Energy Market Watch: Accordion Awareness & North Korea Edition

June 11, 2018 Chad Holder

Energy Market Watch: Accordion Awareness & North Korea (June 2018)

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

Are you aware June is National Accordion Awareness Month? No? Here, I’ll prove it. Admittedly a reasonable response would be, “But what does this have to do with energy markets?” I thought you’d never ask.

In recognition of the U.S./North Korea Summit, please enjoy this delightful video of a North Korean accordion quintet rocking A-ha’s timeless hitbut perhaps prophetically titledTake On Me.” Here’s hoping for a high energy-low volatility meeting in Singapore.

June 12 – U.S./North Korea Summit Energy Markets

United States flag North Korea flagThere isn’t much about the North Korea/U.S. meeting that is energy-specific. But, this event has potential to impact virtually every market in some way or anotherenergy is no exception. From a fundamental view, North Korea’s impact on energy supply and demand is limited. Its coal trade with China serves as one of the few links with some tangible market impact. However, geopolitical risk premiums are an energy market staple and all the uncertainty around how to handle North Korea’s nuclear program is still a risk.

Direct dialogue between the leaders of the two countries is a major development and certainly signals a shift in the often confrontational dynamic. If things go well, it could prove bearish for energy prices overall as the threat of conflict appears to ease. If not, the market’s perception of geopolitical risk could follow suit and pull global energy commodities, such as oil, along for the ride.

June 15 – Global Wind Day

As its name suggests, Global Wind Day is about appreciating all the potential benefits of wind energy. For millions of energy consumers, though, that potential is already here. Wind accounts for the bulk of non-hydro renewables that now cover 10% of total U.S. electricity demand.

Wind turbine in iowaLooking ahead, wind’s run of record growth in recent years is being increasingly challenged at the federal level in the U.S. by tax policy changes and possible efforts to prop up coal and nuclear plants. Nonetheless, current market economics continue to point toward more gains for wind energy, both in the U.S. and across the world.  So, while there are plenty of details for the market to sort through, there’s little doubt that next year’s Global Wind Day will see even more wind-generated electrons traveling through the world’s power grids.

June 22 – OPEC Meeting

In a typical year, OPEC schedules two official meetings in Vienna. You can be sure global oil prices will place every minor development under the microscope. However, with a coordinated production deal fully in place since the start of 2017, the last few editions have been less than exciting.  That’s likely to change later this month, as OPEC confronts the first meeting in several years where the market seems genuinely uncertain.

Oil and gas industry - refinery factory - petrochemical plant at twilightOPEC’s ongoing production deal – currently scheduled to run through at least the end of the year – has been successful. Previously overflowing inventories are back in line with five-year averages and prices have more than doubled from their lows set back in 2016.  However, high oil prices can bring their own set of pain points for OPEC & Co., including falling demand and greater competition from higher-cost producers. Combined with expectations that Iranian and Venezuelan production will continue dropping on a mix of geopolitical and economic challenges, Saudi Arabia (OPEC’s de facto leader) is pushing towards an early end to the current deal.  That could see Saudi Arabia lead a group of producers in returning oil supply back to the market, weighing on prices and bringing general pressure across global energy markets.

On the other hand, Saudi Arabia could find too much internal opposition within OPEC to reach any type of consensus. This would force either a continuation of the current deal or a risky unilateral move that would challenge OPEC’s long-term viability. Nobody ever said leading the world’s largest energy cartel would be easy.

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