Q:

How does the price of coal relate to oil prices?

A:

Quick Answer

Crude oil and coal are not direct competitors as fuels, but oil prices are known as a mixed driver for coal prices. Oil prices have indirect and varied effects on coal prices.

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Full Answer

A drop in crude oil prices generally results in a drop in fuel costs. Such effects on coal prices is not direct but may develop in a variety of ways. For example, a drop in crude oil prices leads to lower production, which in turn means less of it to be transported, affecting freight transport rates for all fuels. Such a shift in the transport rate for coal has an effect on the price.

On the other hand, a rise in crude oil prices leads to a rise in production costs for other fuels such as coal, affecting the price. Such a rise in crude oil prices, however, also leads the creation of a positive atmosphere for the energy market as a whole, affecting the value of all energy stocks positively, including coal assets. Conversely, when oil prices fall, the value of coal and other energy-related assets often decreases. Finally, because some oil wells also produce natural gas and slowing oil production may lead to higher natural gas prices, which are more directly correlated to coal prices because these fuels compete for similar markets.

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