Lost your crystal ball? Not to worry. The June edition of “What to Watch” provides a glimpse into the future, a rundown of key dates and events that should have a major impact on the energy and financial markets. Cue “Panama” by Van Halen, sit back and enjoy reading.
June 2: OPEC Meeting
It’s time for another round of oil and opera as the ambassadors of OPEC gather in Vienna this month. With no major strategy change expected, the real focus will be on how everyone’s getting along – looking at you, Saudi Arabia and Iran. The relationship has been the geopolitical version of Donald Trump and Paul Ryan. The countries don’t like each other, but sooner or later they’re going to have to get along. Of course, Trump and Ryan aren’t fighting proxy wars against each other in Syria and Yemen. So their kiss-and-make-up odds may be slightly higher.
June 7: Chinese Trade Numbers
It’s been said many time before, but growth in China is central to the global outlook for oil, coal, and overall energy prices. (Download the 6 for 2016: Global Energy Market Trends whitepaper to learn more). That means another round of disappointing Chinese trade numbers could scare Wall Street traders more than a Swiss bank audit. While China’s exports traditionally fueled its economic growth, its imports are particularly important for energy. A strong start for Chinese oil imports in 2016 resulted in upward revisions to oil demand forecasts for the rest of the year. However, China is no stranger to volatility and as the fine print of every brokerage will tell you, past performance is no guarantee of future results.
June 14-15: US Fed Meeting
Central Banks matter when it comes to energy spend. And no central bank matters more than the U.S. Federal Reserve. The Fed made it clear they’d like to continue their “liftoff” plan to steadily raise rates, but the rest of the world hasn’t exactly made things easy. China, Europe and Japan have all directly or indirectly devalued their currencies over the past year, which makes increasing U.S. rates a bit tricky. On the plus side, concerns surrounding the health of emerging markets has calmed, as consensus settles around a gradual economic slowdown. The net result? A rate increase is coming in 2016, but probably not in June. That’s partially due to the standard global growth concerns, but also has quite a bit to do with a vote across the pond on June 23…
June 23: Brexit Vote
Fresh off fears that Scotland could leave the U.K. (Scoxit?), Britain is currently weighing its own exit from the European Union (EU). The Brits have been divided on the EU for some time, as shown by the decision to maintain the pound sterling rather than adopt the euro. Fast-forward to today and public opinion is still split, according to the latest polls. Politics and sovereignty aside, a vote in favor of the Brexit would be a bearish macro-economic factor at least in the short-term. Previously free-flowing trade would be disrupted as new agreements would need to be reached. The move would likely weaken both the euro and the pound, while propping up the relative value of the U.S. dollar. That ups the level of difficulty for targeting a U.S. rate hike and is one of the main reasons Yellen & Co. — Janet Yellen, the head of the Fed, and her team — will likely have to wait at least one more round to act.
June 26: Panama Canal
After a decade of planning and construction, the Panama Canal expansion is approaching completion. This is no minor public work’s project: The development is a $7-billion effort (or one-sixth of Panama’s entire annual GDP) that will bring one of the world’s major shipping lanes into the 21st century. Specifically, tankers have gotten bigger over the years, but until now, the canal hasn’t. The project will soon make it easier and more cost effective for the U.S. to ship crude products, natural gas and natural gas liquids (NGLs) to the most-coveted emerging market — China. Asia is already the main destination for U.S. NGL exports and that trend should only increase as infrastructure eases the process. For some products, this means that U.S. consumers will have more competition from foreign buyers, while other sectors could enjoy cheaper imports.
Should be an action-packed month. And July? Check back in 30 days.