Could Lower Crude Oil Prices Impact Coal Producers?
Crude oil prices
On October 6, 2017, Brent crude oil prices settled at $55.62 per barrel, which is lower than $57.54 reported during the previous week.
The WTI (or West Texas Intermediate) crude oil price settled at $49.29 per barrel on October 6. That price was lower than $51.67 per barrel when the market closed on September 29, 2017.
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Do crude oil prices drive coal producers?
Coal miners (KOL) like Alpha Natural Resources (ANRZQ), Westmoreland Coal (WLB), Cloud Peak Energy (CLD), and Peabody Energy (BTU) are affected in several ways by movements in crude oil prices. However, coal and crude oil don’t compete directly. Nevertheless, crude oil prices act as a mixed driver for the coal industry.
Crude oil prices act as a catalyst for natural gas production. In the previous parts of this series, we saw that coal is impacted by fluctuations in natural gas inventory or prices.
Crude oil is a key element in the coal mining process. A drop in oil prices leads to crude oil producers cutting down production. As oil production declines, more rail infrastructure is available to transport coal. This, in turn, helps coal miners reduce their operating costs.
Because crude oil does not play an active part in electricity production in the United States, utilities like Southern Company (SO) are not affected by oil price fluctuations.
Next, let’s look at the current coal production levels.