Oil prices dropped early on Wednesday after China said it was considering an intervention on the domestic coal market to reduce the record prices down to a “reasonable range.”
Oil prices continued to fall from the multi-year highs reached early this past Monday, when WTI Crude hit the highest level since October 2014 at $83.73, and the international benchmark briefly jumped above $86 per barrel at $86.04, which was the highest price since October 2018.
The key trigger of the price retreat early on Wednesday came from China, where the National Development and Reform Commission (NDRC) said that the government was considering an intervention to reduce the price of coal whose recent “increase has completely deviated from the fundamentals of supply and demand.”
“The heating season is approaching and the price is still showing a further irrational upward trend,” Reuters quoted the commission as saying.
The possible Chinese intervention sent the key Chinese coal futures plunging early on Wednesday.
On Tuesday, the most actively traded coal futures in China had hit a fresh record-high after the energy crisis worsened because of colder weather in recent days.
A Chinese intervention to bring coal prices down could “reverse the fuel switch to oil,” analysts at Commerzbank told Reuters.
Oil prices were also weighed down by profit-taking and a fourth straight week of U.S. crude oil inventory builds as estimated on Tuesday by the American Petroleum Institute (API).
The build last week was estimated at 3.294 million barrels, above analyst expectations of a 2.233-million-barrel build. Still, the API report was not entirely bearish for market sentiment because gasoline and distillate inventories, as well as crude stocks at the Cushing hub, were estimated to have dropped last week.
By Tsvetana Paraskova for Oilprice.com
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