Skip to main content

Energy Market Watch: Total Solar Eclipse Edition

Published Date

August brings a total eclipse of the sun and the California power grid is going to need reliability more than ever. However, this natural phenomenon is not the only major happening this month. It’s a busy time for energy. And here are the dates expected to move the markets.

August 4, 11, 18 & 25: Oil & Gas Rig Counts

Extracting oil and gas from the ground and turning it into usable energy is a process that takes a lot of time and money. The U.S. shale industry has scored impressive victories on both those fronts in recent years. And yet, today’s new production is the result of a process that started months — or even years — earlier.  Ultimately, that new production is the driving force behind current energy prices with oil and gas supply from U.S. shale moving markets for usual suspects like gasoline and diesel, but also the price of electricity.

That’s why understanding future energy spend requires a close eye on the production moves today that will help create supply tomorrow. To that end, Baker Hughes’ weekly rig count figure offers some insight into broad production trends. The count serves up data on how many rigs are actively drilling for gas and oil and where they’re working. That’s especially important in the current climate with the energy market raising questions as to whether recent strength for U.S. oil and gas production can keep pace. Look for upcoming rig counts to provide a sneak preview and expect energy futures to take notice.

August 7-8: OPEC/non-OPEC Compliance Meeting

U.S. shale may be the biggest factor driving today’s oil prices, but OPEC isn’t going down without a fight.  Quite the opposite, actually. The cartel is currently combining efforts with Russia — and a number of non-OPEC producers earlier in the year — to implement the first coordinated production deal in nearly a decade. The effort would appear to be mildly historic, but the price impact has bordered on forgettable. Benchmark crude prices eventually erased most of the gains charted in the aftermath of the big announcement.

Despite strong compliance rates compared to previous deals, the cuts have been heavily offset by U.S. shale growth, which used the deal to lock in higher prices and boost production). Production growth from OPEC members Libya and Nigeria — both of which managed to negotiate exemptions — contributed as well. Still, rather than admit defeat, Saudi Arabia has asked the participating OPEC members to take a long look in the mirror, arguing that compliance rates may be strong, but they haven’t been strong enough.

Lack of conformity (or in simpler terms: skirting the rules) has also garnered some extra headlines lately:

  • Iraq fell far short of its earlier commitment.
  • Ecuador openly announced plans to ignore its quota.
  • Overall group compliance is trending lower as seasonal factors add to the deal’s difficulty.

Sensing the declining market confidence, Saudi Arabia and OPEC’s compliance committee have targeted an August meeting in Abu Dhabi to let these countries know they won’t tolerate free riding. That might give oil prices a shot of short-term confidence, but with no real penalties for non-compliance, don’t expect a sustained boost.

August 21: Total Solar Eclipse

Generally speaking, three-hour events don’t typically rattle global energy markets. Of course, a total solar eclipse isn’t a common occurrence. And California, which is near the center of the eclipse’s path, does not have a common energy grid. While fossil fuels still play a critical role in keeping lights on, the state boasts roughly 10 gigawatts of solar generation capacity — essentially five times the capacity of California’s last remaining nuclear power plant. As the solar eclipse moves in, that solar generation capacity will be cut by more than 60% across the state before reversing to full strength. This will likely trigger serious headaches for grid reliability.

August 30: GDP

Gross domestic product (GDP) is often held up as the one-size-fits-all number for macroeconomics, which means its relevance extends well beyond the energy sphere. Nonetheless, energy is certainly among the most influential and impacted sectors when it comes to GDP data.

For some energy market aspects, the link is fairly clear — strong GDP growth often serves as a useful indicator of increased demand for refined fuels like diesel and gasoline.

In the past, GDP growth has also been a useful predictor of total electricity demand and energy-related carbon emissions, but today those relationships aren’t necessarily reliable. In recent years, dedicated efforts have allowed sustained GDP growth to essentially de-link from total carbon emissions through:

  • Improved energy efficiency
  • Improved renewable capacity
  • Less carbon-intensive energy sources

Not just in the US, but globally.

So, while GDP still connects to any number of long-term energy trends, August’s report should come with a reminder that energy’s relationship to a complex global economy is anything but static.

September should bring the third quarter to a roaring close. So check back next month for the days you’ll need to circle on your calendar. And reach out to our team of analysts in the meantime for help navigating the always-shifting energy landscape.