Oil Down Over Tight U.S. Supply

Oil prices fell in Asia on Friday morning as supplies in the United States tightened further. The black liquid was poised to end the week flat. Lower coal and gas costs are dampening the fuel-switching that had lifted demand for oil goods.

Brent oil prices had fallen 0.53 per cent to $84.16, and WTI futures had dropped 0.44 per cent to $82.14.

Earlier this week, power providers switched to diesel and fuel oil due to fears about coal and gas shortages in China, India, and Europe. Hence, the market reached multi-year highs. Weaker natural gas and coal prices would have eroded some of the oil market’s support. Meanwhile, the U.S. Energy Information Administration reported that oil stocks at Cushing had fallen to 31.2 million barrels. This is the lowest level since October 2018. Despite the low levels, U.S. crude should rise 0.5 per cent for the week. This is not far from a seven-year high reached earlier in the week. 

According to Royal Bank of Canada strategists, the market had lost some pace as investors emphasised increasing front-month oil prices.

China Coal Prices Dive

China’s thermal coal futures fell almost 13% on Friday. It extended losses since Tuesday when Beijing announced it would act to excellent soaring prices. The most active thermal coal futures on the Zhengzhou Commodity Exchange, for delivery in January, fell to 1,384 yuan a tonne at 1130 Beijing time. It went down more than 30% from Tuesday’s all-time high of 1,982 yuan per tonne.

Coking coal was down 9.91 per cent. Coke futures were down 7.42 per cent in morning trade on the Dalian Commodity Exchange. It fell as much as 12 per cent in the daytime session on Thursday.

A deepening power crisis in China caused by coal shortages has resulted in record-high fuel costs amid booming post-pandemic industrial demand as the country transitions to greener fuels. China has suspended manufacturing operations, causing factory-gate inflation to rise.

China is pressuring miners to increase coal production and imports so that power plants can rebuild stocks before the winter heating season. Still, analysts predict that shortages will last at least another several months.

Measures to Tame Runaway Prices

The National Development and Reform Commission (NDRC) of China announced that it was researching measures to reduce coal costs this week. Moreover, they will take all necessary actions to put them into a reasonable range.

The NDRC announced on Friday that it would dispatch inspection teams to major coal-producing regions to investigate coal production and distribution expenses.

It went on to say that it had met with the China Coal Industry Association and other significant corporations and was looking into ways to prevent coal companies from making excessive profits.

China’s securities regulator has stated that in reaction to high coal prices, it will push futures exchanges to hike fees, limit trading quotas, and crack speculation. According to China Daily, the NDRC “has decided that the unfettered climbing of coal prices is partially driven by individuals seeking to score the jackpot by taking advantage of the power supply falling short of actual requirement.”

The newspaper went on to say that there should be “zero tolerance for coal hoarding.” “It is critical to keep coal costs under control because they will endanger people’s daily lives when winter arrives.