crude is being redirected from the West to the East. The surging Chinese demand for oil suggests that the drivers of not only consumption growth, but also world oil demand and prices, are shifting from the West to the East.”

Morgan Stanley has announced that it now expects NYMEX crude to rise to US$95/bbl by the end of 2010. According to Hussein Allidina, a commodity analyst at the USA’s second largest security firm, crude oil in 2011 will average US$100/bbl.

“We expect that fundamentals will continue to improve,” said Allidina. “Our increased 2011 price forecast reflects an improved GDP outlook that will require a higher price to ration demand to meet inadequate supply.”

Morgan Stanley expects global oil demand to rise by 1.7mbpd and global GDP by 4 per cent over the course of 2010, while it predicts spare capacity will drop to 5.7mbpd from the current 6.5mbpd.

Meanwhile, carbon prices appear to be firming, on the back of stronger natural gas and German power prices. However, a recent report by Bank of America Merrill Lynch has warned that the lack of action resulting from the Copenhagen Summit, coupled with lingering doubts over the ability of US and Australian governments to pass cap and trade legislation this year and low demand in the European market, are weighing heavily on the outlook for carbon trading.

However, at the same time, it is forecasting a 5.6 per cent rise in the value of EUAs over the course of 2010, as the economy moves out of recession, but emission levels will still be lowered than they were before the global financial crisis. As a result, the bank is now warning that EUAs will be in surplus by around 166Mt over the second phase of the ETS, which is set to finish in 2012. Merill also has stated that it does not “foresee significant price upside over the next three to six months.” A knock-on effect of both predictions would be depressed demand for UN-based CERs.