Energy Commodities: 05/03/10

Unless stated otherwise, all prices are for the close of March 4.

Brent crude oil futures: US$78.97/bbl, up 0.6 per cent, as of GMT 9:00, March 5

WTI crude oil futures: US$80.67/bbl, up 0.4 per cent, as of GMT 9:00, March 5

German power: €47.53/MWh, down 0.46 per cent

Coal: €91.75/t, down 1.45 per cent

Natural gas: GB 29.85p/therm, down 3.86 per cent

EUAs for December 2010 delivery: €13.12/t, down 3.10 per cent

CERs for December 2010 delivery: €11.75/t, down 3.21 per cent

Latest buzz

NYMEX crude held above US$80/bbl on March 4 during Asian trading, after closing down US$0.66/bbl during the previous session. The high price of crude comes with little technical support, suggesting that bullish sentiment sparked by recent economic data is still occupying the driving seat. Some support has come from the news that a militant faction in Nigeria’s Niger Delta, claims to have blown up a manifold operated by Italy’s Agip.

The level of commodity prices in general in relation to the strength of the current global economic recovery, is prompting concern from some quarters. Speaking to a reporter from the Reuters news agency, Jesse Wange, executive vice president and chief risk officer of China Investment Corp, said that “Personally, I think the prices are a bit too high, relative to the strength of real economic recovery…”

However, according to Barclays Capital, the latest data released from the Joint Oil Data Initiative indicates that total Asian crude demand has risen by 2mbpd, from a year ago. As a result, Barclays is quite bullish about the future direction of oil prices, saying that: “If Asian demand can grow at such rapid rates when prices are in the $70 to $80 range, then prices cannot stay in that range for much longer.”

Another interesting nugget of news for the market to digest is a report that shipments from OPEC member companies are expected to decline by 2.3 per cent for the month ending March 20th 2010. In addition, cartel members’ compliance with production targets currently stands at 55 per cent, according to Oil Movements. OPEC next meeting will take place on March 17 and the cartel’s secretary general, Mr Abdalla el-badri said on February 2 that ministers are unlikely to alter the current quota of 24.845mbpd.

Coal prices have edged down, both in Europe and in South Africa. Prices for South African cargoes dropped by US$0.3-5/t on thin trading. The trades that did take place focused on FOB cargoes to the Asian market. The outlook for the Chinese market is currently looking positive according to Bank of America Merrill Lynch’s latest Global Energy Weekly. In addition, the 2010 national economic plan issued by China’s National Development and Reform Commission called for a 3.3 per cent rise in coal production, which was at the bottom end of analyst expectations. Given that Chinese coal demand is expected to broadly follow the country’s GDP growth, estimated at around 9.5 per cent for 2010, this data raises the potential that a small supply shortfall might trigger a surge in coal imports.

The European markets have seen a mild retreat. Spanish day-ahead base dropped to €16.74/MWh, down €4.54, given forecasts that generation from wind power will rise significantly, while lingering uncertainty over weather forecasts pushed Nordic power down. The benchmark forward contract on NordPool for second quarter 2010 (ENOQM0) fell by 1.82 per cent to €48.60/MWh as of 13:49GMT, March 4.

The carbon markets also had a poor day, dragged down as they were by a weak energy complex. The fall in coal prices did little to counter the 3.86 per cent decline in UK natural gas prices and the downward direction of Brent crude and German power. CERs actually fell further proportionally, despite news that the Danish UNEP Risoe Research Centre has once again cut its forecast for CER supply to 2012. It now expects 16m fewer credits to be issued, a drop of 1.5 per cent.