Energy Commodity Report: January 26, 2011

All prices unless otherwise stated are for the close of January 25.

2012 baseload German power: €50.84/MWh, down 0.94%
2012 CIF ARA Coal: €114.43/t, down 0.81%
Front month UK natural gas: GBp54.75/therm, down 1.08%
EU emission allowances (EUAs) for December 2011 delivery: €14.90/t, up 2.12%
Certified Emission Reduction(s) (CERs) for December 2011 delivery: €11.28/t, up 2.08%
Brent crude oil futures for front-month 2010 delivery: US$96.08/bbl, up 0.9% as of GMT 08:30, January 26
WTI crude oil futures for front-month 2010 delivery: US$86.62/bbl, up 0.4%, as of GMT 08:30 January 26

Latest buzz

Crude oil futures fell to a eight-week low as market confidence dissipated in response to poor US and UK economic data. Sweet light crude for March delivery gave up US$1.68 to settle at US$86.19/bbl on the NYMEX, the lowest close seen since November 30 2010. The main factors spurring bearish sentiment were the S&P/Case-Shiller index of US home values, which fell 1.6% in the year to November 2010 and the news that the UK economy unexpected contracted by 0.5% in 4Q10. Despite the news, the spread between Brent crude and WTI widened to US$9.06/bbl, the largest seen since February 2009 and dwarfing the average five-year spread of US¢5/bbl. Brent crude for March delivery settled at US$95.26/bbl.

Today has seen crude oil prices in Asia rebound with trade volatile ahead of the results of a US Federal Open Market Committee meeting, which will include an updated outlook for the US economy. Traders are looking to tomorrow’s release of the EIA’s “This week in petroleum” report. A Dow Jones poll has predicted that US crude inventories will rise by 900,000bbl, with gasoline stockpiles climbing by 2.4Mbbl, while distillate inventories are expected to fall by 300,000bbl.

President Obama’s State of the Union address could mean long-term support for oil bulls, if the administration follows through on plans for reducing the subsidies available for oil companies.

“I’m asking Congress to eliminate the billions in taxpayer dollars we currently give to oil companies. I don’t know if you’ve noticed, but they’re doing just fine on their own,” he said in his address. He also said that “Instead of subsidizing yesterday’s energy, let’s invest in tomorrow’s.”

US natural gas futures fell to a four-day low as speculation that supplies are sufficient to meet remaining winter demand intensified. Natural gas for February delivery fell 2.79% to settle at US$4.460/MBtu.

European and South African coal prices continued their downward slide on Tuesday, giving up another US$1/t, having lost over US$15/t in the past two weeks. Some of India’s largest coal importers have said that if this trend continues they might return to the market, with a further drop of US$5/t combined with weak freight rates thought to be sufficient. Over in Australia, thermal coal on the globalCOAL Newcastle index for the current week dropped sharply on Monday falling by US$6.52 to US$124.25/t. The fall has been attributed to a lack of Chinese demand during the new year holiday, coupled with higher availability of Indonesian coal and signs that a return to normal conditions in Queensland is under way.

Both EUAs and CERs surged on Tuesday, despite a uniformly negative energy complex. The rise was attributed by traders to the continuing absence of spot trading, which is preventing large financial institutions from buying spot EUAs and then selling them on in the futures market. Despite CERs also gaining from the lack of selling activity, the Dec11 and Dec12 CER-EUA spreads widened to finish the session at -€3.62/t and -€4.30/t, respectively.

The combination of lower oil and coal prices, combined with a strong euro helped push German and French forward power prices to six-week lows on Tuesday.

Orbeo, a joint venture between Société Générale and Rhodia SA, has downwardly adjusted its forecast for EU carbon permits in 2011 and 2012 and created two separate estimates for CERs. It is now expecting EUAs to average €15.4/t, down €4.1 from the previous estimate due to higher CER supply and utilities’ buying behaviour, while the average price forecast for 2012 was reduced from €21/t to €19/t. Orbeo analyst Emmanuel Fages said in a research note that the postponement of new measures designed to prevent the use of CERs from industrial gas destruction projects in the EU ETS until May 2013 will mean an additional 40-50Mt of CERS will be available for use in the EU’s carbon trading system in 2013.

Meanwhile, IDEAcarbon has estimated that the UN will issue 232m CERs in 2011, up 75% from the 132m CERs issued in 2010. The carbon advisory firm’s estimates in previous years have been relatively accurate. In 2009 it predicted issuance of 118m CERs, 4.6% below the actual total of 123.4m. In 2010, it forecast issuance of 140m CERs, 5.4% above the actual total.