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Price Movement for Energy Commodities
Niteen M Jain & Nazir Ahmed Moulvi, Senior Analysts, Dept. of Research & Strategy, Multi Commodity Exchange of India Ltd In past two months, persisting doubts on global economic growth continued to put pressure on major energy commodity prices such as crude oil, its derivates (heating oil and gasoline) and others. On the other hand, commodity specific fundamentals propped up prices of certain energy commodities such as natural gas and European Union Allowances (EUA).

Weekly data release showing rise in US oil inventory levels and persisting Greece debt concerns led NYMEX crude oil (WTI) futures to start the period under review (mid-May to mid-July) at USD 92.81 per barrel on May 16, down by 1.24 per cent from previous sessionís close. With prices then steadily moving down, the high of USD 94.16 registered on May 16 eventually emerged as following two months high. In addition to concerns on economic growth in euro-zone, slowdown in China as its crude imports continued to fall (according preliminary data from the General Administration of Customs) resulted in oil price decline. Comments from Saudi Arabiaís oil minister during mid-of-the-May that oil prices then were too high and European benchmark Brent crude should trade at USD 100 a barrel, added the bearish sentiments. On supply front, the then progress in negotiations of global powers and Iran over the oil producerís nuclear programme eased worries about global supplies, thus adding to oil prices decline. Later, the releases of some unfavourable economic data from Eurozone in later part of June shifted focus back to European debt concerns, leading to oil demand concerns and hence price decline.



European Current Account was reported to be at surplus of 4.6 billion Euros in April from previous surplus of 10.3 billion Euros a month ago, while European Flash Manufacturing PMI declined by 0.3 points to 44.8-level in June from previous 45.1-mark in May. The fall in oil prices accelerated with no expectations from European summit slated at the end of the June. Consequently, NYMEX WTI crude oil prices stopped down to the period low of USD 77.28 on June 28. Later, oil price recovered as market participants got more than they hoped from European summit as they cheered European leadersís plan to shore up the regionís distressed banking sector. EU leaders announced a plan for a single financial supervisor for the region, as part of short-term measures to help stabilise markets. In early July, strike in Norway oil industry also helped the recovery in oil prices. Finally, NYMEX

crude oil futures settled at USD 87.1 on June 13, registering a fall of 7.3 per cent in past two months. The fall in crude oil prices also had an impact in the prices of its derivates. As a result, futures prices of both gasoline and heating oil fell by 4.4 per cent and 4.9 per cent respectively in the period under review.



Among other energy commodities, after a small and brief revival, CER futures prices on ICE-ECX platform fell by 10.2 per cent during mid-May to mid-July. High issuance of CERs by UNFCCC (United Nations Framework Convention on Climate Change) and large-scale swapping of CER contracts for cheaper compliance units were some of the reasons for price decline in CER prices. Significantly, EUAs prices moved up by more than 17.7 per cent in the same period. Sustained buying by utilities on growing confidence that the EU would cut permit supply and strengthening of German-power prices helped the rise in EUA prices. The other major energy commodity to witness price rise in past two months was natural gas. Warmer-than-normal temperatures in much of the US, hopes of more energy demand from gas-fired power plants and relatively less than expected rise in US gas inventory levels led NYMEX natural gas futures prices to jump by almost 15 per cent in past two months. On the other hand, ICE Rotterdam monthly coal futures prices traded flat registering a rise of just 0.46 per cent for the period. Stable global demand and increased Indian imports negated the production rise in Indonesia and Australia, increased exports by US coal producers as cheap natural gas displaced coal used in power generation.