Friday's Calm-Before-The-Storm Feeling

There’s a calm-before-the-storm feeling to early trading in the energy markets Friday as we wait on more news from OPEC, and the first hurricane of the season.

As expected, the OPEC meeting has created volatility through uncertainty.  Yesterday we saw prices spike when Russia and Saudi Arabia couldn’t come to terms, only to see prices pull back when it was reported they’d found a suitable compromise on raising output gradually, and then prices have moved higher again this morning when the UAE was reportedly standing in the way of a deal. 

The day before a holiday weekend is often a quiet, low volume, trading session, which could mean more volatility later depending on what the cartel does or doesn’t agree to. 

Elsa is now a hurricane, continuing a trend we’ve become familiar with the past few years where storms get stronger than the early forecasting models suggest.  While that may be an ominous sign for the remainder of the Atlantic hurricane season, this storm’s path is still expected to stay well east of the oil production and refining zones in the Gulf of Mexico – and it will be interfered with while crossing the Antilles – so it should not be a major supply disrupter.  That said, there will be panic buying in parts of Florida that will create their own shortages, and given that the supply/demand balance is tighter than it’s been in several years and trucking capacity is tighter than ever, dealing with those localized issues will be a challenge. 

The June payroll report showed 850k more jobs added during the month, while the official unemployment rate ticked higher, in what seems like good news in that more people are once again looking for jobs.  The U-6 unemployment rate dipped from 10.2 to 9.8%.  Markets reacted positively to this news as it signals both continued recovery from COVID, and perhaps the end to the “why should I work” mentality feared from the trillions of dollars of stimulus that had been pumped into the economy over the past 15 months.

Today’s interesting read courtesy of Rystad Energy: Why the EV market is growing more reliant on Chinese battery components.

Click here to download a PDF of today’s TACenergy Market Talk.