Energy Commodity Report: February 9, 2011

All prices unless otherwise stated are for the close of February 8.
2012 baseload German power: €51.39/MWh, down 0.70%
2012 CIF ARA Coal: €116.73/t, down 0.50%
Front-month UK natural gas: GBp53.50/therm, down 1.83%
EU emission allowances (EUAs) for December 2011 delivery: €14.71/t, up 0.48%
Certified Emission Reduction(s) (CERs) for December 2011 delivery: €11.24/t, up 0.18%
Brent crude oil futures for front-month 2010 delivery: US$100.43/bbl, up 0.5% as of GMT 09:15, February 9
WTI crude oil futures for front-month 2010 delivery: US$87.55/bbl, up 0.5%, as of GMT 09:15 February 9

Latest buzz

Yesterday saw crude beat a retreat, due to dissipating concerns over the fate of the Suez Canal and the Chinese central bank’s decision to raise borrowing and lending rates by 25 basis points, as part of an effort to rein in inflation, which hit a two-year high of 5.1% in November. Sweet light crude for March delivery gave up US¢54 to settle at US$86.94/bbl on the NYMEX, after dropping to an intraday low of US$85.88/bbl. ICE Brent crude settled up 0.68%, to finish at US$99.92/bbl.

Today has seen both contracts rise in morning trading, with Brent rising back above US$100/bbl and the Brent-WTI spread, briefly hitting US$12.92, on the news that North Sea Forties crude oil supplies are expected to be 793,000bpd for March loading, down from around 850,000bpd scheduled for February. A strike by 3000 workers at companies owned by the Suez Canal authorities in Ismailia and Suez, over pay and conditions, has also helped to boost Brent over WTI.

The American Petroleum Institute has reported a surprise 550,000bbl drop in US oil inventories, due to a 1.1mbpd decline in oil imports in the previous week to 8.65mbpd. The Institute also said that inventories at Cushing fell by 927,000bbl. It also reported a 3.2mbbl rise in gasoline stockpiles, while distillate inventories fell by 538,000bbl.

The EIA in its latest Short-Term Energy Outlook, has upwardly revised its estimate for global crude demand. It now expects the world to consume 140,000bpd more oil than previously forecast and putting world oil demand for 2011 at a new record, around 88.14mbpd.

Front-month US natural gas futures continued their losing streak on Tuesday, falling by US¢6.4, or 1.6%, to US$4.040/mBtu, the lowest settlement price seen since November 18. As a result, natural gas prices have fallen by 8.6% since the start of February, due to forecasts for mid-month warmer weather for much of the country, with the current cold spell expected by meteorologists with MDA Earthsat to ease, followed by above average temperatures over the February 13-17 period. The EIA is expecting national natural gas production to rise by 0.8% over the course of 2011, to 62.32bnft³pd, while total consumption is projected to rise by 0.3%. A Bloomberg poll has predicted that the EIA will report a 192bnft³ withdrawal from storage for the week ended February 4, tomorrow.

Barclays Capital has forecast US natural gas prices to average US$3.94/mBtu in 2011, down from its previous estimate of US$4.00/mBtu.

It stated in a report released on Tuesday, “Ultimately, the recovery in prices must come from the supply side; there is no demand boost over the next few years that could single-handedly restore market balance.”

Yesterday saw Colombian coal workers sign a two-year pay deal with Cerrejon, the country’s largest coal exporter, putting an end to fears of strike action. Cerrejon agreed to a 6.5% salary rise in the first year and 5% or 2% plus inflation for the second year. The company produces around 30Mta of coal and is looking to increase this figure to 40Mta over the next few years.

Australian thermal coal prices on the globalCOAL weekly index, finished at US$125/t for the week to date on Monday, down by US$2/t from Friday and on week. Traders have attributed the decline to lower demand, which in turn is thought to be due to the Chinese lunar New Year holiday, combined with the imminent arrival of spring in the Northern Hemisphere. The high prices seen in recent weeks, thanks to supply disruptions in Queensland have also helped to push down buying interest. Some relief has come from the fact that the Baltic Dry Index remains depressed due to overcapacity, partly arising from the volatility in commodity demand in the past few years, which has made it difficult for ship owners to accurately predict required fleet sizes.

However, over in India, the country’s state-owned coal company, Coal India has warned that a combination of low output, caused by environmental restrictions and cost pressures arising from wage revisions scheduled for June, will lead to a rise in domestic coal prices. For the current fiscal year, coal production is estimated to be around 439-440Mt, up only 2% on year and significantly below the target output of 460Mt.

EUAs for Dec11 delivery fell sharply on Tuesday morning, falling by €0.15 from an opening price of €14.75/t. However, prices returned back to around the contract’s 50-day moving average (€14.74/t) and began to test it in intraday trade, before settling at €14.71/t. CERs were unable to make similar gains, causing both the Dec11 and Dec12 spreads to widen by €0.05, finishing at -€3.47 and -€4.16, respectively. The Dec12 contract performed more strongly, rising by 0.27%, against the Dec11 contract’s 0.18%.