Crude oil prices settled down $4.41 to close the day at $126.62 in New York trading. This is lowest price level since May 16, and the largest single day drop in the price of light sweet crude since March 31. The drop came in only after a sharp spike in morning trading following the release of a Department of Energy report that found U.S. crude supplies had fallen down 8.8 million barrels to 313 million, surprising analysts who thought supplies had moved up. But those analysts, they're a silly sort. By mid day yesterday most analysts had decided that part of the shortfall was artificial, resulting from fog at U.S. oil terminals that prevented supply unloading. Most of the missing barrels were in fact sitting offshore. Prices moved down accordingly. However, at about the same time the Commodity Futures Trading Commission made public their six month long investigation into market manipulation of oil derivatives and futures contracts. The CFTC also announced they would partner with Britain's Financial Services Authority to conduct trans Atlantic oversight of oil futures trading, including those fog-delayed freighters.
Some of the problems associated with oil speculation may be spilling over into other energy trading markets. The European power markets are roiling, with German electricity contracts for current delivery up 12 percent this year, following a 12 percent rise in year off delivery contracts last year as well. Contracts for 2009 delivery are already up 20 percent, on the back of a price doubling for South African coal and a tripling for British natural gas. But, while revenues are up, margins are way down from the combined effect of input price increases and an 18 percent in the cost of emissions permits. Average profits from running a coal power plant in Europe are down 66 percent on the year, to only about €4/MWh. Across the board price increases have driven many industrial buyers to begin picking up contracts on the international power markets, whose volume is up across the seven largest exchanges to a third record year in a row.
Rising power demand combined with high commodity prices and margins below the value necessary to incentive new plant construction (in the U.S., margins need to be around $30/MWh in order for a new gas plant running 16 hours a day to be considered economical), may cut into the power plant construction boom. This is probably a good thing, considering the impact of rising research and construction costs on the development clean coal technology. However dubious this technology may be, it is widely assumed that carbon dioxide sequestration will be one of the ways in which we reduce the impact of anthropogenic gases on the atmosphere. The current fear is that the risks associated with incorporating IGCC technology into new plant construction will raise the costs precipitously, while failing to do so will bring public and regulatory scrutiny, as well as causing investors to baulk. Clean coal has a kind of chicken and egg problem - the technology costs are high because it hasn't been done on a wide enough scale, while it hasn't been done on a wide scale because technology costs are extremely high. Versions of the technology that create additional energy streams may prove useful in addressing the scale and cost problems, but so would an accepted price for carbon and globalized emissions markets to match the globalized energy markets.
The Morning Feedstock
Daniel Englander: May 30, 2008, 1:30 AM
Crude oil prices settled down $4.41 to close the day at $126.62 in New York trading. This is lowest price level since May 16, and the largest single day drop in the price of light sweet crude since March 31. The drop came in only after a sharp spike in morning trading following the release of a Department of Energy report that found U.S. crude supplies had fallen down 8.8 million barrels to 313 million, surprising analysts who thought supplies had moved up. But those analysts, they're a silly sort. By mid day yesterday most analysts had decided that part of the shortfall was artificial, resulting from fog at U.S. oil terminals that prevented supply unloading. Most of the missing barrels were in fact sitting offshore. Prices moved down accordingly. However, at about the same time the Commodity Futures Trading Commission made public their six month long investigation into market manipulation of oil derivatives and futures contracts. The CFTC also announced they would partner with Britain's Financial Services Authority to conduct trans Atlantic oversight of oil futures trading, including those fog-delayed freighters.
Some of the problems associated with oil speculation may be spilling over into other energy trading markets. The European power markets are roiling, with German electricity contracts for current delivery up 12 percent this year, following a 12 percent rise in year off delivery contracts last year as well. Contracts for 2009 delivery are already up 20 percent, on the back of a price doubling for South African coal and a tripling for British natural gas. But, while revenues are up, margins are way down from the combined effect of input price increases and an 18 percent in the cost of emissions permits. Average profits from running a coal power plant in Europe are down 66 percent on the year, to only about €4/MWh. Across the board price increases have driven many industrial buyers to begin picking up contracts on the international power markets, whose volume is up across the seven largest exchanges to a third record year in a row.
Rising power demand combined with high commodity prices and margins below the value necessary to incentive new plant construction (in the U.S., margins need to be around $30/MWh in order for a new gas plant running 16 hours a day to be considered economical), may cut into the power plant construction boom. This is probably a good thing, considering the impact of rising research and construction costs on the development clean coal technology. However dubious this technology may be, it is widely assumed that carbon dioxide sequestration will be one of the ways in which we reduce the impact of anthropogenic gases on the atmosphere. The current fear is that the risks associated with incorporating IGCC technology into new plant construction will raise the costs precipitously, while failing to do so will bring public and regulatory scrutiny, as well as causing investors to baulk. Clean coal has a kind of chicken and egg problem - the technology costs are high because it hasn't been done on a wide enough scale, while it hasn't been done on a wide scale because technology costs are extremely high. Versions of the technology that create additional energy streams may prove useful in addressing the scale and cost problems, but so would an accepted price for carbon and globalized emissions markets to match the globalized energy markets.
