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Energy Commodity Report: February 3, 2011

All prices unless otherwise stated are for the close of February 2.
2012 baseload German power: €52.46/MWh, up 0.65%
2012 CIF ARA Coal: €118.98/t, up 0.72%
Front month UK natural gas: GBp54.60/therm, up 3.02%
EU emission allowances (EUAs) for December 2011 delivery: €14.98/t, up 0.81%
Certified Emission Reduction(s) (CERs) for December 2011 delivery: €11.52/t, up 1.59%
Brent crude oil futures for front-month 2010 delivery: US$102.76/bbl, up 0.2% as of GMT 09:15, February 3
WTI crude oil futures for front-month 2010 delivery: US$91.44/bbl, up 0.4%, as of GMT 09:15 February 3

Latest buzz

Oil traders are continuing to focus on the crisis in Egypt, with overnight violence intensifying fears that the transport of oil through the Suez Canal or Sumed pipeline might be disrupted. ICE Brent crude for March rose by US¢60 to finish the session at US$102.34/bbl, after touching an intraday high of US$102.36/bbl. Meanwhile, WTI for March delivery rose by US¢9 to settle at US$90.86/bbl. With inventories at Cushing at a record 38.3mbbl, thanks to growing output from Canadian oil sands projects and an inability to deliver WTI to refineries on the Gulf of Mexico (a situation not expected to change until 2013), there is little room for WTI to advance further, despite the current geopolitical tensions. Once the situation in north Africa is resolved, oil prices are expected to fall, given the ample size of global inventories at present.

The EIA reports that total US crude inventories rose by 2.6mbbl to 343.2mbbl in the week ended January 28, compared to the 329mbbl seen a year ago. Refinery inputs and domestic oil production rose by 247,000bpd and 175,000bpd, while oil imports dropped by 371,000bpd. Gasoline inventories rose by 6.1mbbl to 236.2mbbl, while distillate stockpiles dropped by 1.6mbbl to 164.1mbbl, presumably on the back of higher demand for heating oil.

Natural gas for March delivery on the NYMEX rose by US¢8.2, or 1.9%, to settle at US$4.429/mBtu, due to the National Weather Service predicting colder weather for the northern Midwest and Great Lakes area over the February 7-11 period, along with speculation that the EIA will report a larger than average drawdown in gas inventories. A Bloomberg poll of 17 analysts is predicting a drop of 187bnft3 in the previous week, compared to the five-year average withdrawal of 165bnft3, given recent temperatures and their impact on heating demand.

UK natural gas prices have been buoyed up by the rising cost of Brent Crude and coal. However, Société Générale has warned that at GB53.75p, the summer contract is overpriced and should be sold, recommending that traders should sell above GB45p/therm and to take profit at GB35p/therm. It expects a surplus of gas sold under long-term contracts from Russia yet to be delivered to Eni SpA will work to bring down UK natural gas prices over the course of this year. Natural gas demand for today was estimated at 350mm3, 13mm3 lower than that typically seen at this time of year.

Australian thermal coal on the globalCOAL Newcastle index rose to US$127.88/t for the week to date on Tuesday, up US$3.44 on week, as flooding in Queensland is still making its presence felt through tighter supplies. However, the combination of scant supply and the Chinese lunar holiday means that actual trading appears to be quite limited. Cyclone Yasi, which is expected to make landfall on Queensland’s northern coast early Thursday morning, has forced Xstrata to shut its 6Mta Collinsville mine and the company is considering doing the same with its 11Mta Newlands mine. Both mines produce thermal and coking coal. On the other hand, Japanese, South Korean and Taiwanese utilities have indicated that they are well-stocked for the first quarter, despite the situation in Australia. There could well be another price surge, once they return to the market for coal for use in the second quarter, given the current supply issues.

India’s coal minister, Sriprakash Jaiswal has said today that the country is expected to consume 696Mt of coal in the next financial year to March 12, requiring imports of around 142Mt, compared to the 73.25Mt brought in from overseas in FY2009-10. It is thought that import volumes have fallen in the current financial year, due to higher global prices.

The Dec11 EUA contract spent much of the day trading in a tight €0.10 range between €14.80/t and €14.90/t, but managed to break out to €15.00/t in afternoon trading, before closing at €14.98/t, thanks to a strong energy complex, with fuel prices movements also being supportive for carbon. CERs performed strongly, with the Dec11 and Dec12 contracts rising by 1.59 and 1.35%, to finish at €11.52/t and €11.27/t, respectively. The World Bank is looking to raise US$150m to create a new fund that will invest in CERs generated over the 2013-20 period. The UNEP Risø research organisation has upwardly revised its CER supply forecast and is now predicting that 960m credits will be issued by the end of 2012.

Spot trading on the European carbon market is expected to resume on Friday for France, Germany, The Netherlands, Slovakia and the UK. These five countries have shown that their national registries have tightened security sufficiently to prevent further electronic thefts of carbon credits, according to the European Commission. The national registries will recommence trading on at 07:00GMT on February 4. All spot trading on the EU ETS has been suspended since January 19, after the theft of €30m of EUAs.

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