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Energy commodity report: January 11, 2011

All prices unless otherwise stated are for the close of January 10.

2012 baseload German power: €53.72/MWh, down 0.04%
2012 CIF ARA Coal: €122.38/t, up 0.64%
Front month UK natural gas: GBp54.93/therm, down 2.74%
EU emission allowances (EUAs) for December 2011 delivery: €14.23/t, down 2.73%
Certified Emission Reduction(s) (CERs) for December 2011 delivery: €10.91/t, down 2.85%
Brent crude oil futures for front-month 2010 delivery: US$95.37/bbl, down 0.3% as of GMT 8:45, January 11
WTI crude oil futures for front-month 2010 delivery: US$89.14/bbl, up 1.3%, as of GMT 8:45 January 11

Latest buzz

The closure of the Trans-Alaska pipeline over the weekend pushed benchmark crude for February delivery on the NYMEX to settle US$1.22, or 1.4%, higher at US$89.25/bbl. Today’s trading has already seen some of yesterday’s gains start to dissipate, due to expectations that the closure will be short-lived. The impact on oil prices has been amplified by the recent rundown in US crude inventories, which in turn has been triggered primarily by refiners looking to wind down stocks for end-of-year tax reasons. Société Générale SA has warned that the closure could force US West Coast refiners to look to Oman and Russia for their crude to make up for their shortfall, which could push up Middle Eastern oil prices.

In the US, natural gas futures declined on the NYMEX for a fourth consecutive day, in response to forecasts from the National Weather Service of warmer weather for the east of the country over the January 15-19 period. Natural gas for February delivery settled at US$4.399/MBtu, down US¢2.3, after recovering from an intraday low of US$4.372/MBtu.  According to Baker Hughes Inc, the number of rigs drilling for natural gas fell for a fifth week in the week ended January 7, decreasing by five to 914, the lowest figure reported since February 26, 2010. The short-term direction of gas prices is expected to hinge on whether the draw-down in inventories continues.

Wyoming and NYMEX coal fell on Monday, due to reduced demand. The former dropped by US¢10, or 0.7%, to US$13.50/st last week, while coal on the NYMEX fell by US$1.23, or 1.5%, to US$78.75/st. Meanwhile, Genescape reported that US coal consumption fell by 4.1% in the week ended January 6, with the bulk of the decline seen in the east. Power plant output dropped by 3.1%. According to the EIA, the price of coal in Northern Appalachia and Illinois was unchanged at US$70/st and US$47.50/st, respectively. The price of Central Appalachia coal rose by US$4.65, or 6.4%, to US$77.40/st.

Over in Australia, thermal coal prices have risen significantly, due to the flooding in Queensland, which has impacted on mining operations and coal transport. The price of steam coal at the port of Newcastle in New South Wales, rose by 4.5% to US$131.80/t in the week ended January 7, according to data released by IHS McCloskey. Queensland exports around 50Mta of thermal coal according to Macquarie Group Ltd. Coking coal prices have been more affected, as the region produces more of this type than thermal coal. Australian coking coal prices rose by 6.9% to US$265/t on average last week. Operations at 40 coal mines in central Queensland’s Bowen basin have been disrupted by the flooding. One company that has managed to escape any damage is Linc Energy Ltd, as its underground coal gasification and gas-to-liquids demonstration facility are 3ft above the ground, due to a built-up pad of road-base.

Rising coal prices have triggered a rise in 2Q11 Nordic power prices, with the benchmark electricity forward on the Nasdaq OMX Commodities exchange, ENOQM1, rising 0.89% to settle at €56.85/MWh. The news took several traders by surprise, as the contract has rising by 31% since November 8, due to a number of factors that are starting to abate, including colder-than average weather and reduced hydropower generation due to depleted reservoirs.

While German baseload power for 2012 delivery fell slightly by the end of trading yesterday, there are expectations that it could record further gains in the short-term, due to a combination of higher coal prices and growing industrial demand. According to Bloomberg, the clean dark spreads closed yesterday at €2.36/MWh.

Despite the recent spike in oil prices, analysts are predicting that China’s National Development and Reform Commission will not adjust domestic oil product prices until after the spring festival holiday that takes place over February 2-8, due to the priority given to reining in inflation. However, the country has been facing a diesel shortage since September, partly as a result of measures introduced by provincial authorities aimed at meeting the country’s tough energy intensity targets. Giving further weight to the prospect of a delay to a further price hike is the fact that when oil prices were raised last time, on December 22, the price hikes were well above market expectations at CNY310/t and CNY300/t for gasoline and diesel, respectively.

EUA contracts extended their losses on Monday, with the Dec11 contract suddenly dropping by nearly 2% over the course of afternoon trading and falling below its 14-day moving average of €14.29/t, to finish the session at €14.23/t. The decline appears to have been sparked by the current weakness in the 2012 German baseload power contract and the unfavourable directions of coal and natural gas prices. CERs have received another knock as sentiment remains depressed by the prospect of high CER issuance. This time, the brunt of bearish opinion seems to have fallen on longer-dated contracts, with the Dec12 contract falling by 3.14%, compared to the 2.85% and 2.77% declines recorded by the DEC11 contract and on the spot market, respectively.

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