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Energy Commodity Report: January 31, 2011

All prices unless otherwise stated are for the close of January 28.

2012 baseload German power: €51.20/MWh, down 0.43%
2012 CIF ARA Coal: €116.44/t, up 0.73%
Front month UK natural gas: GBp53.98/therm, down 1.78%
EU emission allowances (EUAs) for December 2011 delivery: €14.76/t, up 0.20%
Certified Emission Reduction(s) (CERs) for December 2011 delivery: €11.24/t, up 0.81%
Brent crude oil futures for front-month 2010 delivery: US$98.98/bbl, down 0.4% as of GMT 09:00, January 31
WTI crude oil futures for front-month 2010 delivery: US$89.74/bbl, up 0.7%, as of GMT 09:00 January 31

Latest buzz

Oil futures have continued their recent rise, sparked by fears that unrest in Egypt could lead to disruption of oil tanker shipments through the Suez Canal. The country most affected should this come to pass, is the US. As a result, the situation is most bullish for WTI. Approximately 1.8mbpd of crude and oil products flowed through the canal in 2009, according to data from the EIA, while another 1.1mbpd flows through the Suez-Mediterranean or Sumed pipeline. However, as yet there is no evidence of any credible threat to either route and Société Générale analysts believe that if disruptions were to occur they would be more likely due to labour strikes, as opposed to organised paramilitary attacks. In the longer-term, analysts at Renaissance Capital have warned that the protests could spread to Syria and Jordan.

Natural gas futures for March delivery on the NYMEX rose slightly on Friday, settling up US¢0.4, or 0.1%, at US$4.323/mBtu, as forecasts of colder weather marginally outweighed a bearish supply outlook. WSI Corp is expecting colder-than-average temperatures across most of the eastern half of the US over the February 3-7 period, with the cold weather shifting to the upper Midwest, Northeast and Northwest afterward. Meanwhile, the EIA reported that natural gas production in the lower 48 states rose by 1.1$ MoM in November, to 66.52bnft3pd, from the 65.81bnft3pd seen in October and up 7.7% on year. Baker Hughes also reported on that the number of rigs drilling for natural gas in the US had risen by seven to 913. Although the Suez canal accounts for around 7% of the total world LNG trade, higher than its share of the global crude trade, its impact on the US market is limited owing to the strength of domestic production.

Wood Mackenzie estimates that extreme weather conditions could reduce the supply of seaborne coal in 2011 by at least 18Mt, with the majority of losses in the form of hard coking coal. The consultancy also believes that metallurgical coal suppliers will be harder pressed to increase output to compensate for the shortfall as many regions are already working at full capacity to take advantage of last year’s high prices. While metallurgical coal production has been most affected by the flooding in Queensland, it is thought that switching from thermal to met coal production will put further pressure on global thermal coal prices and Wood Mackenzie believes that they have the potential to rise to or exceed the peak of US$197/t seen for 6,322kCal/kg GAR FOB Newcastle coal in July 2008.

Friday saw the Dec11 EUA contract recover from a fall in the morning, to finish the day up 0.20% at €14.76/t. There appears to be strong support for the contract at around €14.60/t. The manager of the Czech Republic’s carbon registry has warned that it may be six weeks until it is ready to re-open. CERs performed strongly, despite the issuance of 2.4m CERs by the UN, with the Dec11 and Dec12 contracts advancing by 0.81% and 1%, respectively. As a result the CER-EUA spreads narrowed to -€3.52 and -€4.20 for the Dec11 and Dec12 contracts, respectively.

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