Commodity Corner

Views on commodities and energy

Getting down to business at U.N. climate talks a hard task

A U.N. concession to delegates at this week’s climate talks in Bonn to take off jackets and ties due to recent high temperatures may be going to some participants’ heads.

Breaking the back of negotiations for a new climate pact after the Kyoto Protocol expires in 2012 is proving hard work even though the talks’ chair hopes to have a new negotiating text on the table by the end of the week.

Developing nations are still blaming the rich for global warming and the issue of who will contribute most to climate financing is still a matter for debate.

A year-end meeting in Cancun looms closer and the pressure is on to get the job done.
Yet, the acronyms being bandied around — LULUCF, CDM, AAU, AWG-KP, AWG-LCA, REDD, to name a few — are enough to make your head swim.

Inside the OPEC bunker

Reuters energy correspondents covering the Vienna OPEC meeting will be sharing their insights and taking you behind the scenes of the Reuters operation with this live blog.

Inside the OPEC bunker

Oil Market Contango Widening

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0709-contango-fig-11The spread between front-month oil futures and contracts for later delivery on the New York Mercantile Exchange (see Fig. 1) has widened dramatically this month. (See Fig. 2)0709-contango-fig-2The widening contango frequently portends a rise in inventories. For example, in Fig. 3, it can be seen that when the discount for fronth-month crude to second-month crude widened to near $4 a barrel earlier this year, inventories jumped to 19-year highs. The relationship between inventories and the outright futures price can be seen in Fig. 4. 0709-contango-fig-30709-contango-fig-41

Now in the movies: The gentle giant

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Gentle giant

German utility RWE – Europe’s fifth-largest power company and the continent’s biggest emitter of carbon dioxcide – has resorted to a new way to counter what it sees as a fundamental misunderstanding about power companies.

 

Its animated movie – to be shown on TV and in cinemas – is meant to show what the company is really about – and overcome the public’s distaste for an industry whose dominance has allowed it to mete out ever higher power prices.

from Summit Notebook:

Don’t mention the R word

Policitians are often scared to use the "R" word, because a recession makes them unpopular. Investment bankers dislike the "R" word too, but in this case it stands for regulation.
Regulation and lots of it is being cooked up in Washington and Brussels in response to the excessive risk-taking that helped bring on the credit crisis.
Credit derivatives are in the firing line as the bad guys of the credit crisis and derivatives in energy and commodities could get caught in the cross-fire.
Oil could also take a hit after rampant speculation was blamed for driving the price to a record of nearly $150 a barrel last year.
Although the quest to get rid of excesses is driven by good intentions, industry insiders say there will be unintended consequences and argue the regulators could have underestimated the difficulty of their task.
"It's not easy to bring back the genie into the bottle," Libya's top oil official Shokri Ghanem told the Reuters Global Energy Summit.

from LEGACY Reuters Summits:

The best geologists want to be in Tullow’s team

Tullow Oil is the Manchester United of the energy world -- at least when it comes to recruiting the finest talent.
The oil industry has long complained of the difficulty of recruiting enough highly-qualified staff, but as Europe's largest independent oil explorer by market value, Tullow says it is a magnet for all those geologists ambitious to add discovering a new field to their CVs.
"If you are successful, you will always attract... like everyone wants to play for Manchester United," Aidan Heavey, chief executive of Tullow Oil, told the Reuters Global Energy Summit.
Many oil companies, he said, have ceased exploring, partly because of a difficult financial climate, partly because of a lack of opportunities.
Tullow's exploration successes include major finds in Uganda and offshore Ghana.
Apart from snapping up the finest geologists, Tullow has also been busy grabbing credit. Heavey said banks had made available $2 billion in credit in March this year.
"It's a huge achievement in the current market," Heavey said. "It's probably soaked up most of the credit available for small oil companies."

from Summit Notebook:

OPEC’s special relationship with the U.S.

