President Trump moved quickly to show he meant business with his Tariff’s. Colombia’s leftist President would not let US planes land in his country with deported criminals that were his citizens. President Trump threatened 25% tariffs immediately and 50% a week later. This would have severely hurt the Colombian economy which exports crude oil and coffee as well as having a large tourist industry with the US. The US is its largest trading partner and exports are 28% of the value to its GDP. Less than 10 hours later President Gustavo Petro backed down and even offered to send the Presidential plane to bring back his citizens. This challenge by Trump against a minor economic player has shocked the world and now within days; Mexico and Canada will be in Trump’s crosshairs. Canadian markets are weakening with energy stocks getting sharply lowered. The S&P/TSX Energy Index is down 7% from 289 (three weeks ago) to 269 today. Our downside target of <240 remains. If Trump’s tariff announcements in the coming days appear painful then we could see a quick decline in the Canadian stock markets and energy will fall down to a point that they signal a new BUY window.
President Trump now has his eyes on Venezuela and plans to cut off Chevron’s license to produce in the country. Trump wants to deport Venezuelan gangs and Maduro will not likely agree to take them back. This theater will be the one to watch. Do they lose crude exports, do they face new sanctions, does the US move for regime change. A showdown is coming!
President Trump is moving fast on his immigration promises. Tens of thousands of troops (mainly engineering etc.) are moving to build the wall and help border patrol. The US Coast Guard has sent its ships (minus the fired head of the organization for her WOKE stand). Illegal immigration is nearly halted. Frustrated gangs are firing over the border at ICE agents and are seeing return fire. US Special Forces could be sent into Mexico to go after the drug and smuggling cartels if the Mexican government does not stop the gangs (now classified as terrorist organizations by the US).
The Federal Reserve left interest rates unchanged at 4.25 – 4.50% for the Fed Funds rate. The decision came after three consecutive cuts. In the commentary they saw solid labor markets and wanted to wait to see if the ‘Tariffs’ had any impact on inflation going forward.
The Bank of Canada is preparing for ‘Tariffs’ and a weaker economy with another 25 BP cut in rates. The Policy Rate is now 3% down from 5% at the start of the rate cut cycle. The Canadian dollar is retreating, now at US$0.6923 and heading towards the low of US$0.68 that we posted in our 2025 Fearless Forecasts report. Economists note that a 25% Tariff would throw Canada quickly into a challenging recession if not averted by a deal. The next days and weeks will be challenging for Canada if President Trump decides for an all out attack on our drug exports, trade surpluses, illegal migration, low NATO spending and a lack of leadership in Ottawa. China which has faced bans on receipt of leading edge US AI chips took the problem and reversed the issue by coming up with their own AI chips that are just as fast as US chips and much much cheaper (under US$6M to develop versus over US$100B or more for US chips. Using open source AI helped. NVIDIA got walloped on Monday by over 17% in value or down by nearly US$600B. OUCH! US competitors were quick to give credit and NVIDIA itself said ‘China’s DeepSeek R1model was an excellent AI advancement’. Others are calling this a ‘Sputnik Moment’ for the US industry which was spending hundreds of billions. Companies in building and running data centres also fall as did chip manufactures as this new source of AI products has busted the current high mark up approach of US manufacturers. How badly will AI chip margins be cut? The big names in the sector still trade at very lofty valuations.
Global Economic, Political & Military Update
The President’s key cabinet and other lieutenants continue to go through the Senate confirmation process. The first 100 days is seeing major directional and policy changes unfolding. Next to watch for Senate approval is RFK which may be the most difficult to pass given his conflicting views and background problems.
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$73.00/b (down US$3.00/b from last week). 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). A breach of US$72/b should start the next material downwave for crude prices. 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 was a mixed report. Commercial Stocks rose 3.5 Mb to 415.1 Mb and the SPR rose by 200 Kb to 394.8 Mb. Distillate Fuel inventories fell 5.0 Mb due to strong heating demand during the cold weather. Overall Stocks fell 13.6 Mb to 1,608.2 Mb. Refinery Utilization fell 2.4% to 83.5% but was above 2024 which was at 82.9%.
US Production fell 237 Kb/d to 13.24 Mb/d but remains 240 Kb/d above 2024 levels. Exports weakened due to sluggish economies in Europe. Exports declined 829 Kb/d to 3.69 Mb/d. Overall demand grew 1.49 Mb/d to 21.1 Mb/d as Propane demand rose by 401 Kb/d to 1.98 Mb/d and Other Oils demand grew by 620 Kb/d to 4.38 Mb/d. Motor Gasoline rose by 216 Kb/d to 8.30 Mb/d and Jet Fuel fell 54 Kb/d to 1.50 Mb/d. Cushing Inventories rose 300 K to 21.0 Mb. However this is below the 2024 level of 28.1 Mb.
Overall US demand is now up 3.0% from last year while Gasoline demand is 1.5% above last year. The cold weather is the driver of this stronger demand.
EIA Weekly Natural Gas Data
Cold weather across eastern and southern USA helped to draw storage down sharply. Storage fell 223 Bcf to 2.89 Tcf with the largest decline in the South Central with a 77 Bcf usage. This compares to a decrease of 326 Bcf last year when there was even colder weather and the 5-year average withdrawal rate of 170 Bcf. Warmer weather is forecast for the next week and then colder weather.
US Storage is now 1.9% below last year’s level of 2.95 Tcf but still above the five year average of 2.87 Tcf (0.7%). 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$3.41/mcf. Spikes over US$5/mcf should be seen this winter during very cold days when electricity systems are maxed out. The recent weakness in natural gas prices is due to the new concern that data centres for AI needs may not be so robust after the Chinese ‘Deepseek’ announcement.
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 24th, the US rig count fell four rigs to 576 rigs. Rig activity is now 7.2% below the level of 621 rigs working last year. Of the total US rigs working last week, 472 were drilling for oil and this is 5.4% below last year’s level of 499 rigs working. The natural gas rig count is down 16.8% from last year’s 119 rigs, now at 99 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 16 rig increase to 245 rigs as the industry ramped up to drill out 2025 drilling budgets. This rig activity rate was above last year’s 230 rigs, or up by 6.5%. 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 $1.75/mcf.
Energy Stock Market
The S&P/TSX Energy Index today is at 272 (down 8 points from last week). Trump’s potential tariffs are weighing on the energy sector which is Canada’s largest export. Our downside target for this Index remains below 240 (range 230-240 which is getting closer) and we see this happening over the coming weeks if the Tariff politics get very ugly. 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. A bust of US$72/b would likely commence the next significant decline in crude prices and maybe even down to below US$68/b which would trigger a new BUY signal for us.
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 and in December during tax loss selling season. 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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