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Energy commodity report: January 14, 2011

All prices unless otherwise stated are for the close of January 13.
2012 baseload German power: €53.25/MWh, down 1.11%
2012 CIF ARA Coal: €119.32/t, down 0.51%
Front month UK natural gas: GBp56.35/therm, down 0.79%
EU emission allowances (EUAs) for December 2011 delivery: €14.28/t, up 0.21%
Certified Emission Reduction(s) (CERs) for December 2011 delivery: €10.90/t, down 0.27%
Brent crude oil futures for front-month 2010 delivery: US$98.45/bbl, up 0.4% as of GMT 8:45, January 14
WTI crude oil futures for front-month 2010 delivery: US$90.97/bbl, down 0.3%, as of GMT 8:45 January 14

Latest buzz

Oil traders experienced a muddled day of trading on Thursday, as an increase in new jobless claims in the US, weighed on the market, causing benchmark crude for February delivery on the NYMEX to hit an intraday low of US$90.75/bbl and prompting profit-taking. As the day went on, a stronger euro, pushed up by a €5bn Spanish debt auction, pushed the US dollar lower, allowing the commodity to recover most of its earlier losses. As a result, oil settled down US$0.46 at US$91.40/bbl, after an intraday high of US$92.37/bbl. First-time claims for unemployment benefits rose by 35,000, the largest weekly increase seen in six months, to 445,000 in the week ended January 8.e

As of writing, Brent crude has returned to the same level it was trading at this time yesterday. The spread between New York and Brent crude is now an impressive US$7.87/bbl, owing much to a leak on the Trans Alaska pipeline, given that Brent is delivered by sea, while WTI is physically delivered via pipeline to the landlocked hub at Cushing, Oklahoma.

Alyeska Pipeline Service Co intends to shut the Trans Alaska pipeline system today to install a by-pass and stop a leak on the line. The pipe will close at 18.00h and may be shut for as long as 48 hours, according to a statement from the company. During this time, a section will be put in so that crude can be transported around a breach at pump station 1. The pipeline was temporarily restarted on January 11, to prevent freezing within the pipe. The situation has forced BP, ConocoPhillips and Exxon Mobil to shut-in 95% of their production from the North Slope area. As of mid-day Thursday, the pipeline was transporting crude at a rate of around 320,000bbl a day, roughly half its full capacity.

Norway has dramatically cut its estimate of undiscovered or unproven oil reserves, by 21%, from 20.8bnbbl boe to 16.4bn boe, compared to 2006 after disappointing drilling results. Oil production fell in 2010 by 10% YoY, while proven oil reserves have fallen from 5.2 to 4.8bnm3. The Norwegian Petroleum Directorate (NPD) said that the discovery of proven reserves equal to around 400mm3 of oil equivalent over the past five years had contributed to the revision, together with “disappointing drilling results” in deep-water areas of the Norwegian Sea. Norwegian oil production is now expected to fall by 5.8% in 2011. The news has prompted oil officials to call for more debate over opening up the Lofoten region in the Arctic to oil exploration. The region currently remains off limits due to environmental concerns and its importance to the fishing industry. On the positive side, natural gas sales rose by 3% in 2010 to 105.6bnm3 and are expected to rise to 109.1bn3 in 2011 and 112.2bnm3 in 2015. Some positive potential comes from an agreement made between Norway and Russia over the much disputed Barents Sea. Should this area be opened up for exploration, there is a chance that large discoveries could be made once more.

Natural gas for February delivery on the NYMEX dropped by US¢13, or 2.7%, to US$4.41/MBtu on Thursday, weighed down by the combination of disappointing US employment data and a distinct lack of bullish sentiment on the global financial markets. The news that 138bnft3 of gas was withdrawn from storage in the week ending January 7 (according to a EIA report), appears to have little impact. The drawn-down was slightly below some analysts’ expectation, but was still significantly above the five-year average of 108bnft3. Also weighing on the market was the growing consensus among forecasters that the US will see a general shift to milder weather towards the end of this month, which will reduce heating demand.

Australian thermal coal prices, traded at close to US$140/t on Thursday, with support coming from the flooding situation in Queensland. Thermal coal on the globalCOAL Newcastle index for the week to date, finished at US$138.58/t, up US$9.08 WoW. The index hit a high of US$141.25/t on Monday and traders have reported that recent spot prices have climbed as high as US$143.50/t. Meanwhile, India’s coal minister, Sriprakesh Jaiswal, has said that Indian coal imports may double over the course of this year to 104Mt in the year ending March 2012, while Helen Lau at UOB Kay Hian Ltd has predicted that Chinese purchases of international coal could rise by 30%, to 210Mt in 2011. Yesterday saw South Korea’s five utilities look for 1.2Mt of thermal coal in the spot market for February and March to reduce the risk from further shipment delays. Buyers have been turning to Indonesia, Colombia and South Africa to make up for the shortfall, but the latter two countries are suffering from supply disruptions themselves due to weather and logistical constraints.

Yesterday saw prompt physical coal prices for delivery into Europe fall by around US$2.00/t. Two March delivery DES ARA cargoes traded via brokers at US$127.00/t and US$127.50/t, down US$2.00, while a March DES ARA cargo was bid at US$127.00 and offered at US$127.50, also down US$2.00, according to Reuters.

Over in China, thermal coal with a heating value of 5500kCal/kg traded at CNY780-790/t (US$118-119.68/t), while inventories at the port of Qinhuangdao fell by 1.3% to 6.95Mt on week. The situation in Australia has prompted the return of some Chinese coal miners, such as Shenhua Group and China National Coal Group to the overseas spot market. They appear to be exercising some restraint in terms of volume in an effort to not depress prices. Unfortunately for the rest of the market, a 10% export tax, means that such companies are only interested in selling premium bituminous coal, further limiting volumes.

The Dec11 EUA contract hit an intraday low of €14.17/t, prior to the UK government’s auction of 4.4M EUAs. The auction cleared at €14.00/t with a cover ration of 6.61. The news, released just after 10:00am GMT, caused the contract to hit an intraday high of €14.40/t, before a weakening energy complex fuelled bearish sentiment. Yesterday saw the issuance of 4.23M CERS to 45 CDM projects, pushing down the value of all CER contracts. The Dec11 CER-EUA spread widened by €0.05 to -€3.38 and the Dec12 spread widened by €0.08 to -€3.89.

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