How Lower Crude Oil Prices Could Affect Coal Miners

Alexis Tate - Author

Nov. 22 2017, Updated 12:15 p.m. ET

Crude oil prices

On November 17, 2017, WTI (West Texas Intermediate) was at $56.55 per barrel, 0.3% lower than the $56.74 per barrel reported when the market closed on November 10, 2017.

On November 17, 2017, Brent crude oil was down 1.3% week-over-week, settling at $62.72 per barrel. Prices fell partially due to doubts on whether OPEC (Organization of the Petroleum Exporting Countries) will opt for prolonging oil production cuts at its meeting on November 30, 2017. Crude oil price volatility could impact oil producers such as EOG Resources (EOG) and Marathon Oil (MRO).

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Is crude oil price a major driver for coal miners?

Whereas crude oil price volatility can affect coal (KOL) mining companies such as Cloud Peak Energy (CLD) and Arch Coal (ARCH) in several ways, coal and crude oil are not directly linked to each other.

As we read earlier in this series, natural gas storage and prices play a vital role in the fluctuation of coal prices. Since crude oil is a primary component of the natural gas production process, crude oil prices are an indirect driver for the coal industry as well.

Crude oil producers alter production levels depending on oil prices. If prices are weak, crude oil producers cut production volume, which frees up railcars. Coal producers use these railcars to transport coal, which reduces their operating costs. Therefore, crude oil is a vital factor in the coal mining process.

Despite playing a major role in the natural gas production and coal mining process, US electricity generation does not use crude oil. Therefore, crude oil price shifts do not significantly affect utilities. Continue to the next part of this series for coal inventory data.


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