Energy Commodities: 24/03/10

Unless stated otherwise, all prices are for the close of March 23.

German power: €45.68/MWh, down 0.26 per cent

Coal: €87.25/t, up 0.46 per cent

Natural gas: GB 30.00p/therm, up 1.69 per cent

EUAs for December 2010 delivery: €12.92/t, down 1.67 per cent

CERs for December 2010 delivery: €11.35/t, down 1.22 per cent

Brent crude oil futures for May 2010 delivery: US$79.62/bbl, down 1.3 per cent, as of GMT 09:00, March 24

WTI crude oil futures for May 2010 delivery: US$80.75/bbl, down 1.4 per cent, as of GMT 09:00, March 24

Latest buzz
Crude futures have been hit by a rallying US dollar, during early trading in Asia today, as the euro has fallen to a 10-month low due to renewed fears regarding the plight of the Greek economy and whether it would force the country’s government to go cap in hand to the IMF. Another bearish factor was a report from the American Petroleum Institute which indicates that US crude inventories rose for the week ended March 19 by 7.5mbbl.

However, today is expected to see a uptick of sorts courtesy of widespread expectations that the EIA will report a 1.3mbbl draw-down in US gasoline inventories, according to a poll conducted by Dow Jones Newswires. Crude Inventories are expected to rise by 1.4mbbl, but traders are likely to focus on the upside, particularly given the strong correlation seen recently between crude prices and the rapidly recovering equity markets.

Interestingly, the Centre of Global Energy Studies (CGES) has predicted in its monthly report that global oil demand will rise by 1.6mbpd (1.9 per cent) in 2010, up from its previous estimate of 1.3mbpd. It also states that “Global oil demand appears to be on the path to full recovery and could well have returned to the levels it reached during 2007…. Rising non-Opec supply, ample spare crude oil production capacity and a big boost to refinery capacity are all playing a part in limiting the upward pressure on oil prices and should ensure that another price spike is avoided.”

The report also indicates that OPEC oil production has risen by almost 1.4mbpd since March 2009, in response to rising demand, while non-OPEC production, has proven to be better than expected, rising from the start of 2009, on the back of new developments in Russia, the US Gulf of Mexico and Brazil.

“The net result is that Opec’s spare production capacity has risen from less than 2mbpd in early 2008 to more than 6mbpd now. Although Opec’s discipline means that this spare capacity is not exerting downward pressure on prices, its mere existence is helping to curb upward pressures. It is not only upstream that capacity constraints have vanished,” it said.

“Global oil demand continues to grow and we now expect it to reach a level roughly similar to that observed in first quarter of 2008 by the final quarter of this year, constituting an upward revision to our previous forecast… the industry is now in better condition, with countries in Asia able to process substantially more oil and non-OPEC producers able to provide more crude.”

The report said: “With the market more-or-less in balance, we expect Dated Brent to remain between US$70 and US$80 a barrel through 2010, trading at the lower end of this range towards the end of the year as a result of a build-up in global inventories in the second and third quarters of the year.”

Coal inventories at US power plants have risen by 0.5 per cent this week, but remain 4.4 per cent below the figure reported a year earlier, according to data released by Genscape. The current figure translates into an average of 56 days of coal on hand, unchanged from the previous week, or 152.3Mt of coal. The increase from the previous week has been attributed to warmer weather across the Midwest and North, which has cut into coal-fired power demand, due to the reduced need for heating. The YoY decline appears to be the result of coal producers maintaining the cuts in output that were introduced during the height of the recession.

Both European and South African coal prices were relatively unchanged over the course of March 23, on the back of subdued trading activity. European prompt demand remains low in the light of rising stocks at power plants and the major European coal ports, but Asian demand is still strong. Interestingly, Japanese, South Korean and Taiwanese buyers have been out-bidding their Chinese counterparts. Meanwhile, India’s state power utility National Thermal Power Corp has announced that this year it will need to import 14Mt of coal. June ARA cargo traded at US$74.25/t, while a June-loading South African coal cargo traded at US$82.25/t FOB Richards Bay, up just US$0.50/t from the previous session.
Meanwhile, China’s General Administration of Customs has reported that the country imported 13.11Mt of coal in February, up almost 200 per cent YoY, compared to exports of just 1.63Mt. Shanxi Province, which is responsible for roughly a third of China’s coal output, saw its imports rise to 903,000t for the first two months of 2010, but export volumes also rose, amounting to 170,000t in the same period and up 29.2 per cent YoY.

As far as the carbon markets are concerned, EUAs have weakened, due to a combination of falling German power and Brent crude, coupled with German and Austrian auctions, which sold 300,000 and 200,000 spot EUAs, clearing at €12.90/t and €12.78/t, respectively. The spread between EUAs and CERs narrowed, with the latter showing smaller losses, partly due to supply concerns, due to this week’s 53rd meeting of the CDM executive board, which is expected to place heavy scrutiny on Chinese hydropower projects.