Oil – Coal

Increasing oil prices

The price of oil is a strategic macroeconomic variable. It reflects the multiple and varied pressures of demand in the world economy, directly impacting the inflation rate. The need for better and more reliable information is desirable but imperative.

In this article, we discuss a very particular segment of the international oil market, the futures market? How precisely does the quantity and quality of the information become a crucial factor in developing the market itself? And has two purposes: to describe the operation of the oil market. Futures and discuss their influence on the rebound in the price of a barrel of oil has reached historical levels, more than 80 dollars (USD).

The oil futures market

The first element of the last objective leads us to revisit the hypothesis of efficient markets that configures the oil industry. Due to the interdependence between national economies and a greater internationalization of production processes. This hypothesis had two segments that it is analytically healthy to rethink with the benefit of recent experience:

1. i) That before the oil shocks of the 1970s, the oil industry expressed itself in the formation of small and inefficient markets. Due to high transaction costs, multiple operations, few direct transactions (arm’s length) and then reproducing that same cycle, since the process due to the lack of competition, information asymmetries, few long-term contracts, absence of markets for natural raw materials (commodities) (1) and, therefore, aggravated by insufficient transparency and nationalization processes.
2. ii) But, after the oil shocks of the 1970s, the vertical integration of operational and financial functions in the oil industry reflects in lower transaction costs. Also, in operational simplification, a large number of arms-length transactions. Therefore, they convert into large and efficient markets.

The second element of the objective leads us to weigh the growing importance that future transactions have acquired at the current price of a barrel of crude, which for a long time could be determined by variations in physical inventories, given certain levels of supply and demand.

On September 27, 2007, the price of a barrel of oil for one-month delivery amounted to 81.55 USD. It was three times the cost of four years earlier. The considerable price increase reflects the strengthening of the factors affecting global oil demand, like reduced margins for remaining production and refining capacities, low inventory levels, climate change, among others. However, another factor involves explaining the strength of prices: speculative securities and compensation funds or hedges.

The increase in oil prices for short-term delivery associates with the unusual rise in oil price for relatively longer-term delivery. It suggest that higher-than-expected prices are becoming a long-lasting phenomenon, not a temporary one.

Coal is losing power

Access to electricity has transformed the world by developing their economies and lifting millions out of poverty. However, this success has come at a high cost. The energy sector is dependent on fossil fuels, is responsible for about 40% of the world’s carbon dioxide emissions. They are one of the so-called greenhouse gases that trap heat in the atmosphere and warm the Earth.

Despite the UN calling for an end to fossil fuels, many new coal-fired power plants are under construction; and dozens more are in the works. Is the world ready for a new era of clean, cheap, and accessible energy for all?

Tax carbon and our carbon addiction

The UN is increasing pressure on countries to stop relying on coal.

The UN chief has called for carbon taxes to be imposed, for trillion-dollar subsidies for fossil fuels to end. Also for the construction of coal-fired power plants to stop by 2020, if we want to have one. Possibility of ending the climate crisis. Creating a plan for a whole project along with the timeline or schedule would involve making a construction schedule or a construction timeline template.

Many countries, mainly developed economies, are beginning to hear the message of the UN. Yet Southeast Asia, one of the fastest-growing economic regions globally, consider fossil fuels as the answer to its energy needs. In November, Guterres told a meeting of the Association of Southeast Nations Asian in Thailand that coal “remains a major threat to climate change.” Adding that Southeast Asian countries are some of the most vulnerable to this phenomenon.

Asian development continues are getting fuel from coal

According to studies by the International Energy Agency, the region may become a key driver of global energy trends in the next 20 years. Millions of people in Southeast Asia have access to electricity since 2000. And the region is on track to achieve universal access by 2030.

UN-backed Sustainable Energy for All has compiled data showing that the region has the third-highest number of coal-fired power plants after China and India. Indonesia, Vietnam, and the Philippines have the broadest coal plant portfolio of any country in Southeast Asia, Malaysia, and Thailand, not far behind.

Richer Asian countries are also financing coal beyond their borders: State financing agencies in China, Japan, and South Korea are now, respectively, the largest sources of financing for coal plants in other countries: Research shows that China was the largest international source of funding for coal, committing more than $ 1.7 billion between 2015 and 2016.

Coal is losing power

However, the world is slowly moving in the right direction, and the number of plants currently are decreasing. The number of permits for new coal plants are reducing to record lows. With more than a thousand canceled, reflecting a harsher economic climate for coal plant developers and the growing consensus on the need to limit global warming and protect human health.

At the Climate Action Summit in September 2019, four years after the Paris Agreement, countries pledged to step up efforts to limit global warming to 1.5 ° C above pre-industrial temperatures and boost funding for climate action. Many nations announced measures to combat the climate crisis, including limiting the amount of electricity produced from coal sources.