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Futures Movers: Oil prices turn higher as U.S. supplies fall, but Brent slips as China aims to cool coal prices

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U.S. oil futures turned higher Wednesday, buoyed by a surprise weekly decline in U.S. crude inventories, but China’s move to bolster coal supplies dulled the outlook for oil demand, putting pressure on global benchmark Brent crude.

The Energy Information Administration reported on Wednesday that U.S. crude inventories fell for the first time in four weeks, down by 400,000 barrels for the week ended Oct. 15.

That defied expectations for an average 2 million-barrel climb expected by analysts polled by S&P Global Platts. The American Petroleum Institute on Tuesday reported a 3.3 million-barrel increase.

The EIA numbers were “undoubtedly on the bullish side,” Tariq Zahir, managing member at Tyche Capital Advisors, told MarketWatch. The data helped alleviate an “overbought situation” in crude oil, he said.

West Texas Intermediate crude for November delivery
CLX21,
+0.53%

CL.1,
+0.53%

rose 36 cents, or 0.4%, to $83.32 a barrel on the New York Mercantile Exchange, a day after posting the highest close for a front-month contract since October 2014. The November contract, which expires at the end of the session, was trading lower before the supply data.

December WTI crude
CL00,
+0.40%

CLZ21,
+0.40%
,
the most active, and soon to be front-month contract, was up 27 cents, or 0.3%, at $82.71 a barrel.

December Brent crude
BRN00,
+0.19%

BRNZ21,
+0.19%
,
the global benchmark, declined by 10 cents, or 0.1%, to $84.98 a barrel on ICE Futures Europe, after trading Wednesday at a three-year high.

The fall in crude supplies prompted U.S. benchmark oil prices to pare early losses, but Brent was still lower following news on China. Beijing’s top economic planner this week vowed to use “all necessary means” to roll back record coal prices, The Wall Street Journal reported, including domestic laws that let the government limit profit and prices for essential goods.

“This should pressure the high coal prices to ease lower and, in turn, bring oil prices lower too,” said Brian Swan, senior commodity analyst at Schneider Electric, in a daily report.

China also ordered all coal mines to operate at full capacity, including during holidays, approved new mines and ordered major coal production bases in north and northwestern China to lower prices by 100 yuan a metric ton beginning Tuesday.

Read: Energy crisis? What experts are saying as world faces historic energy-price crunch

Soaring coal and natural-gas prices helped drive crude to recent highs as coal- and gas-fired power generators, particularly in Asia, began switching to oil.

See: Lofty prices for natural gas may fuel a swing back to oil as a power source

“Oil refiners across the globe are kicking into a higher gear by ramping up output to meet demand coming from the U.S., the [European Union], and Asia,” said Swan. “Of course, high natural gas prices across Europe and plant maintenance periods in the fourth quarter will put some constraints on supply. Some power plants have turned to burning diesel and other fuel stockpiles ahead of winter demand.”

If Chinese regulators artificially force coal prices lower, there will be less fuel switching,” said Robert Yawger, executive director of energy futures at Mizuho Securities, in a note. The distillate part of the barrel — refined products including gas oil, heating oil, kerosene, jet fuel and diesel fuel — would be particularly vulnerable to China’s coal plan, he said.

“If coal prices are kept at artificially low prices, then switching to heavy distillates for power generation may not happen at the rate at which many of the world’s most reliable bean counters may have thought,” he said.

If crack spreads — the difference between the price of a barrel of crude and the products that can be refined from it — continue to slide, “refiners may feel less inclined to crank up the refinery utilization rate. The lower the run rate, the less crude-oil refiners will need to buy to make more product,” said Yawger.

Also see: Coal-fired electricity forecast to rise in the U.S. for first time in seven years

Meanwhile, the EIA data Wednesday also showed weekly inventory declines of 5.4 million barrels for gasoline and 3.9 million barrels for distillates.

The S&P Global Platts survey had forecast supply declines of 2.2 million barrels for gasoline and 2.4 million barrels for distillates.

On Nymex Wednesday, November gasoline
RBX21,
-0.01%

rose 0.2% to $2.481 a gallon and November heating oil
HOX21,
+0.35%

climbed by 0.4% to $2.568 a gallon.

Crude stocks at the Cushing, Okla., storage hub edged down by 2.4 million barrels for the week, the EIA reported, and total domestic petroleum supplies declined by 100,000 barrels to 11.3 million barrels per day last week.

Natural-gas futures edged higher, with the November contract
NGX21,
-0.79%

up 0.2% at $5.098 per million British thermal units, ahead of the EIA’s weekly update on U.S. supplies due out Thursday.

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