Ukraine risk off…again?

Despite the fact that the fighting in the Eastern Ukraine, the talks to keep the natural gas (NYMEX:NGN14) flowing seem to be going well. Word is that both sides are making concessions and that is the main reason that oil is starting to fall. Brent Crude (NYMEX:SCN14) hit a 4-week low. The AP reported that Russia and Ukraine on Mondaymade substantial progress toward reaching an agreement on a lower price for gas deliveries and the payment of outstanding debt by Kiev, in a bid to avert a disruption of gas supplies that could also affect western Europe, a top EU official said.

The Chinese Manufacturing data showed stability but was not as strong as some had hoped and is not exactly getting anyone to increase their China oil demand expectations. Copper that bounced yesterday on the previous data is seeminly more apathetic about Chinese demand prospects. The Chines Purchasing Managers' Index (MXAP) from HSBC Holdings Plc and Markit Economics was at 49.4 in May, up from 48.1 in April missing the 49.7 median forecast.

Natural gas on the other hand popped yesterday in part because the weather outlook that some traders were hanging their hats on has begun to change. Not only have we seen tropical weather get a bit more conducive to storm formation the development of the El Nino that was supposed to keep the US cool and relatively storm free may be changing. 

Bloomberg News reported that respected Colorado State University increased the number of storms it expects to develop during the Atlantic hurricane season to 10 from nine. The forecast calls for four of those to become hurricanes, one of them a major system, said Phil Klotzbach, lead author of the outlook. In April, his team predicted three hurricanes, with one growing into a major storm. "We raised the number slightly because El Nino isn't coming on as strong as we thought," Klotzbach said by telephone today. "We're still pretty confident it will be a quiet season."

The Wall Street Journal reported that Natural gas prices got a boost Monday with weather threat hovering over the Gulf of Mexico and new rules for energy announced from Washington. "Supplies from natural gas are so far behind the average that any disruption in supply--even a very small one-- can have a big impact," said Phil Flynn, senior market analyst at the Price Futures Group in Chicago.

The WSJ said that natural gas stockpiles are still about 40% off their typical average for this time of year because a frigid winter drained supplies. The biggest jolts to the market this spring have all related to producers ability to outpace growing demand and refill those stockpiles for the winter. A hurricane may disrupt some of that and a hotter summer may boost demand for electricity and the gas that fuels it, analysts have said. 

Of course the new EPA rules are very bullish for natural gas and are putting a floor under price especially deeper in the curve. The Environmental Protection Agency on Monday proposed a rule designed to cut carbon dioxide emissions from existing coal plants by as much as 30 percent by 2030, compared with 2005 levels. The big loser is coal the big winner natural gas. Most plants that will be retired will move to natural gas. 

The costs according to a report is that the rule would cost businesses more than $50 billion a year; the Natural Resources Defense Council (NRDC) has estimated that it would save money overall; and the EPA's analysis asserts that benefits would outweigh the costs, either because of avoiding climate change costs or because of the public health benefits that come from shutting down coal plants as reported by the Washington Post.

The EPA says that the EPA estimates that the new rule would cut traditional air pollutants such as sulfur dioxide, nitrogen oxides and soot by 25 percent, yielding a public health benefit of between $55 billion to $93 billion when it is fully implemented, with 2,700 to 6600 premature deaths avoided and 140,000 to 150,000 asthma attacks a year avoided. The cost, by contrast, would be $7.3 billion to $8.8 billion.

The EPA said that for every $1 invested, Americans would reap $7 in health benefits. If the EPA rule reduces the use of coal, it also would reduce emissions of conventional pollutants that contribute to asthma, other lung diseases and heart attacks, according to a joint study by the Harvard School of Public Health and Syracuse University Center for Health and the Global Environment.

"Carbon pollution standards for existing power plants would not only help confront the challenge of global climate change, they would confer substantial local and regional benefits by reducing power plant emissions of these major co-pollutants by up to 27 percent for sulfur dioxide and mercury and 22 percent for nitrogen oxides" by 2020, the study said. It said the greatest benefits would come in the Ohio River Valley and the Rocky Mountain region. "Ecosystems would also benefit from decreases in air pollution and atmospheric deposition of sulfur and nitrogen," the study added. "Reduced ground-level ozone will increase the health and productivity of crops and timber." The EPA estimates that the public health and climate benefits of the rule would outweigh the costs by anywhere from 8 to 1 to 12 to 1 by 2030.

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