Energy Market Watch: Spring Forward Edition
Ahhh, March. Such a confounding month it is. Still two-thirds winter, yet one-third spring. March arrives with the heavenly promise of longer days and warmer weather…but at a devil’s bargain. March’s time change to daylight savings costs us an hour of sleep and may, in fact, increase our risk for stroke. Something to think about.
Anyway, we’re not here to argue over the net benefit of the time change (it’s terrible), but we are here with a strong cup of joe and your monthly news and notes on energy markets.
March 9 – US Employment Data
Any politician will tell you that there’s never really a time of year when jobs aren’t important. Year-round we hear promises of more jobs, better jobs. We fret about automating jobs and how job wages appear to be growing. In recent years, though, it’s become increasingly uncommon to hear about job seekers not being able to find any. That’s because the unemployment rate is near what most economists would consider a floor – around the 4% level.
While the unemployment rate matters to most, few care more than those at the US Federal Reserve, where US unemployment levels are actually part of their core mandate. In fact, its policies are judged in terms of how they impact the nation’s employment picture. Rest assured voting members will pay close attention to that data ahead of the March 21st meeting. (Keep reading.)
March 11 – Daylight Savings Time
Despite the conventional wisdom that Daylight Savings Time exists to benefit farmers, it actually has its roots in energy efficiency efforts. The historical argument advanced by Benjamin Franklin (among others) has been that increasing the amount of daylight that extends into evening hours reduces the need for artificial illumination. More than two centuries after Franklin’s time, that argument still partially holds up. Existing evidence suggests energy used for lighting is reduced after the US springs forward.
However, while lighting may have been the major energy cost in the founding fathers’ time, that doesn’t translate well to the modern energy economy. Today, heating and cooling are exponentially more important to energy efficiency, and data shows extending daylight into the later hours tends to increase cooling costs. Essentially, increased activity during daylight hours actually creates more demand for air conditioning. (As if losing that hour of sleep wasn’t already painful enough.)
March 20 – Spring Equinox
Spring is a time of renewal. Ice thaws. Flowers bloom. We seriously consider cleaning out the garage. It turns out, the theme of renewal is also befitting of the energy market during this time of year – particularly natural gas. For natural gas traders, spring marks the time of year when the country moves past the demand peaks brought on by winter cold and starts sending more gas into storage ahead of the summer heat. It’s a critical period that sets the stage for market prices through the remainder of the year. The more gas that heads into storage during spring, the less likely prices are to shoot higher during that July heat wave. Heading into this spring, US natural gas stocks are definitely on the low side, but prices haven’t seen much support, in part because most expect spring to allow for a stronger-than-usual recovery. Whether those expectations come true will be among the most important factors in guiding natural gas and wholesale power prices across the US in the months ahead.
March 21 – Fed Meeting
A first big presentation at a new job can be nerve-racking for anyone. But imagine that presentation has a direct impact on the state of the global economy. That’s the situation Jerome Powell confronts as he presides over the Federal Reserve’s first rate hike under his leadership. Following Janet Yellen’s departure earlier this year, Powell has been generally viewed as a status quo pick. That means continuing a steady push towards increasing rates, all while making sure the market has plenty of time to price it all in. As long as he sticks to that plan, the dollar and dollar-denominated global commodities like oil and coal shouldn’t see too much of a shakeup, with futures trading indicating that most see a rate hike as a virtual lock at this month’s meeting. However, with talks of an escalating trade war coming at a bit of an awkward time, there’s still a chance Powell’s first big move could be not making a move at all.