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Energy Commodity Report: February 1, 2011

All prices unless otherwise stated are for the close of January 31.
2012 baseload German power: €51.65/MWh, up 0.88%
2012 CIF ARA Coal: €117.90/t, up 1.14%
Front month UK natural gas: GBp53.00/therm, down 1.85%
EU emission allowances (EUAs) for December 2011 delivery: €14.98/t, up 1.49%
Certified Emission Reduction(s) (CERs) for December 2011 delivery: €11.41/t, up 1.51%
Brent crude oil futures for front-month 2010 delivery: US$100.51/bbl, down 0.5% as of GMT 09:45, February 1
WTI crude oil futures for front-month 2010 delivery: US$91.71/bbl, down 0.5%, as of GMT 09:45 February 1

Latest buzz
Brent crude has finally made its push above US$100/bbl, rising 1.60% to settle at US$101.01/bbl on Monday in response to the ongoing uncertainty over Egypt’s political future and by extension, the safe passage of oil tankers to the US through the Suez Canal. Traders are also concerned that the unrest could spread into oil-producing nations in the Middle East. OPEC ministers are due to meet informally at an energy conference in Saudi Arabia later in February, but have said that a formal decision to reduce production quotas is unlikely. OPEC’s next formal meeting is scheduled for June.

Sweet light crude for March delivery on the NYMEX opened yesterday at US$89.97/bbl, rose to an intraday high of US$92.84/bbl, before settling at US$92.19/bbl, causing the premium commanded by Brent to drop from last Thursday’s peak of US$11.5 to closer to US$8.8. Some support came from the US Commerce Department, which reported that consumer spending rose by 0.7% in December, while nominal personal income rose by 0.4%, in line with predictions.

Oil prices have retreated in early morning trading today, presumably on the back of profit-taking. Further downward pressure is likely to make itself felt in the run-up to the release of US oil inventory data on Wednesday. A Platts poll is predicting that crude stockpiles are likely to rise by 3mbbl for the reporting week ended January 21, due to a combination of low refinery inputs, and steady import volumes.
Abdalla el-Badri, secretary general of OPEC, sought to reassure the markets while speaking at a Chatham House event in London, telling delegates that: “The oil market currently has more than enough oil to meet current demand. Global inventories are high. Forward cover is close to 60 days which means it’s six to seven days above the five-year average.”

The cartel is currently producing 29.3mbpd and collectively holds spare capacity of over 6mbpd. “In the medium term we are investing an estimated $155 billion in projects across our member countries. The timetable for these projects to come on-stream is between 2010 and 2014. These projects will add around 12 million barrels a day of gross production capacity.”

Natural gas futures rose to a two-day high on Monday, in response to a new forecast from the US National weather forecast, predicting colder than average temperatures for the region east of the Rocky Mountain States over the February 5-8 period. It also is expecting a winter storm to move into New York and the US Northeast over the same period. Natural gas for March delivery on the NYMEX rose by US¢9.7, or 2.2%, to settle at US$4.42/mBtu. Electronic trading was halted at 1.11pm and resumed at 1.45pm, due to technical difficulties.

The situation in Egypt has had an impact on European and South African coal prices, with prompt coal prices for delivery into Europe rising by almost US$3/t for both swaps and physical markets. This occurred despite the fact that the Suez Canal is not a key transit route for coal freight and Egypt is not a major coal consumer. According to Reuters, demand in Europe is lacking, with the exception of Finland, which is seeing some spot buying. Indian and Chinese buyers are still playing a wait and see game, in the hope that prices will fall. However, there is some potential for prices to spike, particularly if a cyclone hits Queensland, preventing or overturning efforts to restore the coal-rich region to its pre-flood state. Jaime Correal of Wood Mackenzie is expecting thermal coal prices to remain above US$100/t over the course of this year, despite a uncertain demand outlook, while other analysts and industry insiders are expecting volatility but higher than average prices compared to 2010 along with healthy margins for coal producers.

Chinese coal imports are expected to slow their frantic pace, as supply constraints on the international market are expected to lead to higher prices. A Bloomberg poll expects China’s overseas coal purchases to rise by 9% to 180Mt, this year, compared to the 31% rise seen in 2010 to 165Mt.

The northwestern Chinese autonomous region of Xinjiang has set itself the target of building 200 large- and medium-sized coal mines by 2015, while at the same time eliminating small coal mines with individual production capacities under 300,000tpa by the same date. In 2010, the region’s coal output rose to 100Mt, a YoY increase of 14.42% or 12.6Mt, according to the regional coal industry bureau.

The Dec11 EUA contract spent most of the day trading in a narrow €14.75-14.85/t range. In the last hour of trading prices rose back to US$15.00/t, before ending the session at €14.98/t. While the direction of coal and natural gas prices was not in carbon’s favour, a 0.88% rise in the value of the 2012 German baseload power contract and Brent crude’s new strength provided support. 300,000 EUAs were stolen from the Greek carbon registry on January 18th, taking the total number of stolen EUAs to 3.1m.

CERs rose for the third consecutive session, with the Dec11 and Dec12 contracts, rising by 1.51% and 1.63%, respectively. The Dec11 and Dec 12 CER-EUA spread both widened by €0.05 to -€3.57 and -€4.25, respectively. The UN issued 1.7m credits on Monday to 20 CDM projects. Including the 8.7m credits issued over the previous week, the total issuance for January stands at 48.4m.

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