Oil drops on China intervention to ease coal crunch

Chinese coal prices and other commodity prices slumped in early trade

  
Excess natural gas is burnt, or flared, from Mexican state-owned Pemex's Tula oil refinery, located adjacent to the Tula power plant belonging to national power company Comision Federal de Electricidad, or CFE, in Tula de Allende, north of Mexico City, Mexico June 22, 2020. Image used for illustrative purpose.

Excess natural gas is burnt, or flared, from Mexican state-owned Pemex's Tula oil refinery, located adjacent to the Tula power plant belonging to national power company Comision Federal de Electricidad, or CFE, in Tula de Allende, north of Mexico City, Mexico June 22, 2020. Image used for illustrative purpose.

REUTERS/Henry Romero

LONDON- Oil prices fell on Wednesday after the Chinese government stepped up efforts to tame record high coal prices and ensure coal mines operate at full capacity as Beijing moved to ease a power shortage.

Brent crude futures fell 81 cents, or 1%, to $84.27 a barrel at 1342 GMT, paring a 75 cent rise in the previous session, but still lingering close to multi-year highs.

November U.S. West Texas Intermediate (WTI) crude, which expires on Wednesday, fell $1.08, or 1.3%, to $81.88 a barrel. The more active WTI contract for December was down 99 cents, or 1.2%, to $81.45 a barrel.

"China is planning to take steps to combat the steep rises in the domestic coal market ... which could put considerable pressure on the coal price there and reverse the fuel switch to oil," Commerzbank said.

Prices for Chinese coal and other commodities slumped in early trade, which in turn pulled oil down from an uptick earlier in the day. 

China's National Development and Reform Commission said on Tuesday it would bring coal prices back to a reasonable range and crack down on any irregularities that disturb market order or malicious speculation on thermal coal futures. 

Oil markets in general remain supported on the back of a global coal and gas crunch, which has driven a switch to diesel and fuel oil for power generation.

Saudi Arabia's minister of energy said users switching from gas to oil could account for demand of 500,000-600,000 barrels per day, depending on winter weather and prices of other sources of energy. 

But the market on Wednesday was also pressured by data from the American Petroleum Institute industry group which showed U.S. crude stocks rose by 3.3 million barrels for the week ended Oct. 15, according to market sources. 

That was well above nine analysts' forecasts for a rise of 1.9 million barrels in crude stocks, in a Reuters poll. 

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

Data from the U.S. Energy Information Administration is due later on Wednesday.

(Additional reporting by Sonali Paul in Melbourne and Koustav Samanta in Singapore; editing by David Evans and Jason Neely) ((Ahmad.Ghaddar@thomsonreuters.com; +442075424435; Reuters Messaging: ahmad.ghaddar.thomsonreuters.com@reuters.net))


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