While coal and crude oil don’t compete with each other, it’s important for investors to track oil prices. Coal producers (KOL)—like Alpha Natural Resources (ANR), Arch Coal (ACI), Peabody Energy (BTU), and Cloud Peak Energy (CLD)—are affected by falling oil prices in diverse ways.
Brent-WTI spread drops—finally
After rising for seven consecutive weeks, the spread between Brent crude and West Texas Intermediate (or WTI) dropped for the week ending March 6. Supply concerns in Iraq and Libya resulted in higher oil prices. WTI price increased to $50.40 per barrel from $49.09 for the week ending February 6. Brent crude price increased marginally to $60.30 from $59.94 for the week ending February 27.
Impact on coal
Diesel prices are based on Brent crude. So an increase in Brent crude prices will result in an increase in fuel expenses for coal producers. For utilities (XLU), the impact of oil prices is less clear, as oil isn’t a major fuel powering electricity generation in the US.
Supply concerns may be a temporary phenomenon, and OPEC[1. The Organization of the Petroleum Exporting Countries] producers may continue pumping oil at the current price—at least until June, when an OPEC meeting is scheduled. We explain the dynamics of the oil market in the Market Realist series Can an award-winning movie explain falling commodity prices?