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Energy commodity report: January 24, 2011

All prices unless otherwise stated are for the close of January 21.
2012 baseload German power: €51.30/MWh, down 0.39%
2012 CIF ARA Coal: €116.13/t, down 1.08%
Front month UK natural gas: GBp55.07/therm, down 1.54%
EU emission allowances (EUAs) for December 2011 delivery: €14.48/t, up 0.77%
Certified Emission Reduction(s) (CERs) for December 2011 delivery: €10.99/t, up 0.37%
Brent crude oil futures for front-month 2010 delivery: US$97.59/bbl, down -0.0% as of GMT 09:30, January 24
WTI crude oil futures for front-month 2010 delivery: US$88.70/bbl, down 0.6%, as of GMT 09:30 January 24

Latest buzz
The oil markets have still yet to recover from the bout of anxiety triggered by the release of data indicating stronger expected Chinese GDP growth last week. Investors are still concerned that the news will lead to greater efforts by the central government to rein in inflation at the expense of growth. As of writing, the WTI-Brent crude spread remains stubbornly high at US$8.89/bbl.

In a re-run of 2008, the recent rise in oil prices has already triggered complaints regarding the amount of speculation on the market. In the US, Senator Sherrod Brown of Oklahoma sent a letter to the Commodities Future and Trading Commission (CFTC) urging it to protect consumers and small business from artificially high fuel prices. Meanwhile, Saudi Arabia’s oil minister, Ali al-Naimi said today: “The only thing that I’m concerned about is the pressure exerted by speculators, analysts and some investors in the futures market on prices to push them up or down away from market fundamentals.” He also added that demand is expected to rise by 1.5-1.8Mbpd, with Saudi Arabia’s spare capacity set at around 4Mpbd this year, with overall OPEC spare capacity predicted to stay at around 6Mbpd. Naimi went on to say that Asia is now the kingdom’s main export market, taking around 60% of its exported crude. His comments are thought to have further reined in bullish sentiment.

Natural gas futures rose to a new high on January 21, as the central to upper Midwest of the US experienced its coldest morning of the winter so far, according to meteorologists with the Commodity Weather Group. Natural gas for February delivery rose by US¢4.1, or 0.9%, to settle at US$4.736/MBty on the NYMEX, making it the third consecutive day in which the contract has recorded gains. According to Baker Hughes Inc, the number of gas-well drilling rigs in the US working in the US rose by four in the week ended January 23, to 906, the first time that the rig count has risen in seven weeks.

After some initial confusion caused by several statements being released prematurely, carbon trading sentiment took a hit after it emerged that the EU has voted to delay the ban on the inclusion of CERS generated from industrial gas destruction projects until May 1, 2013, instead of the initially proposed January 1, 2013. Such projects generated around 84% of all CERS issued in FY2008-2009, according to the environmental think tank, Sand Bag. The botched delivery of the announcement caused Dec11 EUAs to temporarily rise to €14.60/t, before falling to spend the rest of the day trading in a range between €14.40/t and €14.55/t. On the CER markets, the news triggered the most volatility in the Mar13 contract, which rose quickly to €11.75/t, before loosing ground to close at €10.70, once the delay became known.

The European Commission is currently estimating that the cyberattacks that forced a temporary halt to spot trading have so far cost GBP28m in stolen carbon credits, while some have predicted that the total cost to traders and small industrial companies would be around GBP60m if the market opens again on Wednesday as scheduled. Unfortunately, the EU’s record when it comes to the fast implementation of IT projects, is decidedly lacking. For example, it took around 18 months longer than initially predicted to link the Community Independent Transaction Log (CITL) with the UN’s International Transaction Log (ITL). The news seems to have shifted traders’ focus away from a weak energy complex, including a 0.39% fall in the value of the 2012 German baseload power contract.

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