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Oil drops as China considers intervention to ease coal crisis




A gas station attendant prepares to refuel a car in Rome, Italy, January 4, 2012. REUTERS / Max Rossi

  • Chinese coking coal and Chinese coke futures fall
  • API shows higher than expected rise in US crude inventories
  • Market considers EIA inventory data expected later Wednesday

LONDON, Oct.20 (Reuters) – Oil prices fell on Wednesday after the Chinese government stepped up efforts to contain record coal prices and ensure coal mines are operating at full capacity as Beijing prepares to ease a shortage of electricity.

Brent crude futures fell 85 cents, or 1%, to $ 84.23 a barrel at 12:17 GMT, tying a 75-cent rise in the previous session, but still lingering near multi-year highs .

U.S. West Texas Intermediate (WTI) crude, which expires Wednesday, fell 85 cents, or 1%, to $ 82.11 a barrel. The most active WTI contract for December was down 98 cents, or 1.2%, to $ 81.46 a barrel.

“China plans to take measures to combat the sharp increases in the domestic coal market … which could put considerable pressure on the price of coal there and reverse the switch to oil,” Commerzbank said.

Prices for Chinese coal and other commodities collapsed early in the trade, which in turn pushed oil down after rising slightly earlier in the day.

China’s National Development and Reform Commission said on Tuesday it would bring coal prices to a reasonable level and crack down on any irregularities that disrupt market order or malicious speculation in thermal coal futures. Read more

Oil markets in general remain supported by the global coal and gas crisis, which has resulted in a switch to diesel and fuel oil for power generation.

Saudi Arabia’s energy minister said users switching from gas to oil could represent a demand of 500,000 to 600,000 barrels per day, depending on winter conditions and the prices of other energy sources. Read more

But on Wednesday, the market was also put under pressure by data from the industry group American Petroleum Institute which showed that U.S. crude inventories rose 3.3 million barrels for the week ended Oct. 15, according to sources in the U.S. Marlet.

That was well above nine analysts’ forecasts for a 1.9 million barrel increase in crude inventories, in a Reuters poll.

However, US stocks of gasoline and distillates, which include diesel, heating oil and jet fuel, fell much more than analysts expected, indicating strong demand.

Data from the US Energy Information Administration is due later Wednesday.

Additional reporting by Sonali Paul in Melbourne and Koustav Samanta in Singapore; edited by David Evans and Jason Neely

Our standards: Thomson Reuters Trust Principles.




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