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Energy Commodity Report: February 2, 2011

All prices unless otherwise stated are for the close of February 1.
2012 baseload German power: €52.12/MWh, up 0.91%
2012 CIF ARA Coal: €118.15/t, up 0.12%
Front month UK natural gas: GBp53.02/therm, up 0.08%
EU emission allowances (EUAs) for December 2011 delivery: €14.86/t, down 0.80%
Certified Emission Reduction(s) (CERs) for December 2011 delivery: €11.34/t, down 0.61%
Brent crude oil futures for front-month 2010 delivery: US$101.84/bbl, up 0.1% as of GMT 09:00, February 2
WTI crude oil futures for front-month 2010 delivery: US$91.04/bbl, up 0.4%, as of GMT 09:45 February 2

Latest buzz

Tuesday saw WTI for March delivery drop by US$1.42 to close at US$90.77/bbl on the NYMEX, as traders unwound positions ahead of today’s oil inventory report by the EIA and reassessed the probability that the protests in Egypt could result in oil supply disruptions. The American Petroleum Institute (API) has reported that US crude stockpiles rose by 3.77mbbl to 346.5mbbl in the previous week, while a Bloomberg poll has predicted that the EIA will report a 2.5mbbl hike in inventories. The API also said that supplies at Cushing, Oklahoma, rose by 667,000 to 38.4mbbl, the highest level seen since 2004. The premium commanded by oil for April delivery over the current front-month contract has risen to US$2.76/bbl. Jim Ritterbusch, president of Ritterbusch & Associates, said in a research note: “We are still inclined to view the exceptional strength in the stock market and (Tuesday’s) 2.5-month highs in the euro versus dollar as latent bullish considerations,” he said. “This macroeconomic factor could keep WTI crude values well-supported even if the Egyptian situation begins to stabilize.” He also said that over the next few days investors will be mainly concentrating on US jobs data, such as the ADP employment report, jobless claim and monthly employment.

Brent crude rose by US$0.73, or 0.7% yesterday, to US$101.74/bbl, the highest settlement price seen since September 26, 2008.

The IEA’s chief economist Faith Birol has warned that oil prices above US$100/bbl may put the ongoing recovery in Europe and the US at risk and believes that oil transit through the Suez Canal, is not currently at risk from the current protests in Egypt. Troops have been deployed to protect the SudMed oil pipeline, which runs alongside the Suez Canal, while the pipeline’s guards have doubled their number of sentry posts. However, the protests and the resulting nation-wide lockdown has forced BG Group Plc and Statoil ASA to stop drilling in the region. Currently, Egyptian natural gas production remains unaffected.

US natural gas for March delivery fell by US¢7.3, or 1.7%, to settle at US$4.347/mBtu, on the back of new forecasts for milder weather for much of the country over the February 11-15 period. Analysts polled by Bloomberg are expecting the EIA to report a 186bnft3 drop in natural gas inventories tomorrow, compared to the five-year average withdrawal of 165bnft3. Natural gas inventories as of January 21 stood at 2.542tnft3, 1.2% above the five-year average and up 0.4% on year, as reported by the EIA.

UK natural gas prices fell yesterday on the back of higher supplies from Norway, as output recovered from the unplanned maintenance of the Troll and Oseberg fields in the North Sea, last week. The front-month contract for March dropped to GB52.50p/therm. However, longer dated contract rose due to the rally in oil prices. On Tuesday morning, imports of Norwegian natural gas via the Langeled pipeline rose to nearly 70mm3. Additional downward pressure came from forecasts of milder weather from the Met Office.

A delay in the issuance of new trading permits has meant that the Indonesia government has blocked the export of 3.5Mt of coal since January 15, according to the Indonesian Coal Mining Association. The situation has caused some traders to declare force majeure, according to Bob Kamandanu, the association’s chairman. The process by which old permits are being converted to new trading licences under the mining law of 2009, has been halted by the Energy and Mineral Resources Ministry while it waits for a ministerial decree to be issued.

The port of Rotterdam Authority has announced that imports of coal at Europe’s largest coal-handling port, fell by 1.6% on year in 2010 to 23.3Mt, marginally down from the 24Mt reported from preliminary data.

Provisional data from the UK National Grid indicates that output from UK coal-fired power plants dropped by 15% in January on month, to 11.91TWh. The fall is attributed to warmer temperatures which have reduced demand for electric heating, combined with higher international coal prices. According to Platts, the average year-ahead ARA coal price was US$118.2/t in January, up from the US$114.9/t seen in December. Gas-fired power generation remained unchanged, but nuclear output rose by 5% MoM, to 6.16TWh, due to the restart of several reactors. Wind output soared by 52$% to 0.56TWh. Total power generation dropped by 5% to 32.19TWh.

UK greenhouse gas emissions fell by 8.7% in 2009, including a 36.5% drop from industry, according to government figures, due to a combination of greater nuclear power output and reduced energy demand triggered by the recession.

Despite a buoyant energy complex, the Dec11 EUA contract failed to hang onto early morning gains that saw it hit an intraday high of €15.10/t in the first hour of trading. The contract eventually fell to €14.86/t, down 0.8% on the previous session. The continued closure of EU carbon registries has delayed Greece’s planned sale of 10m EUAs from its new entrant reserves and also the regular auction of 300,000 CERs by the EEX. The German government is hoping to reopen its registry by the end of this week. CER contracts fell back yesterday, with longer-dated contracts being particularly badly hit. The benchmark Dec11 contract fell by 0.61%, while the Dec12 and Mar13 contracts dropped by 1.07% and 1.09%, respectively. The Dec11 CER-EUA spread remained unchanged at -€3.52, while the Dec12 spread finished at -€4.25.

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