Oil price starts to drop after China looks to tame coal prices

Oct 20, 2021: Oil prices fell after the Chinese government raised the flag as it looked for ways to overcome high coal prices and ensure that coal mines would operate at full capacity as Beijing moves to ease electricity shortage.

Prices of Chinese coal and other commodities declined in early trade, leading to a drop in oil prices earlier in the day.

Oil markets hit multi-year highs earlier in the week due to the global coal and gas crisis, which has replaced diesel and fuel oil for power generation. “Ultimately, China’s coal production needs to address its energy concerns,” Commonwealth Bank commodity analyst Vivek Dhar said in a note.

US West Texas Intermediate (WTI) crude fell 30 cents, or 0.4 percent, to $82.66 a barrel at 03:16 GMT, reversing the 52 percent gain from Tuesday. Brent crude futures fell 43 cents, or 0.5 percent, to $84.65 a barrel.

The China Electricity Council said late on Tuesday China’s National Development and Reform Commission discussed government intervention in coal prices at a meeting of key coal producers.

In a separate statement, the NDRC said it would ensure coal mines operate at full capacity 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.

The market was also pressured by data from the American Petroleum Institute industry group which showed US crude stocks rose by 3.3 million barrels for the week that ended on October 15, according to market sources.

However, US gasoline and distillate inventories, which include diesel, heating oil and jet fuel, fell much more than analysts had expected, pointing to strong demand.

Gasoline stocks fell by 3.5 million barrels compared with 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.

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