| What do recovering crude oil prices mean for coal companies? | |
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Oil prices
The drop in crude oil prices has been in the news consistently since the later half of 2014. Crude oil prices hovered over $100 per barrel in July 2014. Crude oil prices have been falling hard ever since. In a span of less than six months, crude oil prices halved.
While coal and crude oil don’t compete with each other, it’s important for investors to track oil prices. Coal producers (KOL)—like Alpha Natural Resources (ANR), Arch Coal (ACI), Peabody Energy (BTU), and Cloud Peak Energy (CLD)—are affected by falling oil prices. The producers are affected in multiple ways.
Bottomed out?
After falling for months, crude oil prices recovered through the week ending February 6. WTI (West Texas Intermediate) prices averaged $50.65 per barrel for the week—compared to $45.72 per barrel during the previous week. Brent crude prices saw substantial recovery. They recovered to $55.20 for the week ending February 6—compared to $47.13 for the week ending January 30.
During the same week, US crude production dropped marginally. Interestingly, the spread between WTI and Brent increased to $4.55 per barrel last week—the highest in months. The falling rig count may signal a scale back in US crude production, propping up the prices.
Looking at the increased spread, OPEC (Organization of the Petroleum Exporting Countries) members may benefit from production cuts in the US, as we discussed in Market Realist series, Can an award-winning movie explain falling commodity prices?.
Impact on coal
Oil prices’ fall impacts coal and coal producers in multiple ways. On a positive note, coal producers’ fuel costs reduced. Also, falling oil prices led to a reduction in the oil rig count.
Since oil rigs also reduce natural gas, a reduction in oil rigs may lead to lower-than-expected natural gas output. This would increase natural gas prices. Higher natural gas prices may help coal increase its market share in electricity generation. Also, lower oil production can free up rail cars for coal transportation in the PRB (Powder River Basin).
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Arch Coal Inc
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PRODUCER |
CODE : ACI |
ISIN : US0393801008 |
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ProfileMarket IndicatorsVALUE : Projects & res.Press releasesAnnual reportRISK : Asset profileContact Cpy |
Arch Coal is a coal producing company based in United states of america. Arch Coal holds various exploration projects in USA. Its main assets in production are WEST ELK, BLACK THUNDER and JACOB'S RANCH in USA and its main asset in development is SPRUCE N° 1 in USA. Arch Coal is listed in Germany and in United States of America. Its market capitalisation is US$ 366 000 as of today (€ 317 981). Its stock quote reached its highest recent level on June 27, 2003 at US$ 99.96, and its lowest recent point on October 04, 2018 at US$ 0.01. Arch Coal has 36 600 000 shares outstanding. |