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Suez Weekly Market Monitor

Derek Mumford
January 24th, 2007


ERCOT power prices climbed in the early week only to drop midweek. As colder temperatures and high gas prices set in, prices for ERCOT power climbed drastically at the end of the week. Even with the large climb, price still are way off their 52-week high.
ERCOT Prompt month deliveries closed at $53.37/MWh, increasing $5.55/MWh or 10.40%.
ERCOT ‘08 finished the week at $73.06/MWh up 2.79%.
ERCOT ’09 closed the week at $70.92/MWh up 1.94%.
The prompt month for the Houston Zone finished at $55.00/MWh an increase of 9.41% and the prompt month North Zone finished at $54.57/MWh up 8.84%.


Northeast power prices were also effected by the cold spell and the increase in gas prices. Prices still remain well below the 12 month rolling average.
Prompt month prices for the Northeast are 21% to 29% less than 3 months ago for the same trading month.
NYISO Zone J prompt month closed the week at $87.05/MWh increasing $3.05/MWh a change of 3.50%.
NYISO Zone A prompt month finished at $58.80/MWh a gain of $2.80/MWh or 4.76% Massachusetts NEMA prompt month closed up at $80.70/ MWh a change of 5.20% or $4.20/MWh.
Massachusetts SEMA prompt month finished the week at $73.70/MWh, increasing 5.70%.

PJM Power

PJM power prices also saw a small leap this week as the natural gas index and the weather shifted the late week trend up. Prices still remain close to their 52-week low.
Cinergy prompt month finished the week at $52.35/MWh, a change of 5.25% increasing $2.75/MWh.
NI Hub prompt month finished up $2.20/MWh to close at $51.70/MWh, a change of 4.26%.
PJM West Hub prompt month gained $2.95/MWh closing at $62.20/MWh, a change of 4.74%.
PSEG prices for the prompt month closed at $66.73/MWh, a change of 4.42% or $2.95/MWh.
Compared to 3 months ago, PJM prices are 18% to 23% less for the same trading period.

Natural Gas Market

Natural gas prices took a leap this week as colder weather and high demand drove prices up late week.
NYMEX prices for the prompt month finished the week at $6.89/MMBtu an increase of 8.63% or $0.59/MMBtu.
February 2007 prices are 19.24% lower than 3 months ago for the same delivery period.
NYMEX Bal. ‘07 closed at $7.38/MMBtu a change of 6.01%, down $0.44/MMBtu.
NYMEX Cal ‘08 finished the week at $8.13/MMBtu; NYMEX Cal ‘09 closed at $7.91/MMBtu.
Algonquin, Transco Z6, and Tetco M3 prompt month closed at $1.42/MMBtu, $1.44/MMBtu, and $1.07/MMbtu respectively.

Natural Gas Storage: Gas in Storage Decreased 89 Bcf

Working gas in storage was 2,936 Bcf as of Friday, January 12, 2007, according to EIA estimates.
This represents a net decline of 89 Bcf from the previous week.
Stocks were 354 Bcf higher than last year at this time and 491 Bcf above the 5-year average of 2,445 Bcf.
In the East Region, stocks were 262 Bcf above the 5-year average following net withdrawals of 52 Bcf. Stocks in the Producing Region were 193 Bcf above the 5-year average of 720 Bcf after a net withdrawal of 20 Bcf.
Stocks in the West Region were 37 Bcf above the 5-year average after a net drawdown of 17 Bcf. At 2,936 Bcf, total working gas is above the 5-year historical range.

(Source: EIA)

OPEC Dumps $10.1 Billion of Treasuries as Oil Tumbles

OPEC nations are unloading Treasuries at the fastest pace in more than three years as crude oil prices tumble, sending bond yields higher.

Exporters including Indonesia, Saudi Arabia and Venezuela, sold 9.4 percent, or $10.1 billion, of their U.S. government debt securities in the three months ended in November, according to Treasury Department data. Members of the Organization of Petroleum Exporting Countries last sold Treasuries for three straight months in June 2003.

Oil producers have surpassed Asian central banks as the largest pool of global savings, accumulating an estimated $500 billion in 2006 alone, according to research by Pacific Investment Management Co. The sales during those three months mark a reversal because OPEC countries have boosted their holdings of U.S. government bonds by 70 percent to $97 billion in the past 17 months, Treasury data show.

“There will be a significant sell-off,” Joseph Stiglitz, a Nobel laureate and economics professor at Columbia University in New York, said in an interview. “Medium-term and long-term yields will go up.”

Oil producers, including non-OPEC countries, have disclosed almost $200 billion of U.S. government, corporate and agency bonds, said Ramin Toloui, who helps manage about $641 billion for Newport Beach, California-based Pimco, a unit of Munichbased Allianz SE. The holdings are split about evenly between securities due in less than a year and those with longer maturities.

OPEC members were selling Treasuries as crude prices declined 34 percent from a record high of $78.40 a barrel in July. They are reducing demand for U.S. government bonds at the same time as central banks from China to Romania say they want to cut holdings of dollar-denominated assets.

For every $10 drop in the price of a barrel of oil, OPEC members adjust Treasury holdings by about $34 billion, according to estimates by Michael Pond, an interest-rate strategist in New York at Barclays Capital Inc.

Short-term yields have remained above those on longer-term securities since mid-August. That situation, known as an inverted yield curve, has occurred only 11 percent of the time in the past two decades, according to Bloomberg data. Traders watch that difference because four of the past five recessions have been preceded by inverted yield curves.

“The pickup in oil revenues and the recycling of the petrodollars” was one reason for 10-year yields falling as low as 4.33 percent last year, said George Goncalves, a fixed-income strategist in New York at Bank of America Corp.

OPEC export revenue will decline by about $42 billion by the second quarter, from a peak of $126 billion in the third quarter of 2006 as oil prices tumble, according to estimates from commodity analysts at Charlotte, North Carolina-based Bank of America. Crude for February delivery fell $1 last week to $51.99 a barrel on the New York Mercantile Exchange. OPEC countries increased holdings of U.S. government bonds by 115 percent from 2002 to 2006 when the price per barrel rose almost tripled, according to Treasury data.

They still hold more Treasuries than in 2005, when oil prices jumped 41 percent.

The oil exporters in the Middle East, Asia, Africa and South America bought a monthly average of $2.5 billion of U.S. fixed- income securities in the 12 months ended in May 2005, when crude oil averaged about $42 a barrel, Goncalves said. Purchases jumped to $7.3 billion a month from June 2005 through August 2006, when oil averaged about $60 a barrel, he said.

Only Japan, China and the U.K. own more Treasuries than the 12-OPEC nations, according to Treasury data released last week. The OPEC data doesn't include securities owned by Russia and Norway, which account for 40 percent of oil producer reserves, according to Toloui at Pimco.

Central bankers in oil producers Venezuela, Indonesia and the United Arab Emirates have said they will invest less of their reserves in dollar assets.

China, the second-largest holder of U.S. debt, also is cutting back holdings. The central bank, which owned $346.5 billion of Treasuries as of November, trimmed purchases by 1.7 percent in the first 10 months of 2006, Treasury figures show.

“The Chinese are slowing down their buying, so that leaves a big hole after the oil money,” said Brenner at Hapoalim Securities.

(Source: Bloomberg)


Derek Mumford
Energy Analyst
Suez Energy Resources

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