Plummeting temeratures in China adds more pressure on energy markets

 

China cold snap and oil price

The price of oil and other commodities is one of the hot topics in the corridors of power in the world, regardless of the economic status of the country in question, because the rising price of oil, gas and coal have already taken its toll on the recovery of the global economy as a whole, despite the soothing soundbites to the contrary.

It’s an undeniable fact that there are supply chain issues in all major economies, exacerbated by labour shortages and of course, an acute dearth of truck drivers to transport goods and fuel through the internal arteries of the countries concerned.

When the world thought that the supply of coal is stabilising, especially in the world’s second largest economy, China, it has been forced to fight on yet another new, unexpected front – a severe cold spell, engulfing over 90% of the vast nation of over 1.1 billion people.

The plummeting temperature did not even spare its remotest tropical islands.

This has come about defying the pundits who had predicted a warmer winter ahead.

Although China claimed that during the past few days its coal stocks had reached a satisfactory level with a reasonable surplus, judging by the scale of the unprecedented cold snap, the authorities will be forced to power up generators for longer – and at fast pace – in order to face the demand.

China, which experienced serious power shortages in October, knows the impact of yet another round of the same issue on its economy: its manufacturing PMI has been in decline for over six months, something that China blames on supply chain issues and rising cost of raw materials and of course, energy.

As of 11:45 GMT, the price of natural gas was $5.62, an increase by 1.84%; the price of WTI and Brent, meanwhile, stood at $82.44 and $83.73 respectively.

China has been taking measures to cut down on the use of coal for power generation, while gradually switching to the next in the list of ‘dirty fuels’, gas, which in turn contributed to the steep hike in gas prices.

It, however, will not end with that, when power companies start switching to oil as a temporary, cheap alternative; it will undoubtedly increase the price of crude oil further, triggering off a major political issue in addition to the existing economic problems – pitting even allies against one another.

Since repeated pleas to the OPEC+ fell on deaf years, politicians have turned the cartel into a convenient scapegoat. Having come under pressure from all directions, the OPEC+ only tries to embark on a damage limitation mission, while blaming its inability to address the issue on the lack of investments in the sector for years.

There is certainly some truth in it. Unfortunately, the OPEC+ has not been articulate enough in presenting its side of the story, exactly like the way it is handling the decarbonising issue in the presence of growing global displeasure; the cartel simply cannot get away with these thorny issues, using the tactics that were at its disposal decades ago – and when there was no substitute for the commodity.

Having felt the pinch of the global outcry over the issue, the oil minister of the OPEC+ said yesterday in an interview with a Dubai-based TV channel that the group will listen to the grievances over the supply; he, however, said that the underinvestment was a cause in inhibiting the progress on this front.

As far as major global powers are concerned, the energy crunch could not have come about at a worse time, when they have to compete with one another to shine on COP26 climate conference; any misstep is a guaranteed pass to the political oblivion.  

 

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