Can Rising Crude Oil Prices Affect Coal Miners?



Crude oil prices

On November 10, 2017, the price of WTI (West Texas Intermediate) crude oil closed at $56.74 per barrel. That was 1.9% higher than $55.64 per barrel when the market closed on November 3, 2017.

As of November 10, 2017, the price of Brent crude oil rose 2.3% on a week-over-week basis and settled at $63.52 per barrel. According to the EIA (U.S. Energy Information Administration), crude oil prices are near a three-year high. An increase in crude oil prices could benefit oil producers such as Noble Energy (NBL) and Marathon Oil (MRO).

Is crude oil price a driver for coal producers?

The price of crude oil is a mixed driver for the coal (KOL) industry, even though they are not directly linked to each other. Coal-producing companies Arch Coal (ARCH) and Westmoreland Coal (WLB) are impacted in various ways by fluctuations in crude oil prices.

As we saw earlier in this series, the natural gas inventory level and prices are key drivers for coal. Since crude oil is a key element in the production of natural gas, the price of crude oil indirectly impacts the coal industry.

When oil prices are weak, crude oil producers often choose to reduce their production volumes. That ultimately frees up railcars to ship coal and can help coal producers lower their operating costs. So we can say that crude oil plays a significant role in the coal mining process.

Crude oil is not actively involved in US power generation, even though it’s a key component in natural gas production and the coal mining process. So the impact of crude oil price movements on utilities is insignificant.

In the next part of this series, we’ll look at some coal inventory details.

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