President Trump moved quickly to stamp his policies that he was elected on. Executive orders on closing the border, evicting criminals, ending DEI, opening federal lands to energy development, requiring all federal workers return to their offices full time and many, many others. It appears that on the first two days he signed around 200 Executive Orders. He said he would move quickly and he did. Most of his moves were applauded except for pardoning J6 convicted violent criminals who harmed police officers.
How he moves on tariffs in the coming weeks will be a focus of the markets. Canada and Mexico are gaming alternatives to whatever the Trump administration decides to do. Finding ways to lower their trade surpluses, cutting back on migration into the US and working to end drug smuggling will need to be part of the package they present as the negotiations proceed. Tariffs of 25% would be killers for both economies and would raise inflation in the US as these costs get passed on. Canada is in a worse position than Mexico due to our Federal Government leadership in disarray and an election required later this year. Canada needs to avoid a trade war with the US but needs to show procedures and progress on cutting illegal migration to the US and that drug interdiction (especially of fentanyl) is working. If they can make the argument in favour of a continental energy policy then Canadian imports of inputs for new pipelines etc. would lower our trade surplus.
Global Economic, Political & Military Update
Outgoing President Biden made some last minute questionable pardon decisions that caused a distaste as he exited the stage. Were these individuals (family, J6 committee members and staff or Dr. Fauci, etc.) really guilty or was it to save them from Congressional testimony. Putting the past behind would be the best for America as it moves to meet the many challenges it faces. Hopefully President Trump and Congress move forward on cutting government waste, cutting the deficit, raising the debt limit, extending tax cuts where warranted, ending the war in Ukraine, dealing effectively with China and getting all the hostages Hamas has, returned, and finding a solution for the people of Gaza with Hamas no longer in control. If they instead move to retribution against prior issues and relitigate the past then it is going to make moving the ‘America First’ agenda difficult to pass quickly.
The commencement of the Hamas ceasefire-hostage release deal, while slower than the agreement plan, saw three young Israeli girls released. In the first phase, over six weeks, 33 hostages (alive and dead) including US citizens are to be released. In return Israel is to release 1,904 Palestinians. That still leaves 66 hostages to be released in phase two which is being negotiated. Will the deal hold and all hostages released or does a new phase of the war break out. Hopefully rational behavior occurs and sufficient food aid arrives to help the beleaguered citizens of Gaza as the phases unfold.
The President’s key cabinet and other lieutenants continue to go through the Senate confirmation process. The first 100 days that Trump wanted to see major directional and policy changes is unfolding. Hopefully the divergent political views don’t make progress glacial.
Some of the recent tug of war economic data includes:
- US Retail Sales rose 0.4% in December up from 0.2% in November. Optimism about the economy has improved as Inauguration day neared.
- US core CPI has risen 3.3% and will make it hard for the Fed to lower their Fed Funds rates next week Wednesday. Among the culprits, higher gasoline prices, grocery staples such as eggs (now up around US$7 per dozen due to the bird flu) and airfares up 3.9% in December and up 7.9% over the last 12 months.
- The outgoing Treasury Secretary on January 17th said that the debt limit would be hit on January 21st. The incoming Secretary will need to use ‘extraordinary measures’ to keep the government funded until a new higher limit is approved. This includes suspending investment in federal retirement funds and other accounting maneuvers (gimmicks) to free up borrowing capacity. A deal to remove the debt limit would be the wisest decision so this ongoing stress point is removed. Fiscal hawks like the measure as they want to use it to cut government spending and move to a balanced budget. A far cry away!
- US mortgage rates are now above 7% making housing affordability more of a challenge.
Regarding energy,
Our WTI price target of US$66-69/b was reached in September and is likely to test that level again in the coming weeks. Today WTI is at US$75.94/b (down US$3.50/b from last week) as the tariff fears subside. We expect a period of backing and filling for WTI crude in the coming weeks and another test of the lows (US$66-68/b). When this occurs we should see another BUY signal triggered. We plan to add additional BUY ideas at that time. Subscribers please watch your emails on weak market days as this is when such an Action Alert would be issued.
