Coal is not King today, that crown goes to oil. Peabody (NYSE:BTU) is down 12% and Arch Coal (NYSE:ACI) down 14%. If these guys continue to drop, we may have to Buy on weakness.

From the AP:

DENVER –

Shares of Arch Coal fell sharply Tuesday as oil prices plunged in wake of Hurricane Gustav’s push through Louisiana which apparently spared most oil and gas installations.

“We’ve seen quit a high correlation between oil prices and coal company shares recently,” Calyon Securities analyst Gordon Howald said in a phone interview. “It all has to do with oil prices.”

Arch Coal (nyse: ACI) shares were down $7.89, or 14.6 percent, to $46.35 in late morning trading. The stock has ranged from $28.95 to $77.40 over the past year.

Light, sweet crude for October delivery fell $7.73 to $107.73 a barrel on the New York Mercantile Exchange early Tuesday. It earlier dropped as low as $105.46.

Traders were relieved that Gustav weakened as it neared offshore oil rigs and Louisiana refineries, and appeared to have caused less damage than expected in and around New Orleans.

Other factors that weighed in included slowing global economic growth, speculating that demand for crude will be dampened even in rapidly expanding China and India.

In a research note, RBC Capital Markets analyst David M. Khani, CFA said he expects a “sustained overhang and bearish sentiment” about coal companies.

Despite Tuesday’s drop, shares of Arch traded above lows seen in August.

SOURCE: http://www.forbes.com/feeds/ap/2008/09/02/ap5379224.html