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What Do Rising Crude Oil Prices Mean for US Coal?

Crude oil prices

Crude oil prices rose for the second straight week, albeit at a slower pace. WTI prices averaged $46.05 per barrel during the week ending September 4, up 1.8% from an average of $45.22 during the week ending August 28. The average Brent crude oil price gained around $0.41 to $48.68 per barrel for the week ending September 4.

Why are crude oil prices important for coal producers?

While coal and crude oil don’t directly compete with each other as fuels, it’s important for coal investors to track crude oil prices. Coal producers (KOL) such as Alliance Resource Partners (ARLP), Arch Coal (ACI), Peabody Energy (BTU), and Cloud Peak Energy (CLD) are affected in various ways by crude oil prices.

Crude oil prices are a mixed driver for the coal industry (KOL) in the United States. On the one hand, a rise in crude oil prices results in a rise in fuel costs. An increase in crude oil prices may encourage US crude oil producers to ramp up production. If crude oil production rises, there are fewer railcars available to transport coal. For this reason, coal producers based in the Powder River Basin faced severe rail availability issues in 2014.

On the other hand, energy stocks, including coal stocks, generally follow crude oil prices. A rise in crude oil prices means improved investor perception of the energy sector, including coal.

For utilities (XLU), the impact of oil prices isn’t significant, as oil isn’t a major fuel that powers electricity generation throughout the United States.

source: http://marketrealist.com