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Energy Markets Watch: Certainly Uncertain Edition

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

September’s Markets Watch isn’t 100% sure it’s even supposed to be here today, and yet it’s just in time for big doings on the 11th. This month’s Markets Watch is a mixed bag that begins with an oil market report, proceeds to a press conference by the Fed and ends with British GDP data. The only common thread among those calendar items is an unusual amount of uncertainty—of what is and what could be. The only thing certain this month is that October’s Watch may look dramatically different.

Or it might not. Read on and stay tuned.

September 11: OPEC Monthly Oil Market Report

While the U.S. shale boom may have undermined OPEC’s influence, the cartel still accounts for nearly 1/3 of global oil production. Add in Russia and a short list of allied non-members and the group has found a way to stay relevant even in an environment where the US now stands apart as the world’s top producer. At present, OPEC is trying to put that influence to work as it continues to cut production to support oil prices. That effort has been disproportionately led by de facto leader Saudi Arabia, who has so far cut well beyond their official quota.

However, that extra effort comes with some added frustration with non-compliant members, headlined by Iraq. Add in a shakeup at the top levels (OPEC recently replaced its oil minister and the head of state oil company Saudi Aramco) and there’s some added uncertainty in terms of future strategy and production. That’s on top of existing questions about global demand growth—a topic where OPEC has offered an increasingly pessimistic outlook. As a result, the market is sure to pay close attention to the group’s latest production numbers and expectations in this month’s official market report.

September 18: U.S. Federal Reserve Press Conference

Always important, the U.S. Federal Reserve has received some additional (and almost certainly unwanted) attention of late as President Trump urges the central bank to aggressively cut interest rates.  After the first rate cut in more than a decade earlier this year, the Fed is expected to offer another rate cut at this month’s meeting.

While the consensus for a cut is strong (~90% at the start of the month) that leaves enough uncertainty to move the market once any decision becomes official. More importantly, in the unlikely event that the Fed punts to their October meeting and leaves rates unchanged, the market is likely to see some significant volatility.  No rate cut would likely boost an already strong U.S. dollar, in turn sinking dollar-denominated energy prices like oil, coal, and in some cases, LNG. Combined, those three commodity costs have a sweeping impact on heating and electricity prices with the winter heating demand season fast approaching.

September 30:  British GDP Data

Similar to the upcoming round of Fed meetings, GDP data is always important—but sometimes more than others. One such important data release comes at the end of the month with a September 30 release coinciding with some significant Brexit-related turmoil. Many months after the vote to leave the EU, the UK’s path forward on Brexit is as confusing as ever with an October deadline potentially giving way to another extension.

The economy remains the central concern in any Brexit discussion with the threat of a no-deal Brexit threatening to severely undermine economic growth. To that end, any unexpected shift in GDP growth could quickly shift the discussion as markets search for any early warning signs amid continued uncertainty. For energy, UK economic health has far-reaching potential impact, particularly as the UK is increasingly relied upon to take in additional US LNG exports this winter. Weaker growth could lower energy demand expectations, weighing on gas and power prices not just in Europe, but in parts of the U.S., as well.

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