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Energy commodity report: January 21, 2011

All prices unless otherwise stated are for the close of January 20.
2012 baseload German power: €51.50/MWh, down 0.58%
2012 CIF ARA Coal: €117.45/t, down 1.00%
Front month UK natural gas: GBp55.93/therm, up 0.30%
EU emission allowances (EUAs) for December 2011 delivery: €14.37/t, down 0.07%
Certified Emission Reduction(s) (CERs) for December 2011 delivery: €10.95/t, down 0.09%
Brent crude oil futures for front-month 2010 delivery: US$97.14/bbl, up 0.6% as of GMT 8:45, January 21
WTI crude oil futures for front-month 2010 delivery: US$89.91/bbl, up 0.5%, as of GMT 8:45 January 21

Latest buzz

Oil prices have clawed back some of yesterday’s losses this morning, due to a strengthening Euro. Sweet light crude for March delivery on the NYMEX settled 2.2% lower on January 20 at US$89.64/bbl, while Brent crude fell by 2.4%. As a consequence, WTI has lost over 1.8% this week. US Benchmark crude for February delivery expired yesterday, settling at US$88.86/bbl. The declines were sparked by renewed fears that China’s central government may shift its focus towards reigning in inflation at the expense of economic growth, after news that the Chinese economy grew by 10.3% temporarily pushed up WTI by US¢24/bbl. Additional bearish sentiment came from the EIA’s This Week in Petroleum report, which included the news that US crude oil inventories rose by 2.6Mbbl in the week ended January 14, compared to a Dow Jones poll predicting an increase of only 900,000bbl. Gasoline and distillate stockpiles also recorded higher than expected gains, rising by 4.4Mbbl and 1Mbbl, respectively. Increasing volatility on the oil markets is providing both opportunities and dangers for traders, while at the same increasing fears that we may sooner than later return to US$100/bbl crude. On the other hand, analysts believe that some short-term respite might soon come, as the Northern Hemisphere comes out of winter.

In contrast to oil, US natural gas futures yesterday rose to a two week high, as the EIA reported a 243bnft3 withdrawal from storage in the week ended January 14, compared to the 223bnft3 decline expected by analysts and the 133bnft3 drawdown seen in the previous week. The news prompted natural gas for February delivery to rise briefly to US$4.689/MBtu, the highest price seen since January 4. Total US gas inventories stood at 2.716tnft3, up 74bnft3 compared to the same time last year and  51bnft3 higher than the five year average of 2.665tnft3. The US National Weather Service reported that it expects below normal temperatures in the US East and Midwest over the January 24-28 peroid.

Over in Europe, traders are hoping that a pricing row between Russia and Belarus will soon be over, as Russian companies have stopped supplying Belarussian refineries and as result, diesel exports to Europe from Minsk have halted. The situation has driven up gasoil spot prices by nearly 7% since the start of the year to US$822.75/t. Russian Prime Minister Vladimir Putin and his Belarussian counterpart, Mikhail Myasnikovich met yesterday, in an attempt to resolve the dispute. Mr Putin made the point that repeating the point that the move to cancel duties on crude exports to Belarus from Jan 1 in exchange for the right to collect duties levied by Belarus on the re-export of oil products would make Belarus better off to the tune of US$3.9bn a year. The two premiers also talked about plans to build a nuclear power plant in Belarus, which according to Putin would cost US$6bn (some of which could come from a Russian loan) and met around 27% of electricity demand in the country, while Myasnikovich said that both countries could agree on the costs and other terms in 1Q11.

Over in China, Shanxi province, the country’s second largest coal producing province, is considering limiting coal output to 1bnt a year according to its five year economic plan, in response to the new natural resources taxation policy. This was launched in 2010 in the Xinjiang Uyghur autonomous region and is expected to come into effect across all of western China over the course of 2011. The turnaround in policy is abrupt, given that Shanxi province produced a record 740Mt of coal in 2010. The province was overtaken by Inner Mongolia in 2009 as the country’s largest coal producing province.

In related news, last week saw the acquisition of a 38% stake in Millenium Bulk Terminals-Longview, LLC by America’s second largest coal producer, Arch Coal. Millenium is one of many companies working frantically to boost their ability to deliver US coal to Asian markets. Peabody Energy and Cloud Peak Energy, together with the Union Pacific railroad company and BSNF Railway have also expressed interest in increasing coal exports from the US West coast.

Thermal coal prices at the Port of Newcastle in New South Wales, Australia rose by US$6.70, or 5.1% to US$138.50/t in the week ended January 14, the highest level since September 2008. This is the seventh consecutive week in which prices have risen, due to the impact of heavy rains and flooding in Queensland on coal production and deliveries.

Both EUA and CER futures saw little movement on Thursday, despite relatively robust EUA volumes. 15,514 future contracts changed hands on the ECX, while volumes in the CER markets dropped by 70% in response to the suspension of EU registries triggered by reports of the theft of carbon credits from a Czech registry. EUA and CER prices fell, with the former driven by Chinese monetary policy fears. Additional downward pressure came from a weaker 2012 German baseload power contract and cheaper Brent crude, partially countered by favourable natural gas and coal price movements. The EU has said that it will reopen the ETS gradually, once security improvements have been made, but this may make take longer than the originally stated date of January 24. The Dec11 CER-EUA spread was unchanged at -€3.42, while the Dec12 spread gained €0.01 to settle at -€3.97.

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