Crude: The Old Cartel

The old cartel ain't what she used to be. There was a time when press would be descending in on Vienna hoping to get a comment from even the lowest level oil minister. It was frenzy as the cartel held the fate of the global economy in their hands as they would decide to withhold or produce more oil (NYMEX:CLN14) as they had a monopoly on the global supply.

The press will be there, the market might not really care because OPEC's intentions are well telegraph and because of the competition from US shale oil supply is keeping the old cartel in line. Besides the cartel better enjoy $100 a barrel oil while they can because if the US starts exporting its high quality shale oil those prices may be fleeting. Still the demand for OPEC oil is strong. The International Energy Agency has called for OPEC to increase production as the demand for OPEC oil could exceed even the lofty 30 million barrels a day. Still it seems that there is less incentive for the cartel to try to hold the world economy hostage as competition and good prices are keeping most cartel members happy.

So oil is higher, not so much because of OPEC, but because of the stronger than expected jobs report. Reuters reports that China's exports gained steam in May and beat forecasts on firmer global demand, rising 7 percent from a year earlier and quickening from April's increase of 0.9 percent. The strong gains overshadowed an unexpected fall in imports that could signal weaker domestic demand. The Chinese data followed U.S. figures showing employment returning to its pre-recession peak, confirming steady improvement in the world's top economy. May marked a fourth straight month of U.S. job gains above 200,000, a stretch last seen in January 2000.

The U.S. data helped bolster Asian shares to their highest levels in nearly three years, a follow-up to Friday's record close on Wall Street. China, the world's largest consumer of energy, imported 26.08 million tons, or 6.14 million bpd, of crude oil in May, bringing total shipments in the first five months of this year to 128.7 million tons, some of China's oil appears to have been going into storage. China's slackening economy, set to grow at its slowest pace in 23 years, has blunted its oil demand, which dropped to a seven-month low in April, as refineries scaled back production for maintenance and exported surplus fuel.

Nat Gas (NYMEX:NGN14) is on fire despite cool tempertures in Midwest. The supply deficit and new EPA regulations are giving bulls the edge. According to the Richmond Times-Dispath shows that electricity from a coal-fired plant is almost 50 percent more costly than from a gas plant. Richmond Times-Dispatch says " American coal was first mined commercially in Richmond and today the U.S. is among the world's major coal-producing nations. The world's largest reserves of coal are in the U.S., so much that the country is a net exporter. In 2013, however, U.S. coal mines produced just under 1 billion tons of coal, the lowest output since 1993."

The Richmond coal field around Manakin produced America's first coal in commercial amounts starting in 1748. Virginia consistently ranks among the top 10 coal-producing states in the nation. Coal is the most valuable single mineral resource produced in Virginia, with about 22 million tons mined and an estimated value of $3 billion in 2011, according to the state's Department of Mines, Minerals and Energy.

While coal has been the largest source of electricity generation in the U.S. for more than 60 years, its annual share of generation declined from nearly 50 percent in 2007 to 39 percent in 2013. Historically, coal has been a relatively inexpensive fuel. While some natural gas-fired power plants are more efficient than coal plants at generating electricity, in the past the fuel cost of generating electricity using natural gas typically had been higher than that of coal.

However, the recent surge in natural gas production from U.S. shale deposits substantially reduced the price of natural gas, and coal began losing its price advantage over gas for electricity generation in 2009, particularly in the eastern U.S.

Although coal-fired generation still holds the largest share among all sources of electricity, its use has also declined due to a combination of slow growth in electricity demand, increased use of renewable technologies and new environmental regulations that made it more costly to operate some coal plants.

According to the U.S. Energy Information Administration, electricity generated by new conventional coal-fired plants is nearly 50 percent more expensive than electricity generated by natural-gas combined-cycle power stations averaged over the plants' lifetimes.

What the EIA refers to as the estimated levelized cost of electricity for new generation resources in 2012 dollars is $95.60 per megawatt-hour for conventional coal plants. In contrast, the cost for electricity from a natural gas-fired, conventional combined cycle plant is $66.30 per megawatt-hour, the EIA said, and the cost from an advanced combined cycle gas plant is $64.40 per megawatt-hour.

Levelized cost of electricity is a measure of the overall competitiveness of different generating technologies. It represents the cost to build and operate a generating plant over an assumed financial life and duty cycle.

Virtually all of Virginia's coal production takes place in the state's southwestern coalfields, with the majority of production in Buchanan, Dickenson and Wise counties. The state's peak production year was 1990, the EIA reported, when its mines produced more than 46.5 million tons. In 2013, the state produced 17.1 million tons. In 1990 the number of mining employees in Virginia was 10,342. Last year, the state's coal industry employed 4,864 miners.

Palladium still strong on South African mine strikes. Gold and silver trying to hot key support and buy a base. Feeders still going to records on tight supply.

 
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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