Energy Market Watch: New Year’s Edition
We originally resolved to bring you only good news from the energy market in 2018. Alas, that resolution lasted only a week or so. (If we’re honest, we’ve already quit the gym, too.) But, it’s still worth a few minutes of your day to ring in the New Year with us by unpacking important news and notes on events that will impact energy markets this month.
January 6, 13, 20, 27: Baker Hughes Rig Count
Current global oil prices provide no shortage of reasons to feel bullish heading into 2018. OPEC has extended a relatively successful deal to cut supplies through the end of the year, global demand is steadily on the rise, and global inventories of crude and products are on the decline. Similarly, US natural gas prices have seen support from a surge of winter weather in the New Year as longer-term demand support is expected to come from a growing export market.
The question in both cases: why aren’t prices higher?
Gas futures remain well below historical winter price levels despite a near-term spike. Similarly, crude’s recent rally to $60/bbl still leaves oil prices miles away from the $100+ barrels that were normal only a few years ago. For global crude and US natural gas, the answer is the same: US production. Specifically, the expectation of continued supply growth from US shale producers, who can accelerate operations as prices move higher. To gauge the pace of that trend, weekly rig counts are often used ahead of production data, which often lags the current market. Those rig counts have seen some headwinds of late, but the market will be looking for a rebound in the weeks ahead. As the results come in, expect oil and gas prices to take notice.
January 8: FERC Response Update
After weeks of speculation and a 30-day extension filed last month, FERC responded a bit early to a looming January 10 deadline. The Commission was charged with responding to a Notice of Proposed Rulemaking (NOPR) from the Department of Energy (DOE) which had requested measures that would have provided subsidies to coal and nuclear generators in several regional markets. Ultimately, FERC rejected the request in comments published January 8, suggesting an underlying disagreement with DOE claims that the subsidies would address stated reliability concerns. If FERC had moved to enact the DOE policies, it would have been a bearish factor for wholesale power prices in targeted regions as it worked to prevent future coal plant retirements. Moving forward, FERC’s rejection suggests a continuation of the status quo, though the commission has also initiated a further study on baseload reliability that could lead to policy changes in the future.
January 11: US Natural Gas Storage Report
As we’ve mentioned in previous editions, the amount of natural gas in US storage facilities is the single most important indicator of the overall state of the natural gas market. With the data released on a weekly basis by the EIA, most reports are forgotten as soon as the next one comes around, but that won’t be the case for January 11 edition. According to preliminary market expectations, the EIA is likely to report a storage drop of more than 350 Bcf. That represents well over 10% of total US inventories to start the year and would be the largest one-week decline in the report’s history. With gas prices sliding for much of December, the sudden surge in demand connected to a blast of winter weather could provide some much-needed relief for US gas producers.
January 12: US Retail Sales
US retail sales are also a regularly reported figure, but some are more important than others. On January 12, retail sales data will place concrete numbers on December sales and offer insight to what is typically the most important time of year for many US retailers. Those numbers are often used to gauge overall consumer confidence and the health of the broader economy. While that conversation tends to focus on how it affects the stock market, energy traders will also take notice as a healthy economy has a direct link to stronger energy demand ahead.
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