China tackles coal shortage with touch measures on speculations and hoarding

Oil price Wednesday

The price of crude oil fell on Wednesday, something that certain analysts were quick to associate with the US crude oil builds during the past week, confirmed by the latest data.

The API, the American Petroleum Institute, said on Tuesday that the US crude inventories rose by 2.3 million barrels for the week ending October, 22. The EIA, US Energy Information Administration, meanwhile, released its own data for the same periods that was 4.3 million barrels.

Since the figures were substantial as far as the world’s largest consumer of the fossil fuels is concerned, the crude oil markets quickly reacted to the development as expected; the price of both WTI and Brent went down significantly reflecting the anxiety of the investors.

As of 17:00 GMT, the price of WTI and Brent were $82.20 and $84.58 respectively.

Before the price of crude oil fell on Wednesday, it had become seven-year high in the US and many developed nations; analysts feared the rise would make an unfavourable impact on the global economic recovery, especially in light of once-in-a-century pandemic.

They were right: Japan, for instance, admitted today that its growth has dwindled due to rising fuel costs; its impact on the developing world has already become disastrous.

In another ominous development, China recently declared that there would be a global shortage of magnesium in the coming months. It attributed the shortage to China’s own problems in the power sector and the new self-imposed targets for reducing carbon emissions.

Magnesium is widely used in metal industry, auto industry and packaging sectors and China accounts for 75% of the production of the metal, most of which is exported to Europe.

The crisis involving magnesium appears on the horizon at a time, when a catalogue of industries suffers from chip shortages with the car industry bearing the brunt of it.

A range of supply chain issue are already stemming from it, as every single one is inextricably linked to the existing political rivalries.

In short, there is no easy way out of the supply chain crises.

The combined impact of the supply chain anxieties must have played its part in sudden fall of oil price, when there is clearly a significant gap between the supply and demand.

China, meanwhile, says its tough measures on those who speculate coal futures and hoard them to make hefty profits are working. It says the price of coal has come down by more than 40% in a matter of days.

If China has addressed the issues of shortages of coal and its sky high prices, as it claims, its impact will be felt in crude oil markets too, as the former is the world’s second largest consumer of the crude oil.

In short, the so-called energy crunch is gradually evolving into a stage that can be managed without global emergency measures. Investors in the crude oil sectors may have felt it in the last few days, when the cumulative sentiments in the relevant sectors are taken on board, rather than reacting to mere speculations in isolation.





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