The United States may fondly dream of independence from imported oil, but it would do well to remember that the traffic is not one way.
OPEC Secretary General Abdullah al-Badri told the Reuters Global Energy Summit he had been hearing for years that the world's biggest oil consumer was seeking ways to avoid importing OPEC oil, but he was confident it would carry on burning fossil fuel for years to come.
"I am of an age when I can tell you I have been hearing this for the last 40 years," Badri said. "We will see another president, with two terms, before we see any change."
He also warned the U.S. it should be careful what it wished for.
"We would like to tell them they buy most of the resources of our member countries. We are sending them back more than 50 percent of that income to OECD countries, and the U.S. is one of them, to buy medicine, equipment, aeroplanes, spare parts, clothes."
"Don't forget the medicine," he added.

Correlation Between Oil and Equities Markets

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oil-vs-stock-market

Oil prices have been trading in an unusually strong positive correlation with equities markets over the past few months on hopes that signs of an economic recovery could mean a boost for energy demand.

But with oil and product inventories swelling and little sign of demand improving in the United States and other big developed economies, analysts warn that the linkage may be hard to maintain, especially if U.S. motorists cut back on vacations this summer.

OPEC puts its best face forward

The headline that emerged from nearly five hours of weekend talks by the producers’ club OPEC was that it that had decided to leave its output policy unchanged. But you shouldn’t believe everything you read in the press.
OPEC http://www.opec.org/home/cited the fragile state of the world economy and said it was doing its bit to try to nurse the economy back to health by avoiding any aggressive cuts in oil supply.
As far as the wider world could tell, the group, which supplies more than a third of the world’s oil, was united in its concern for its hard-pressed customers, especially the biggest one of all, the United States whose new leader is far more palatable as far as OPEC is concerned than his predecessor.
In reality, the closed-door debate inside OPEC’s scruffy Vienna secretariat on the banks of the Danube Canal, which feeds into the more romantic Danube River, was rather more heated than we were led to believe.
Languishing oil prices and ballooning oil stocks are more worrying for some members of OPEC than others and those most concerned about balancing their books were said to be holding out for radical action to try to drive up the oil market.
Delegates circulating in the lobbies of Vienna’s elegant hotels whispered that far from a straightforward consensus, some members had battled for a supply reduction of anything up to 1.5 million barrels per day.
Kuwait, whose government offered to resign en masse on Monday, and Iran, which faces expensive presidential elections in June, were among those keenest to prop up prices that have fallen by more than $100 from last year’s record high, the delegates said.
But intent on presenting a unified front, ministers chose not to tell the line of reporters waiting outside the meeting about any internal divisions.
The version for the media’s eyes and ears was that a new administration in the world’s biggest energy consumer made it so much easier to bury old enmities and agree with U.S. ally and leading oil exporter Saudi Arabia that for now the best output policy is one that doesn’t send oil prices soaring.

Environmental groups call “clean” coal a fairy tale

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USA-COAL/MONTANAWhat do Bigfoot, a mermaid, an alien from outer space, and clean coal all have in common?
    None of them exist, according to several environmental groups.
    Organizations such as the League of Conservation Voters, Natural Resources Defense Council and the National Wildlife Federation have launched a multi-million dollar media onslaught aimed at knocking down claims that power can be generated from coal now in an environmentally safe manner.                                                                                                                                                      The so called “reality” campaign features a television commercial with a man touting “clean coal technology” in a barren field and print ads with fictional creatures holding lumps of coal. The message of the ads is “In reality, there’s no such thing as clean coal.”
    How to handle America’s abundant coal supply is likely to remain a contentious issue as U.S. President-elect Barack Obama’s incoming administration tackles climate change and reducing greenhouse gas emissions.
    Coal-fired power plants generate about half of U.S. electricity supplies, and account for about 40 percent of U.S. greenhouse gas emissions — the biggest single industrial source.
    Obama has expressed support for the development of technology that would allow coal-burning power plants to trap and store carbon dioxide rather than releasing it into the atmosphere. Such technology is commercially untested and currently economically nonviable.
    Coal industry trade groups, such as the American Coalition for Clean Coal Electricity, say that they are committed to carbon reduction strategies and coal power is necessary to provide Americans with affordable electricity.
    Until the carbon capture and storage technology is developed, however, environmentalists behind the Reality Coalition say on their website “coal will remain a major contributor to the climate crisis.”

–Ayesha Rascoe