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Energy Market Watch: March 2017


March is a turning point. It marks the end of winter, the start of spring and (usually) more favorable weather.

It also includes several critical energy and economic milestones. From macroeconomics to underground gas storage, the month will serve up dates and data that will leave a thumbprint on the energy market throughout 2017. Bust out the calendar and circle these dates.

March 10, 17, 24, 31: Baker Hughes Rig Count

Evening shot of a Fracking Drill Rig using fracking technology under a moody skyFracking Oil Well is conducting a fracking procedure to release trapped crude oil and natural gas to be refined and used as energyElectric vehicles may be the future, but the world currently needs nearly 100 million barrels of oil every day to run. Late last year, OPEC (along with a few non-OPEC countries) decided global oil producers were meeting that demand a little too well and agreed on a plan to curb production. As it turns out, OPEC’s deal was exactly what US shale producers had been waiting for.

They’ve since turned on the taps, drilling new wells and bringing US production back above 9 million barrels per day — a gain of more than 500,000 barrels from 2016’s lows.

Looking ahead, US producers don’t seem particularly interested in slowing down. Recent rig count reports from oil services firm Baker Hughes show a steady rise in the number of rigs drilling for oil. That increases the importance of the weekly rig reports in the week ahead as the market will keep watch for signs of a fissure in the recent shale boom.

March 10: Employment Situation Report

Rising above bipartisan rancor, Washington agrees jobs are good. There’s less agreement, though, on the overall state of the job market. The unemployment rate is relatively low, but many have pointed to a low labor force participation rate as a concern. On March 10, that debate is likely to be renewed as the Bureau of Labor and Statistics offers up its staple report for February’s employment numbers. These will be the first numbers fully under Donald Trump’s administration, which means the impact is likely to be both economic and political.

Close-up Of Businesspeople With Files Sitting On ChairOn the energy front, the unemployment rate is one of the best indicators of energy demand. Obvious statement alert: People with jobs tend to commute by car and are more likely to purchase vehicles. That’s critical for gasoline demand with US stockpiles near record highs. It’s also likely to be increasingly important for electricity demand as new electric vehicles gain market share in the years ahead.

March 15: FOMC Meeting & Press Conference

“Beware the ides of March.” Shakespeare’s advice to Julius Caesar should apply to the Dow Jones in 2017. Janet Yellen & Co. at the US Federal Reserve will look to raise interest rates several times this year. The planned March meeting looks like it may be round one. At the start of the month, futures bets indicated the market saw the chance of a rate hike at 70-80 percent. That’s far greater confidence than the recent norm, but still indicates enough lingering uncertainty to potentially rattle global markets.

Generally speaking, a rise in interest rates boosts the value of the US dollar. What’s bullish for the dollar is in turn bearish for things priced in dollars. In energy terms, bearishness would be on deck for oil and coal, which are generally traded in dollars. All things being equal, it can also make imports more attractive at the expense of exports. So while the headlines focus on stock portfolios, don’t forget rate hikes can have a significant impact on energy spend as well.

March 31: Natural Gas Withdrawal Season

After the recent shale boom, natural gas moved level with coal in terms of meeting US electricity demand. As a result, gas prices are a key driver of both heating and electricity costs throughout the country. Even broader, with the rapidly expanding ability to export natural gas to Mexico through LNG tankers and pipelines, the US has built a stronger connection to the global market. Complex as that might seem, benchmark natural gas prices essentially trade off of a single number — storage.

Gas plant at oil production area.The Energy Information Administration (EIA), a subsidiary of the US Department of Energy, publishes  the total amount of natural gas in underground storage throughout the country. This figure indicates the ongoing net balance between supply and demand, and provides a convenient snapshot for the overall state of the market. As heating demand rises during the colder months, storage levels tend to drop then build back inventories during the second and third quarters.

The end of March is often the switching point for this transition, but weather variations play a role. It’s a window of time when gas inventories can conceivably build up or draw down depending on unpredictable factors. Simply put, the EIA’s storage report is worth your attention. Gas and power prices will also certainly take note.

More sun and longer days mean no rest for the energy and financial industries. So check back next month for more market-moving dates.

And reach out to connect with an analyst who can help build a strategic sourcing plan, streamline procurement and cut energy expenses.

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