Coal fights natural gas for share of energy market

Stimulus made in Japan!

Japan made a somewhat unexpected move to pump up their export driven economy by juicing up its increase in asset-purchase fund to a whopping ¥55 trillion ($697 billion) from ¥45 trillion. The move comes as Japan wants to keep pace with the Fed to offset a currency imbalance as well as to provide cover for the growing tensions with China over the disputed islands. China and Japan’s worst diplomatic crisis since 2005 is raising questions about their trade relationship that has about tripled in the past decade to more than $340 billion dollars. Japanese companies are already leaving China and if the parties are not careful, this rift could turn out to be a blow not only to China and Japan, but to the global economy and the demand for oil.

The minutes from the Bank of England seem to suggest that all of the UK bankers are on board with the stimulus. In other words, the possibility of more juice from the UK central bank at some point is a very strong possibility.

The Saudi’s seemed to have learned a thing from QE1 and QE2 — that it is bullish for oil. If prices rise too fast, the hoped for demand growth equation might get offset by rising prices. At the same time the Saudi’s want to offset any benefit that Iran may garner from rising oil prices.

With the monetary taps running on full it is comforting that Saudi Arabia also wants to offset that fiscal price spike by opening up their taps as well. Saudi Arabia said that it will offer as much oil as its European and US customers want to help offset the impact of rising prices on the global economy.

Rising oil prices don’t seem to be killing demand for gasoline at least for the last couple of weeks. As reported by Barbara Powell of Bloomberg, "U.S. gasoline demand rose 3.1 percent last week, according to data from MasterCard Inc. Drivers bought 8.76 million barrels a day of gasoline in the week ended Sept. 14, up from 8.5 million the prior week, MasterCard’s SpendingPulse report showed.   Fuel consumption was 1.6 percent below a year earlier. Fuel use over the past four weeks fell 0.4 percent below the same period in 2011. It was a record 78th consecutive drop in that measure.”

Still year-to-date gasoline demand is 4 percent below 2011.Gasoline consumption in the week ended Sept. 7 declined 6.7 percent from the seven days ended Aug. 31. MasterCard releases weekly data every two weeks.  The average pump price rose 3 cents in the past week to $3.86 a gallon, the highest since April 20. The average has jumped 53 cents in 10 weeks and drivers are paying 24 cents more than a year earlier. Prices reached a year-to-date peak of $3.94 on April 6.   The highest prices last week were on the West Coast, where the average rose 1 cent to $4.09 a gallon. The lowest average was on the Gulf Coast, where a gallon gained 1 cent to $3.67.

COAL WARS! Did you hear about the coal wars? Well they are running hot and heavy and up until recently, the long dominant cheap fuel coal had suddenly begun to lose its low price dominance to the up and coming cheap fuel, natural gas.  For the first time in the history of the universe U.S. Central Appalachian coal prices rose above natural gas prices causing many industrial users to switch to natural gas. Yet it appears that old King Coal will not give up that easy and may be making a bit of a comeback. Reuters News reports that U .S. Central Appalachian coal prices slip to two-year lows. Citing milder late-summer weather and coal use in power generation down sharply this year, coal may be making natural gas less attractive.

In fact Reuters points out that prices for Central Appalachian coal produced in the eastern United States slid to the lowest in more than two years this week, stirring talk that coal was getting more competitive with natural gas for a share of the power generation market.  Milder late-summer weather has finally started to slow electricity demand for air conditioning and helped pressure coal prices. Front-month coal futures traded on the New York Mercantile Exchange slid Monday to $52.58 per short ton, down more than 13 percent from recent peaks above $60 in late July and early August.

That would be roughly equivalent to a natural gas price just above $2 per million British thermal units. Gas prices are currently trading at about $2.80 after briefly poking above $3 last week. The slide in coal prices has stirred talk that some electric utilities that have been burning cheaper gas to generate power could switch back to coal. A loss of that demand, which helped prop up gas prices all summer, could force more gas into already bloated inventories.

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.


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