Assorted Price Movement for Energy Commodities
Niteen M Jain, Senior Analyst,
Nazir Ahmed Moulvi, Senior Analyst,
Department of Research & Strategy, Multi Commodity Exchange of India Ltd

In the past two months (December 2012 to January 2013), supply concerns largely supported the price rise in crude oil and its derivates, in contrast the other energy commodities witnessed price fall albeit in varied proportion. Overall, in the aforementioned period, NYMEX crude oil futures registered the maximum price rise of 9.7 percent, whereas, CER futures prices on ICE-ECX platform declined the most by a significant 80.6 per cent on rising uncertainty over the future of CDM (Clean Development Mechanism) and increasing supply glut.

Light sweet crude oil (WTI) futures on NYMEX (CME) started the period under review (December 2012 - January 2013) at USD 89.09 per barrel. Release of upbeat economic data from China and mixed ones from US helped oil prices to maintain the uptrend, albeit briefly into the month. Later, demand concerns as wrangling continued in Washington over a deal to avert automatic tax increases and spending cuts next year in US, pushed oil prices down. Further , disappointing US economic data (private-sector jobs and nonfarm payrolls) dulling demand prospects for crude oil, also helped in lowering oil prices. Strengthening of dollar, a much bigger-than-expected jump in US gasoline supplies and concerns over political strife in Italy eventually pushed crude oil futures prices to the period low of USD 85.21 on December 11, 2012.

Later, optimism on the outcome of decisions from the upcoming meet of world's key oil producers (OPEC) on production and the US central bank's meet on monetary policy helped the recovery in oil prices. Later, with US Federal Reserve announcing a new bond-buying program and the Organisation of the Petroleum Exporting Countries keeping its production ceiling unchanged, oil prices moved up. However, an unexpected climb in US crude supplies, reported weekly, denied a sustained rise in oil prices. Crude-oil prices later drew support from signs of strength in the Chinese economy (improved Purchasing Manager Index data) and from on-going violence in Syria that fed concerns over oil supplies from the Middle East. Further, oil prices continued to move up albeit with some brief drawbacks. While overall optimism that US politicians will be able to strike a deal to avert the fiscal cliff helped oil prices move up; few sessions witnessed mild fall on uncertainty over striking of deal. Moreover, other factors such as upbeat economic data releases from US (for instance, gauge of confidence among home builders rose in December to the highest level since April 2006) and decline in US oil inventories (reported weekly), continued to support the oil prices . Later, oil prices briefly traded range-bounded as market participants' awaited decision of US law makers on averting fiscal cliff.

Finally with the onset of New-Year, US policy makers passed a last-minute budget deal to avert the fiscal cliff of billions in spending cuts and tax hikes. This in addition to hefty drop in US crude supplies (reported weekly) helped the rise in oil prices. Notwithstanding some resistance on strengthening of dollar, oil prices continued to move up in chequered steps. Notably, US House approving only a three-month suspension of the debt ceiling and news of limited capacity in the newly expanded Seaway Pipeline connecting the delivery hub of NYMEX crude oil futures contract resulted in some trading sessions witnessing oil price decline. This decline was largely reversed with some upbeat global economic data releases. By end of January, oil futures prices moved to multi-months high and also the two-month period high of USD 98.24 on January 30, 2013 largely due to supply concerns on a refinery closure on the US East Coast and unrest in Egypt, a key transit hub for oil through the Suez Canal and the Suez-Mediterranean pipeline. Finally, crude oil futures closed the period under review at USD 97.49, marking an overall rise of 9.7 per cent. The rise in crude oil prices was also reflected in the price rise of oil derivates such as heating oil and gasoline. Additionally, news that Hess Corp. plans to sell its US terminal network and close itís Port Reading, N.J., refinery by the end of February, also supported the price rise. Overall, futures prices of both gasoline and heating oil on NYMEX platform saw a rise of 9.6 percent and 2.9 percent respectively in the past two months.

Among other energy commodities, ICE Rotterdam monthly coal futures prices moved down by 3.9 per cent plagued by an oversupplied market and waning coal consumption from China. Additionally, weak demand for thermal coal in US as well as electric utilities switched to cheaper natural gas, didnít helped the sentiments. Similarly, mild weather dampening demand sentiments along with strong US gas production easing supply concerns, if any, pushed natural gas prices down. Additionally, comparatively comfortable gas stockpiles in US resulted in fall in natural gas futures prices by 6.2 percent on NYMEX platform over the past two months.

In emission market segment, major price plunge continued in both European Union allowances (EUA) and certified emission reductions (CER). On ICE-ECX platform, in past two months, EUA futures prices dropped by 46.6 per cent, whereas CER futures dropped by a significant 80.6 per cent. Prices have been plunging as it is becoming clear that the EUís Emissions Trading Scheme (ETS ) is over-allocated all the way to 2020, mainly due to the impact of Europe's economic troubles on emissions. Experts opine that energy efficiency projects encouraged by high carbon prices caused almost half of Europe's glut of permits and a plan to temporarily withhold allowances will only exacerbate the oversupply by 2020. Price decline was also supported by a vote in the European Parliament with Industry, Research, and Energy (ITRE) committee opposing a scheme known as "backloading" - or supporting prices by extracting allowances from the market and reinjecting them later. Meanwhile, Europe is slated to ban offsets from projects registered after 2012 in all but the least developed countries, which no longer include China.