Global Economic, Political & Military Update
President Trump and Prime Minister Netanyahu have given Hamas until noon on Saturday to release all remaining hostages (alive and the bodies of the dead) as Hamas has not met the phase one conditions. If the release does not happen then Trump’s ‘All hell is going to break out’ could escalate the fighting in the region. Hamas has regrouped and has brigades of young healthy fighters (as seen from the pictures of the hostage release propaganda photo’s) so Israel may need to use massive troop levels to destroy the current Hamas brigades. What is possible now is that the US provides Israel with the munitions (including large bunker busters) and they go after Iran.
Do they go to destroy Iran’s emerging nuclear weapons sites?
Do they go to destroy Iran’s IRGC and their weapons depots and military installations?
Do they go to destroy Iran’s industrial base (power plants, crude oil refineries, pipelines and energy export terminals?
Iran is the sponsor of Hamas, Hezbollah and the Houthis and with those degraded Iran is getting boxed in. President Trump has no problem with punishing Iran and knocking out major facilities could incite revolt in the country. A war between Israel and Iran could get ugly if Iran uses its few nuc’s or biological weapons. In the end Israel, the US and many of the US’s Middle East allies would love to see Iran’s mullahs neutered. We are in a dangerous period.
On the Ukraine front the new Secretary of Defense has said that US troops would not guarantee Ukraine’s security after the war is over and that Ukraine would not be allowed to join NATO. The Pentagon head said that a ‘return to Ukraine’s Pre-War Borders is Unrealistic”. He urged Europe to raise its military spending to 5% of GDP from 2% and be responsible for Ukraine’s security. In the meantime, Russia continues to gain ground in eastern Ukraine and is getting more munitions, artillery and fighting manpower from North Korea as it moves to defeat Ukraine soldiers in Russian territory in the Kursk region. President Trump and President Putin had a productive phone call today that opened talks to end the Ukraine war and discussed the release of US hostages in Russia and Russians held by the US.
On the Tariff front, Trump has put on significant steel tariffs worldwide and Canada and Mexico will be hurt by this. Many of the mills in the two countries take China steel and create products that are shipped to the US. This won’t hurt China’s dumping but will be a problem for mills on both sides of the US border.
I don ‘t believe that the Trump administration will accept that Canada has done enough to extend the 30 day tariff delay. The Liberal government has made some modest moves but if they win the upcoming election then a 180° will be their move. All that they are doing to pacify Trump is anathema to their beliefs. Getting elected again as the government in power is all that matters, not the policy reversals to gain control again. The C$ is today at US$0.70 but could easily fall to US$0.68 in the coming weeks.
The US economy remains resilient but with inflation pressures. Non-farm Payrolls rose 143K (forecast was for up 169K) and sharply down from December’s 307K new jobs. Average hourly earnings rose 4.1% in January year over year. In the month of January alone they rose 0.5% making the Fed’s job even tougher. Today the US CPI came in at 0.5% for December lifting the 2024 rate to 3.0% (above the Fed’s 2% target). Food (eggs now over US$7.30/doz.) and energy drove the price levels higher. The US bond market vigilantes hit bonds and yields rose. The 10-Year yield is now 4.65%. Consumers now see 2025 inflation coming in at 4.3%.
Regarding energy,
Our WTI BUY 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$71.48/b (down a few cents 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$70/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 bearish report. Commercial Stocks rose 4.1 Mb to 427.9 Mb and the SPR rose by 200 Kb to 395.3 Mb. Motor Gasoline Stocks fell 3.0 Mb while Distillate Fuel inventories rose 0.1 Mb. Overall Stocks rose 1.5 Mb to 1,607.2 Mb. Refinery Utilization rose 0.5% to 850% but was below 2024 which was at 80.6%.
US Production recovered 194 Kb/d to 13.49 Mb/d and remains 194 Kb/d above 2024 levels. Exports fell 422 Kb/d to 3.91 Mb/d. Overall demand fell 1.45 Mb/d to 19.6 Mb/d, as Distillate Fuel demand fell by 914 Kbd to 3.69 Mb/d. Motor Gasoline rose by 249 Kb/d to 8.58 Mb/d while Jet Fuel consumption fell 207 Kb/d to 1.53 Mb/d. Cushing Inventories rose 900 K to 21.8 Mb. However this is below the 2024 level of 28.8 Mb.
Overall US demand is now up 3.0% from last year while Gasoline demand is up 0.9% from last year.
OPEC Monthly Report
The January 2025 report released February 12th (today) showed that in January, OPEC saw a production decline of 121 Kb/d to 26.7 Mb/d due to UAE production falling 37 Kb/d to 2.93 Mb/d, Nigeria falling 29 Kb/d to 1.50 Mb/d and Venezuela falling 17 Kb/d 892 Kb/d. Saudi Arabia fell 17 Kb/d to 8.94 Mb/d. Offsetting this Libya added 17 Kb/d 1.28 Mb/d. Non-OPEC member Kazakhstan added 73 Kb/d to 1.54 Mb/d. Russia only fell a miniscule amount after Biden’s shadow fleet sanctions, declining 27 Kb/d to 8.98 Mb/d and remains the world’s second largest producer.
China demand continues to be sluggish (Naphtha, Gasoline and Fuel OIl down in December 2024) but saw an overall increase of 150 Kb/d to 17.05 Mb/d as LPG demand rose. OPEC now sees 2025 demand growth at 1.45 Mb/d and we are a bit higher at 1.5 Mb/d growth with the best comparisons in 2H/25. Our thesis is that global growth will get back on track during 2H/25 and prices will lift over US$90/b during Q4/25.
EIA Weekly Natural Gas Data
Cold weather across eastern and southern USA helped to draw storage down materially. Storage fell 174 Bcf to 2.40 Tcf with the largest decline in the Midwest with a 56 Bcf usage. This compares to a decrease of 197 Bcf last year when there was even colder weather and the 5-year average withdrawal rate of 162 Bcf.
US Storage is now 8.0% below last year’s level of 2.61 Tcf and 4.4% below the five year average of 2.51 Tcf. This comparison in the negative for the five year comparison is really bullish for prices. NYMEX is today priced at US$3.55/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. European natural gas prices are nearing US$20/mcf as storage is depleting quite quickly.
Baker Hughes Rig Data
In the data for the week ending February 7th, the US rig count rose four rigs to 586 rigs. Rig activity is now 5.9% below the level of 623 rigs working last year. Of the total US rigs working last week, 480 were drilling for oil and this is 3.8% below last year’s level of 499 rigs working. The natural gas rig count is down 17.4% from last year’s 121 rigs, now at 100 rigs. This decline in drilling and production should continue for a few more months as the industry waits to see Trump’s industry support. Weak WTI prices at this time should slow energy companies drilling plans for early 2025.
In Canada, there was a 9 rig increase to 249 rigs as the industry ramped up to drill out 2025 drilling budgets. This rig activity rate was above last year’s 232 rigs, or up by 7.3%. 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 up moderately as cold weather persists across western Canada. Prices have lifted to around $2.70/mcf.
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Energy Stock Market
The S&P/TSX Energy Index today is at 272 (up 4 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$70/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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