Commodities: Oil up on protest in Iran, lower than expected Chinese inflation, natural gas bolstered by cold weather forecast

All prices unless otherwise stated are for the close of February 14.
2012 baseload German power: €51.73/MWh, down 0.61%
2012 CIF ARA Coal: €117.49/t, down 0.08%
Front-month UK natural gas: GBp52.90/therm, down 1.12%
EU emission allowances (EUAs) for December 2011 delivery: €14.89/t, up 0.0%
Certified Emission Reduction(s) (CERs) for December 2011 delivery: €11.41/t, up 0.26%
Brent crude oil futures for front-month 2010 delivery: US$103.51/bbl, up 0.4% as of GMT 07:45, February 15
WTI crude oil futures for front-month 2010 delivery: US$85.27/bbl, up 0.5%, as of GMT 07:45 February 15

Latest buzz

Yesterday saw front-month sweet light crude on the NYMEX, give up US¢77, to settle at US$84.81/bbl (its lowest close since December) in response to the news that China’s trade surplus fell to US$6.5bn in January, less than half that recorded in December. The main cause was a 51% jump in imports. In contrast, Brent crude rose by US$2.14 to US$103.08/bbl

Both WTI and Brent crude have since received a significant boost from protests in Yemen, Algeria and Iran, with traders fearing that the toppling of regimes in Egypt and Tunisia could spark a domino-effect, leading to instability in major oil-producing nations. Additional upward pressure is coming from the seasonal maintenance of some refineries, which have prompted spikes in the price of several crude oil grades. Further support has come from the news that China’s consumer price index for January rose to 4.9% from the 4.6% reported in December, compared to market forecasts of 5.4%, potentially reducing the severity of future monetary tightening policy by the central bank.

UAE Oil Minister Mohammed Al-Hamli has said that events in Egypt are behind the the rise in the price of oil to above US$100/bbl and that the price is cannot be explained by the balance of supply and demand. He also said that OPEC is ready to put more oil onto the market if there is “an appetite,” but saw no need for the cartel to call an extraordinary meeting. Al-Hamli said that the UAE is currently producing around 2.2mbpd, in line with its production quota, out of a capacity of 2.8mbpd .

Royal Dutch Shell has warned that global energy demand is expected to triple by 2050, while supplies can only be increased by 50%. It believes the gap can only be bridged by extraordinary efforts to boost fuel output and rein in consumption. (For more details, see our news piece on the subject – Shell warns of dangers ahead for global energy demand and supply balance).

Natural gas futures in New York have rebounded from a three-month low, on the back of forecasts for colder weather. The Commodity Weather Group said on Sunday that it is expecting temperatures along the East Cost to be below average over the week ending February 25. The news prompted gas for March delivery to rise by US¢1.5, or up 0.4%, to settle at US$3.925/mBt on the NYMEX. General sentiment is that current market conditions, such as the significant draw-down in inventories over the winter heating season, due to the cold weather, and an appetite for bargain buying will prevent natural gas prices from staying below US$4/mBtu for long. At the same time, the overall outlook is bearish, with supply expected to grow at a faster rate than demand, due to unconventional gas production.

Xstrata has declared force majeure on coal deliveries from its 4Mta thermal coal mine at Ulan, NSW, Australia, after water leaked into the underground production area due to the heavy rain that fell in January. In a statement, the company said that “it’s too early to speculate how long it will take for the water to be pumped out of the production area.” A unit of Japan’s Mitsubishi Corp has a 10% stake in the mine. The news helped push up Newcastle coal prices, with an April loading cargo trading at US$125.50/t on Monday, while a May cargo traded at US$123/t.

Chinese end-users have returned to the market now that the Lunar New Year holidays are over, but have so far shown little buying interest as domestic prices are currently well below international levels. Colombia’s Cerrejon will soon be stopping shipments for 23 days of planned maintenance.

Negotiations between coal exporters in the Asia Pacific region and Asian utilities are due to start this week, with analysts at Bank of America Merrill Lynch, UOB-Kay Hian Ltd, Citigroup and National Bank of Australia predicting that under contract prices for the financial year starting April 1 could rise to US$125-133/t, up as much as 36% on year, due to the tight supply situation caused by bad weather and transportation bottlenecks.

The DEC11 EUA contract slumped during morning trade, due to a drop in UK natural gas prices, but by the end of the day, it managed to recover all of its lost ground, finishing unchanged from Friday’s close. The EU Commission has approved Spain’s security measures for its national CO2 registry, which is now expected to reopen tomorrow.

CER prices moved slightly upwards, causing the CER-EUA spreads to narrow. The Dec11 and Dec12 spreads shrunk by €0.03 and €0.04 respectively to finish at -€3.48 and -€4.20.