3 Issues To Watch As Energy Markets Remain Volatile
Ellen R. Wald, Ph.D | Sep 01, 2022 05:52AM ET
Here are some key energy issues for traders to keep in mind as energy markets continue to show extreme volatility:
1. Will skyrocketing European energy costs change Europe’s energy market?/h2
European Union leaders are now coming to terms with the fact that skyrocketing natural gas prices are making energy costs too high for consumers. European Commission president Ursula Von der Leyen said fertilizers is also soaring, in part because some of the raw materials used to make fertilizer are derived from natural gas. Fertilizer production has also been curtailed in some places in Europe because of the high prices and lack of feedstock. This will have repercussions across other commodities markets that rely on fertilizer for production.
3. Will OPEC+ cut production at its meeting on Sept 5?/h2
After the Saudi oil minister, Prince Abdulaziz bin Salman, stirred up oil markets with his comments last week, traders are wondering whether the group will push through a production cut next week. I see this as unlikely because OPEC+ probably won’t be able to restructure its production quotas in a new agreement by next Monday. This will most likely come later this year, perhaps at the November meeting.
Most likely, the group will leave quotas unchanged. Traders should remember that OPEC+’s actual production rates are more relevant than its quotas to oil prices right now, because so many member nations are producing below their quotas. In fact, many cannot meet their quotas.
Looking ahead, however, the OPEC+ Joint Technical Committee (JTC) just issued a report that forecasts a 100,000 bpd increase in supply surplus for 2022. The committee now expects the market to see a 900,000 bpd average surplus this year. The JTC’s assessment of the physical oil market could provide some clues as to whether OPEC+ will cut production quotas in the future. Traders should watch future JTC reports as well as OPEC’s official supply and demand forecasts for 2023 for signals of whether the group plans to cut quotas or not.
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