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Are Coal Miners Impacted by Volatility in Crude Oil Prices?

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Dec. 6 2017, Updated 4:35 p.m. ET

Crude oil prices

On December 1, 2017, the price of WTI (West Texas Intermediate) crude oil was $58.36 per barrel. That was 1% below $58.95 per barrel when the market closed on November 24, 2017. It rose nearly 1.7% when the market closed on November 30, 2017, after the OPEC (Organization of the Petroleum Exporting Countries) meeting that day.

As of December 1, 2017, the price of Brent crude oil fell marginally 0.2% to $63.73 per barrel on a week-over-week basis. The price was $63.86 per barrel on November 24, 2017. After the OPEC meeting on November 30, 2017, Brent crude oil rose slightly by 0.3%.

Crude oil price volatility could influence oil producers such as EOG Resources (EOG) and Marathon Oil (MRO).

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Is the price of crude oil an influential driver for coal miners?

The volatility of crude oil prices could impact coal-producing (KOL) companies such as Cloud Peak Energy (CLD) and Arch Coal (ARCH) in many ways. But coal and crude oil aren’t directly connected to each other.

As we saw earlier in this series, natural gas storage and price play an indispensable part in how coal prices change. Since crude oil is a primary element in the natural gas production process, the price of crude oil is an indirect operator in the coal industry.

Crude oil companies adjust the level of oil production according to crude oil prices. They cut down on production when crude oil prices are weak, which frees up rail cars. Coal miners use these rail cars to ship coal, which helps them lower their operating costs. So crude oil is an essential factor in the coal mining process.

Despite the fact that crude oil plays a significant role in natural gas production and the coal mining process in the United States, it’s not used in the nation’s electricity generation process. So fluctuations in crude oil prices don’t significantly affect utilities.

In the next part of this series, we’ll take a look at coal inventory data.

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