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Oil’s performance short-lived as China tries to contain coal prices

Coal shortage and prices resulted in a temporal shift towards oil for power source

Oil prices enjoyed steady sales when China battled a series of crises from its coal crunch and steep prices, to construction deadlocks. It reached almost rock bottom when the alternative coal producing countries also faced stock shortage, compelling the republic to consider paying premiums to other suppliers. Things unfortunately changed when China reopened its coal mines.

Natural trade ripples
China recently eased up its regulations on domestic coal production due to power crunches, and had no alternative suppliers to look to without paying premiums. The republic reportedly allowed coal-fired power plants to pass their costs to customers, just to encourage more electricity generation, and ease profitability pressures. Oil was then enjoying steady revenues before China realised the devastating aftermaths of its vow to reduce carbon emissions. US gasoline and distillate inventories, which included diesel, heating oil, and jet fuel, plummeted beyond analysts’ expectations, which suggested a strong demand.

As at 19 October 2021, US West Texas Intermediate (WTI) crude futures fell US$0.30, or by 0.4 per cent to US$82.66 a barrel, reversing a US$0.52 gain. Brent crude futures plunged US$0.43, or by 0.5 per cent to US$84.65 a barrel, paring an earlier US$0.75 rise. Vivek Dhar, a commodity analyst from Commonwealth Bank resignedly remarked, “Ultimately, China’s coal output needs to increase to remedy its energy woes.”

Boosted coal output plans
The China Electricity Council said on 19 October 2021 that China’s National Development and Reform Commission (NDRC) discussed government intervention in coal prices at a meeting with key coal producers. In a separate statement, the NDRC said it would ensure coal mines operate at full capacities and aim to achieve at least 12 million tonnes per day of output, which would be up more than 1.6 million tonnes from late September 2021.

Pressure is now directed at oil. Gasoline stocks fell by 3.5 million barrels compared to analysts’ forecasts for a drop of about 1.3 million barrels, while distillate stocks fell by 3 million barrels, compared with forecasts for a drop of 700,000 barrels.

 

Marine Online Media Team
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