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Will the Marginal Drop in Crude Oil Prices Hit Coal Miners?

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Dec. 20 2017, Updated 5:20 p.m. ET

Crude oil prices

On December 15, Brent crude oil settled at $63.23 per barrel—0.3% below the $63.40 per barrel reported on December 8.

The WTI (West Texas Intermediate) crude oil price settled at $57.30 per barrel on December 15. The recent WTI price was below the $57.36 per barrel recorded on December 8 by 0.1%.

Oil producers such as Contango Oil & Gas (MCF) and Marathon Oil (MRO) might be negatively impacted by a drop in crude oil prices.

Prices have fallen for three weeks straight. In its recent “Short-Term Energy Outlook” (or STEO) report published on December 12, the EIA projects Brent and WTI crude oil spot prices to average around $57.0 per barrel and $53.0 per barrel, respectively, in 2018.

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Is crude oil a driver for coal miners?

There’s no direct link between coal and crude oil. Yet coal mining (KOL) companies such as Cloud Peak Energy (CLD), Alliance Resource Partners (ARLP), and Westmoreland Coal (WLB) are affected in many ways by crude oil prices’ volatility.

Earlier in this series, we saw that natural gas inventories and prices are vital drivers for coal price fluctuations.

Crude oil is a crucial driver in the production process of natural gas. So its price acts as an indirect driver for the coal industry.

Crude oil producers adjust their production depending on prices. If prices are weak, they decrease production volume, which frees up rail cars for coal transportation. Coal producers use these rail cars to ship coal, helping them minimize their working costs. So crude oil is an indispensable part of the coal mining process.

Despite playing an essential role in the natural gas production and coal mining process, crude oil isn’t engaged in the energy generation processes employed in the US. Hence, the effect of crude oil price variations on utilities is insignificant.

In the next part, let’s explore levels of coal inventory for the week ending December 9.

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