Coal and Natural Gas Set To Replace Crude Oil As Energy Provider

WTI crude rose on Tuesday and was flat this morning on a growing belief that political leaders in Washington could soon reach a compromise to head off the dreaded “fiscal cliff.” Concessions on both sides of the aisle have spurred optimism that a deal will be reached to avert the series of spending cuts and tax increases that take effect on Jan. 1, 2013. But despite that progress, President Barack Obama and House Speaker John Boehner are both still playing political hardball. Yesterday morning Boehner said he is readying a backup bill aimed at averting the “fiscal cliff” because the president has yet to offer a balanced package of revenues and spending cuts that would reduce burgeoning federal deficits. The move is an attempt to give Republicans political cover if Washington fails to reach a deal. Many economists believe that a lack of action by the government could steer the country back into a recession, which would dampen the demand for energy.

Yesterday, the Director of the International Atomic Agency said that a recent report from the agency showed that crude oil would be replaced by coal as the leading energy commodity; much opposed the theories that the new source would be natural gas. Worldwide demand will rise 2.6 percent annually in the next six years and challenge oil as the top energy source, according to the report. Coal consumption will climb to 4.32 billion tons of oil equivalent by 2017, compared with about 4.4 billion for oil, the Paris-based agency said yesterday in its first Medium-Term Coal Market Report. Usage will rise in all regions except the United States, where cheap natural gas has damped demand, the IAA said. The US government is considering plans to allow increased exports of natural gas, as the US becomes one of the largest producers. Demand for coal rose 4.3 percent last year, with China accounting for 67 percent of the increase to replace Japan as the largest importer of the fuel, according to the report. Increasing renewables, coal-plant retirement and more balanced gas and coal prices will decrease coal consumption in Europe,” the report said.

Oil prices settled at a two-week high Tuesday, ahead of the U.S. oil inventory data due Wednesday at 10:30 a.m. EST from the Energy Information Administration and is expected to show crude oil stocks fell 1.3 million barrels last week while refiners kept operations unchanged. According to a survey of analysts and traders by Dow Jones Newswires, the data are expected to show a rise of 900,000 barrels in distillate stocks and a rise of 1.5 million barrels in gasoline inventories. Yesterday, the American Petroleum Institute said in its weekly data that crude oil stocks fell 4.099 million barrels last week, as refiners boosted operations by 1.1 percentage point. The trade group said distillate stocks fell 1.877 million barrels, while gasoline stocks rose 4.176 million barrels.

Natural gas gained almost 2%, as forecasts for colder weather through the end of the year suggested gas-fired heating demand will increase. Natural gas is trading this morning at 3.388 off by 8pts.