uploads/2017/10/oilpri-3.png

Will Strong Crude Oil Prices Affect Coal Producers?

By

Updated

Crude oil prices

On October 20, 2017, WTI (West Texas Intermediate) crude oil prices closed at $51.47 per barrel. The price was 0.04% higher than the $51.45 per barrel when the market closed on October 13, 2017.

Brent crude oil prices closed at $57.75 per barrel when the market closed on October 20, 2017, up by 1% compared to the $57.17 reported during the previous week.

Article continues below advertisement

Is crude oil price a driver for coal producers?

Crude oil price movements affect coal miners (KOL) such as Westmoreland Coal Company (WLB), Alpha Natural Resources (ANRZQ), and Arch Coal (ARCH) Energy (BTU) in varied ways. Even though crude oil and coal don’t compete with each other directly, crude oil is considered a mixed driver for the coal industry.

Earlier in this series, we saw that any movement in natural gas inventory or prices can affect coal prices. Since crude oil price is a key factor in natural gas production, it indirectly impacts coal prices.

Crude oil is also a key element in the coal mining process. In order to avoid losses, crude oil producers reduce production if oil prices tumble. The lower the crude oil inventory, the more railcars there are available for coal transportation. Shipping coal through railroads enables coal producers to cut down on their operating costs.

Though crude oil plays a major role in natural gas production and the coal mining process in the US, crude isn’t involved in electricity generation. Therefore, the impact of crude oil price fluctuations on utilities like FirstEnergy (FE) and Southern Company (SO) is insignificant.

Continue to the next part for latest coal inventory data.

Advertisement

More From Market Realist