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How Low Crude Oil Prices Impact Coal Producers

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Sep. 16 2016, Updated 5:04 p.m. ET

Crude oil prices

Brent Crude oil prices remained volatile during the week ended September 15, 2016. WTI (West Texas Intermediate) crude oil prices closed at $43.90 per barrel on September 15, 2016, compared to the closing price of $45.90 per barrel on September 9, 2016.

Meanwhile, Brent crude oil prices closed at $46.60 per barrel on September 15, a fall from $48 per barrel on September 9.

Oversupply concerns in global markets and a strong US dollar led to lower crude oil prices during the week.

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Why crude oil prices matter to coal producers

Although coal and crude oil don’t directly compete with each other as fuels, coal investors should still track crude oil prices. Crude oil prices affect coal producers (KOL) such as Alliance Resource Partners (ARLP), Arch Coal (ACIIQ), Peabody Energy (BTUUQ), and Cloud Peak Energy (CLD) in various ways.

In the United States, oil prices are a mixed driver for the coal industry (KOL). On the one hand, energy stocks, including coal stocks, generally follow crude oil prices. For example, the fall in crude oil prices during the second half of 2014 led to a sell-off of energy stocks, including solar and coal stocks.

On the other hand, a fall in crude oil prices results in a fall in fuel costs for coal producers. A fall in oil prices may encourage US crude oil producers to decrease production, making rail infrastructure available to transport coal.

For most utilities (XLU), the impact of oil prices isn’t significant. Oil isn’t a major fuel that powers electricity generation throughout the United States.

In the next part, we’ll analyze US electricity generation as of September 9, 2016.

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