Energy Market Watch: Halloween Edition

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

The October Markets Watch arrives on your virtual doorstep, probably in hopes of finding a bowl full of candy, completely unguarded, and a naïve little sign that says, “Take one, please.” (Yeah, right.) Looks like this month’s costume party will include a gross domestic product, a spooky petroleum status and a natural gas injection that may not be as scary as it sounds.

Also, there’s a Canadian party just up the street, but we didn’t get an invitation. We got a rock.     

October 24 – Canadian Summit on Trade Reform

Canada is having a party, and the U.S. isn’t invited. Technically, it’s a meeting to save and improve the existing international trading system, but according to Canadian trade minister Jim Carr, the meeting is only for “like-minded” countries. (US President Donald Trump has used a number of adjectives to describe Canadian trade policy, but “like-minded” wasn’t one of them.)

So, who did make the list? Australia, Brazil, Chile, the European Union, Japan, Kenya, Mexico, New Zealand, Norway, Singapore, South Korea and Switzerland. It’s almost a who’s who of America’s diplomatic allies – and some of America’s largest trading partners. With trade high on the list of market movers in recent months, expect traders to keep a close eye on the meeting in Ottawa, and what (if anything) the U.S. has to say about staying home.  

October 26 – U.S. GDP

The economy looks pretty good. Even as the debate of who should get the credit continues unabated, one big question remains: How long can we keep this going? As long as GDP growth holds steady, global demand for energy is likely to trend in line. However, as oil prices have increasingly run higher, some have wondered whether it could soon stall economic growth as prices at the pump take more out of consumers’ pockets.

Essentially, energy prices in many sectors have seen support from economic growth, but now economic growth could face pressure from overly supported energy prices. GDP data should offer the latest update.

October 31 – EIA Petroleum Status Report

Each week the U.S. Energy Information Administration (EIA) reports the change to crude and product stocks across the United States, essentially the net difference between supply and demand. The reported numbers are among the market’s best indicators for what oil market fundamentals look like. Of late, those stocks have been trending slightly higher. Meanwhile, oil prices have been rising as the market braces for US sanctions on Iranian oil exports that could squeeze global supply.

As major producers such as the U.S., Saudi Arabia and Russia look to boost production in response, the market is still uncertain whether a shortfall is imminent. Whatever the answer, further boosts to U.S. inventories through the end of the month could offer a nice buffer to any shortage ahead and would help to challenge the latest rally for oil and oil-linked energy prices.

October 31 – Halloween/End of Natural Gas Injection Season

Halloween is supposed to be scary, but this year it may have a tough time competing with natural gas storage data. October traditionally marks the end of the natural gas injection season and the switch to withdrawals. It’s the time when gas production goes from “too much” to “too little” as cooler temperatures start to boost heating demand across the country. As that demand outpaces supply, the excess gas sent into storage during the warmer summer months is used to make up the difference.

This year will follow the same pattern with one major caveat: the amount of gas actually in storage across the U.S. is significantly lower than normal. In fact, gas storage is at multi-year lows, despite strong production and relatively low prices. That means the market could react quickly to boost prices if unexpectedly cold weather moves in.

Longer-term, though, the situation isn’t as scary as it sounds. Major production growth should keep long-term prices in check, even if the market sees some cause for concern this winter.

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