Energy Market Watch: Groundhog Edition

“This is one time where television really fails to capture the true excitement of a large squirrel predicting the weather.”
– Phil Connor, Groundhog Day

While rodents can’t accurately predict the weather, we’d like to think a blog can accurately predict energy markets for the month. And, of course, that’s why we bring you the Energy Market Watch each month. Admittedly, this month’s installment has little to do with weather predictions and even less to do with Punxsutawney or its famous Phil, but it’s still packed with plenty of news and notes on the energy markets. Go ahead and get started, but watch out for that first step, it’s a DOO-zy!

February 6: House Energy & Commerce Committee Hearing on Nuclear Infrastructure

We’ve previously highlighted a proposal from the Department of Energy to subsidize coal and nuclear plants. In last month’s issue, we highlighted FERC’s rejection of that proposal, much to the dismay of many coal and nuclear generators. However, the prospect of legislation surrounding nuclear generation is not off the table. In many markets, nuclear generators face increasingly challenging economics due to lower natural gas prices and rising capacity from renewable energy. That’s been a point of concern for a number of local, state, and federal lawmakers who see that nuclear generation as a critical component of baseload power reliability. With that in mind, February’s House hearing isn’t likely to offer any permanent answers, but it could be the starting point for new legislative efforts concerning America’s nuclear fleet. Those proposals can impact future nuclear generation, which can in turn, sway deregulated power prices in key markets.

February 9-25: Winter Olympics

The PyeongChang 2018 Olympics will bring together representatives from virtually every country, meaning the politics of international relations are nearly inextricable from the sporting events themselves. Given the event’s location in South Korea, the nuclear program of their northern neighbor is a huge geopolitical question mark during these games. So far, it appears the Olympics could ease some of those tensions as both countries display signs of unity. (Ultimately, most pundits remain skeptical.)

North Korea’s standing in the international community has a number of major implications with energy among the more important issues. Historically, North Korea’s coal exports and its ability to import refined fuels have been among the most contentious aspects of international sanctions. Those sanctions have a tangible impact on market prices for those commodities and affect energy prices in the US. One more reason to tune in… as if competitive curling wasn’t enough already.

February 19: Presidents' Day

President’s Day has a few direct impact impacts on US energy markets, but they aren’t exactly earth-shattering unless you’re looking for low, low prices on sofas. Most markets shorten the trading day on Monday and most government energy reports are delayed slightly as government employees enjoy an extended weekend. It’s also a fine opportunity to reflect on the president’s impact on energy policy, which can be a major driver of prices during periods of change.

Overall there have been some notable developments during President Trump’s tenure (tax reform, planned US withdrawal from COP 21, likely termination of the Clean Power Plan), but broader market trends remain intact. Renewable capacity continues to rise, the US shale boom is leading to record US oil and gas production, and coal continues to face challenges in a competitive environment. While energy policy likely isn’t done changing at the federal level, don’t expect policy to stop any of those trends in 2018.

February 28: Petroleum Supply Monthly

Speaking of booming oil production, the EIA’s “Petroleum Supply Monthly” remains the definitive source to quantify exactly how much oil is coming out of the ground in the United States. According to recent editions that number is – in layman’s terms – a lot. In fact, the US oil industry is now producing more than 10 million barrels per day according to January’s print, a number that exceeds the latest estimates for Saudi Arabia’s oil production and is just shy of a domestic record set in the 1970s. February’s update could report a new record, which would earn the oil market’s attention as it highlights the potential for US production growth to challenge the latest rally higher for oil prices.

Stay tuned for next month’s forecast! And feel free to reach out to our energy market experts.