Will Higher Crude Oil Prices Benefit Coal Miners?



Crude oil prices

Crude oil prices shrugged off the EIA’s (U.S. Energy Information Administration) higher gasoline and distillates inventory report on January 5, 2017. Brent crude oil prices continued to trade above $55 per barrel on the back of production curtailment by OPEC (Organization of the Petroleum Exporting Countries) and non-OPEC producers as of January 2017.

WTI (West Texas Intermediate) crude oil prices closed at $53.76 per barrel on January 5, 2017, compared to the previous week’s closing price of $54.06 per barrel.

Meanwhile, Brent crude oil prices closed at $56.89 per barrel compared to a closing price of $56.22 per barrel a week before.

Article continues below advertisement

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.

In this sense, 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 in 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 crude 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.

Let’s move on now to look at the latest data on coal production.


More From Market Realist