uploads///Crude oil prices

How Higher Crude Oil Prices Could Impact Coal Miners


Dec. 4 2020, Updated 10:53 a.m. ET

Crude oil prices

Brent crude oil prices continued to trade around $55 per barrel after the expected production curtailment by OPEC (Organization of the Petroleum Exporting Countries) and non-OPEC producers to take effect in January 2017.

WTI (West Texas Intermediate) crude oil prices closed at $54.06 per barrel on December 28, 2016, compared to their previous week’s closing price of $52.49 per barrel on December 21, 2016.

Meanwhile, Brent crude oil prices closed at $56.22 per barrel compared to a closing price of $54.46 per barrel a week before.

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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, it’s still important for coal investors to track crude oil prices. Coal producers (KOL) such as Alliance Resource Partners (ARLP), Arch Coal (ARCH), Peabody Energy (BTUUQ), and Cloud Peak Energy (CLD) are affected in various ways by crude oil prices.

Oil prices are a mixed driver for the US 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.

Other key takeaways: Oil and electricity

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 of this series, we’ll look at the latest data on coal production.


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