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Oil cheaper than Coal!

We have all seen recently the impact that COVID-19 has had on global markets, in terms of stock prices, equity markets and of commodity markets.

Exacerbating this was the poor timing of Saudi Arabia and Russia’s spat over oil prices and both choosing to disagree on production levels, the disagreement lead to Saudi Arabia choosing to flood the oil markets with supply inevitably driving oil prices down significantly, with the WTI Crude Oil index reaching its lowest point in the last 5 plus years or so, trading in the low to mid $USD 20/barrel, also impacting the Brent Crude Oil index, which fell to its lowest point in the last 5 years or so to prices of the high $USD 20/barrel. Both events have lead to something quite astounding, with Bloomberg Green on the 23rd of March 2020 calculating that coal was officially the world’s most expensive fossil fuel.

Source: Bloomberg Green – Bloomberg 2020

This does not come as a huge surprise when the oil price has tanked off the back of a trade war between Saudi Araba and Russia, two of the largest producers of oil in the world. Additionally, international gas prices have also tanked with majority of long-term gas deals linked to an oil price index (likely Brent Crude) and the Japan Korea Marker – a major LNG (liquefied natural gas) index for Asia also falling with a supply glut due to reductions in demand from some of the largest demand centres such as China who went into a full lockdown earlier this year due to COVID-19.

According to Bloomberg calculations (Bloomberg 2020), the significant fall from grace in oil prices has meant that global crude benchmark is now priced below the Australian Newcastle coal index, which sat at $66.85 a metric ton on ICE Futures Europe on the 23/03, equivalent to $27.36 per barrel of oil with Brent futures that day ending at $26.98 per barrel.

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