Crude Oil Prices Rise: Will It Impact Coal Miners?



Crude oil prices

On December 21, 2017, the price of Brent crude oil was $64.90 per barrel—up 2.6% from $63.23 per barrel recorded on December 15.

The WTI (West Texas Intermediate) crude oil price was $58.36 per barrel when the market closed on December 21. It has increased nearly 1.8% from $57.30 per barrel posted on December 15. Crude oil prices have risen after falling for almost three weeks.

An increase in crude oil prices might benefit oil companies like Contango Oil & Gas (MCF) and Marathon Oil (MRO).

In the EIA’s latest STEO (Short-Term Energy Outlook) report, it forecast 2018 spot prices for Brent and WTI crude oil at $57.0 per barrel and $53.0 per barrel, respectively.

Article continues below advertisement

Is crude oil a driver for coal miners?

There isn’t a linear connection between coal and crude oil. However, crude oil price fluctuations impact coal producers (KOL) like Arch Coal (ARCH) and Cloud Peak Energy (CLD) in numerous ways.

Earlier in this series, we examined how natural gas inventories and its prices drive coal price shifts. Crude oil plays a significant role in the production process for natural gas. It also plays an indirect part in the coal industry.

Crude oil producers vary the volume of oil production based on the strength of its price. When the price is weak, they cut down on production, which clears up railcars to ship coal. Coal companies utilize this rail infrastructure and minimize working costs. In contrast, strong crude oil prices might not benefit coal producers. Crude oil plays a vital role in the coal mining process.

In the US, crude oil isn’t used in power generation processes. So, crude oil price variations don’t impact utilities significantly.

Next, we’ll investigate the latest coal inventory levels.


More From Market Realist