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Energy Markets Watch: Global Edition

Contributed By: Robbie Fraser, Commodity Analyst | Schneider Electric Energy & Sustainability Services

February’s Markets Watch adds a bit of international flavor to the energy markets menu this month. China, for instance, celebrates its New Year on February 5th. As many as 3 billion Chinese are likely to contribute to the annual intra-national migration, more than enough to move the needle in an energy market or two. Mid-month, reports on British economic data are due out just weeks ahead of the Brexit deadline, while the Nigerian presidential and national assembly elections are all poised to be serious energy market movers.    

February 5: Chinese New Year

As in most countries, the people of China use new year celebrations to return home and enjoy time with family. Unlike in any other country, however, China’s holiday travel season marks the largest annual mass migration event in human history. Most estimates place the total number of trips by car, bus, rail and air at around 3 billion(!) – nearly 10 times the population of the entire U.S.   

The logistical challenges are immense, and energy is at the center of it all. Huge spikes in gasoline and diesel demand require refiners and imports to ramp up to prepare for the sudden surge. Power generation is also forced to shift on a country-wide scale as millions from coastal urban centers return north and west to their families’ hometowns.

Over time, global crude and product markets have become adept at pricing in these annual events, regardless of scale. But, with questions swirling around China’s (possibly) slowing economic growth, traders will keep a close eye on travel data, and any slowdown may suggest a slowing economic boom.

February 11: British Economic Data

CPI. PMI. GDP. These initialisms are each intended to provide insight into a country’s economic condition. In the modern era, economic data is often a sort of political scorecard. Politicians often claim credit for favorable figures and cast blame when numbers fall short.

Enter the current political and economic climate in Great Britain: March’s deadline for Brexit and ever-greater uncertainty as the date closes in. Its uncertainty – created by a situation where polarization is on the rise – and the odds of true consensus on any terms of exit seem almost insurmountable. In such instances, it can be useful to find some common ground, however small it may be.

In this case, that common ground is the fairly widespread view that an exit without any transition agreement in place – a “hard Brexit” – is not a desirable outcome and could bring significant negative economic consequences. The shared desire to avoid such an outcome is the best hope for some form of alternative arrangement.

With economics rooted in those discussions, British economic data takes on some added importance this round. If figures fall flat, it could further stoke fears of a hard-Brexit-fueled downturn and force opposing sides into agreement. Any path will have major implications for energy with the UK fundamentally tied to EU energy markets and cross-border trade of gas, power and carbon on a daily basis. Any disruption to that trade would ripple through energy markets throughout Europe.

February 16: Presidential & National Assembly Elections in Nigeria

Nigeria has been a member of OPEC for nearly 50 years, but during that time, the country hasn’t exactly earned a reputation as a politically-stable producer. Over the years, civil war, military coups and ethnic and economic division have often caused major year-on-year swings in Nigeria’s oil production and exports. Most recently, the country is attempting to work its way back from a series of sabotage efforts by militants in Nigeria’s oil-rich Niger delta region. Many in the region are angry over high-poverty levels as oil revenues flow north to the central government.

However, 2015 marked a historic turning point. Presidential elections saw challenger Muhammadu Buhari defeat incumbent Goodluck Jonathan. When Jonathan recognized the results and Buhari assumed the presidency, it marked a peaceful, democratic transfer of power in a contested election – a first in Nigerian political history.

Now, with presidential elections fast approaching, the country will hope for a similarly smooth exercise in democracy. Another peaceful outcome would add further legitimacy to the central government and encourage conditions for a more stable Nigeria that is better positioned to maintain oil production and exports. Alternatively, uncertainty could trigger a number of undesirable outcomes, including major declines in oil production that could quickly boost global crude, gas and power prices around the world.