Energy commodities: 21/06/2010

All prices unless otherwise stated are for the close of June 18

German power: €54.54/MWh, up 0.06 per cent
Coal: €101.50/t, down 0.49 per cent
Natural gas: GB45.35p/therm, down 1.52 per cent
EUAs for December 2010 delivery: €15.77/t, up 0.38 per cent
CERs for December 2010 delivery: €13.29/t, down 0.23 per cent
Brent crude oil futures for front-month 2010 delivery: US$79.49/bbl, up 1.4 per cent as of GMT 08:45, June 21
WTI crude oil futures for front-month 2010 delivery: US$78.56/bbl, up 1.5 per cent, as of GMT 08:45, June 21

Latest buzz

Crude has staged a rally on the back of the news that China is moving towards a more flexible stance on the value of the yuan. This is considered a bullish factor for oil, as by extension it will weigh on the US dollar and depress Chinese appetite for US debt. In addition, it should in the long-run led to a more stable global economy and go some way to correcting the high levels of Chinese inflation and speculation in its property markets. Some market participants are predicting that the move will increase China’s appetite for oil in the international market, while others estimate that the yuan could appreciate by 5-10 per cent over the course of the year. Some are predicting that oil will encounter resistance at US$80/bbl, given the size of the current rally, the strong incentive for profit-taking it has created and the possibility of renewed unrest over Eurozone sovereign debt.

The front-month NYMEX crude contract closed up US$0.39 at US$77.18/bbl on June 18, with fears over the long-term success of deepwater drilling outweighing concerns over slowing Chinese demand.

Rio Tinto Coal Australia’s managing director, Bill Champion, recently gave a presentation to analysts, in which he predicted that although the proportion of China’s power produced by coal-fired power stations is set to drop to 75 per cent by 2030, compared to the 81 per cent in 2007, the growth of the sector, means that total coal-fired generation would rise to 6639TWh from the 2685 seen in 2007. Mr Champion also said that “”India’s thermal coal imports will likely double over the next five years to meet power generation demand,” as thermal coal is expected to be responsible for 71 per cent of its electricity production in 2030, producing 1935TWh, compared to the 537TWh recorded for 2007.

Over in the gas markets, Gazprom’s CEO Alexei Miller has predicted that prices in Europe will return over the next few years to over US$400/1000m³, commenting that there was a trend for price increases with no reasons for the reverse trend. He is also confident that the price of oil will soon return to US$100/bbl and as long-term gas contracts in Europe are linked to the price of oil, natural gas will eventually rise. However, Mr Miller has been proven wrong in the past, famously predicting back in June 2008, that oil would hit US$250/bbl “in the foreseeable future.”

US natural gas prices dropped on June 18, falling by 16.5 cents (3.2 per cent) to finish at US$4.997/mBtu on the NYMEX, thanks to speculation that the tepid economic recovery in the US will not be enough to offset gas inventories that are currently 14 per cent above the five-year average.

European carbon credits saw relatively flat trading on June 18 on the back of little relevant news or information. Interestingly, CER prices fell back, while EUA prices rose marginally. As a consequence, the DEC10 CER-EUA spread widened to -€2.48, but still low compared to that seen in recent months. Connie Hedegaard, the European Commissioner for Climate Action, has given a speech, in which she predicted that the Mexico summit later this year will just produce “action-orientated decisions,” but a legally binding treaty could be expected from the meeting in South Africa scheduled to take place next year.