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EIA Weekly Oil Data:
The EIA data for last week will be reported tomorrow due to Monday being a statutory holiday for Martin Luther King. Next week we will cover the most recent data.
EIA Weekly Natural Gas Data
Very cold weather across eastern and southern USA helped to draw storage down sharply. Storage fell 258 Bcf to 3.12 Tcf with the largest decline in the Midwest with a 73 Bcf usage. This compares to a decrease of 154 Bcf last year and the 5-year average withdrawal rate of 147 Bcf. This was the first large withdrawal of 2025 and we expect a few more over the next 6 weeks. With a Polar Vortex bringing cold weather and snow down to Texas this week, the withdrawal rates should stay high.
US Storage is now 3.4% below last year’s level of 3.23 Tcf but still above the five year average of 3.04 Tcf (2.5%). Once we see the current week shrink below the five year average we see prices for NYMEX lifting nicely over US$4.00/mcf. NYMEX is today priced at US$3.81/mcf. Spikes over US$5/mcf should be seen this winter during very cold days when electricity systems are maxed out.
We recommend buying the very depressed natural gas stocks during periods of market weakness. Natural gas stocks are very cheap now. We see much much higher gas prices in 2H/25 as quite a number of new LNG plants come onstream over the next 12 months; one in Canada and two more in the US. In Canada the first train of LNG Canada comes on during Q2/25 and in the US Corpus Christi Stage 3 begins production of LNG (1.5 Bcf/d). In 2025, Golden Pass LNG is bringing on the first two trains of this new three train export facility. The US saw a ramp-up in feedgas deliveries to an all time high of more than 15.3 Bcf/d as the new Plaquemines LNG plant started up and shipped cargo to Germany.
LNG tankers are being redirected from Asian customers to Europe as prices are much higher there and drawdowns are happening very quickly due to the cold winter weather. Six tankers were diverted this week.
Baker Hughes Rig Data
In the data for the week ending January 17th, the US rig count fell four rigs to 580 rigs. Rig activity is now 6.5% below the level of 620 rigs working last year. Of the total US rigs working last week, 478 were drilling for oil and this is 3.8% below last year’s level of 497 rigs working. The natural gas rig count is down 18.3% from last year’s 120 rigs, now at 98 rigs. This decline in drilling and production should continue for a few more months as the industry waits to see Trump’s industry support and the industry waits to see natural gas inventories fall below the five-year average. Once this occurs we should see NYMEX prices recover. Weak WTI prices at this time should slow energy companies drilling plans for early 2025.
In Canada, there was a 13 rig increase to 229 rigs as the industry ramped up to drill out 2025 drilling budgets. This rig activity rate was above last year’s 223 rigs, or up by 2.7%. The industry needs north of $2.50/mcf to see the economics attractive to drill dry gas wells. As we get closer to LNG Canada ramping up in 1H/25 and natural gas fills the Coastal GasLink pipeline, prices should lift. AECO prices are at weak prices around $1.95/mcf.
Energy Stock Market
The S&P/TSX Energy Index today is at 280 (no change from last week). We think the Biden sanction crude oil price bounce is over. Our downside target for this Index remains below 240 (range 230-240) and we see this happening over the coming weeks. We like to BUY when stocks are cheap and being ignored. Bargains are clearly being seen now in our focus for new recommendations. WTI has traded between US$65.27/b and US$79.39/b (last week’s high) over the past few months.
Investors should decide what you want your energy weighting to be for this long energy super cycle. Our BUY List includes ideas from the Pipeline/Infrastructure/Royalty area, Canadian oil and natural gas ideas, energy service ideas and companies working internationally. Our list includes large Conservative ideas and small to large caps in our Growth and Entrepreneurial categories. Add to your current ideas or add new ideas. We expect that WTI should lift above US$90/b in 2H/25 and demand should exceed supplies at that time. We see WTI prices above US$100/b consistently during 2026.
We expect we are close to another low risk entry point like we saw on September 10th when we sent out an Action Alert BUY with five new BUY ideas. In the next few weeks an oversold condition should give us the next bargain BUY window. Keep an eye out for this Action Alert in your email inbox.
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