Global Economic, Political & Military Update
President Trump freaked out stock markets with his on-off switch of new tariffs and threats against the US’s key trading partners. Canada is getting the brunt of these social media attacks. Trump threatens, then trade negotiators from both sides get to work on the details and persuade Trump to relent and there are reverses in the trade tariff levels. He seems to want to antagonize Trudeau with his Governor of the 51st State and the appeal of no tariffs if he becomes a supporter of this integration. However he has forgotten that the Liberals have a new leader that will become Prime Minister in a few days. Trump has yet to find a derogatory name for Mark Carney.
Yesterday was a particularly nasty day that fortunately ended well. After Premier Ford announced a surcharge on electricity from Ontario going to three US States, Trump threatened to increase the tariff on steel and aluminum from 25% to 50%. He also threatened to end Canada’s auto industry in a fit. Cooler heads got negotiations going and Ontario suspended the symbolic 25% surcharge on electricity and Trump backed off on his 50% rate back to 25%. Thursday is an important date for the trade negotiators to get resolution on the dairy and other contested issues that President Trump wants to fight on.
Headlines seem to come hourly. I would watch the last hour of trading to see how investors are taking the roller coaster. If strong intra-day and then weak at the close this is disconcerting for investor confidence and we may see more downside once the April 2nd tariff – trade reciprocity on a global basis is announced. The Dow Jones Industrials Index is today at 41,491 (down from its high of 45,077 in late January 2025). We see further downside to the 37,000 level in the near term if the tariffs shocks and drama continue. The one month reprieve for the auto industry is a key one to watch as bringing auto plants back to the US from Mexico and Canada may take years. Does Trump want an early renegotiation of the USMCA deal?
Canada is talking about removing barriers to interprovincial trade and finding ways to trade more with Europe and Asia. Mexico has already reached out to European and Asian oil buyers to sell their oil there and not pay any US tariffs. How does losing a reliable nearby provider of energy help the US? This summer we will see if energy prices rise materially and impact daily inflation concerns of US consumers.
Today’s aluminum and steel tariffs of 25% will raise prices for US auto manufacturers and those that use aluminum cans for their products. The US imported $11.6B of aluminum last year (41% of what the US imported). The CEO of Alcoa recently said that the 25% tariff on Canadian aluminum could cost the US 100,000 jobs. With shrinkage already impacting the government sector, losing large numbers of jobs in the business sector would be a double hit to the US economy. The stock market is worrying about layoffs in government and the private sector, hiring is slowing as seen from the recent jobs report (more below), consumer confidence is eroding and inflation is likely to pick up due to tariffs.
Europe today retaliated against the 25% tariffs on steel and aluminum with countertariffs of US$28B on US goods effective early April. Canada put on tariffs today on $21B of US goods. Items include: computers, sports equipment, and certain iron products.
The US economy is showing mixed results at this time but seems to be deteriorating. Some of the recent releases show:
- The US Trade Balance for January 2025 was the worst yet. The deficit was US$131B for the month, up from US$98B deficit in December 2024. More fodder for Trump’s tariffs agenda.
- US Labour Costs rose 2.2% in Q4/24 versus 0.8% in Q3/24. Nonfarm productivity rose 1.5% in Q4/24 versus a prior reading of 2.2%.
- Non-farm payrolls for February rose 151K versus the 170K expected. Average hourly earnings rose 4.0% and the unemployment rate rose to 4.1% from 4.0%.
- Core CPI for February rose 3.1% year over year, but below the forecast of 3.2%.
- The House got their continuing funding resolution with the help of one Democrat (the rest all voted no) and it now goes to the Senate where the battle to get it passed may be a bigger challenge.
On the diplomatic front a ceasefire deal leading to a peace deal between Ukraine and Russia is being worked on in Saudi Arabia. Ukraine has agreed to a 30-day ceasefire and the release of prisoners and now they await if Russia will concur. As a reward for Ukraine’s agreement the US lifted its pause on aid and intelligence that Ukraine desperately needs. Russia may stall as they are making progress in regaining the lands Ukraine took in the Kursk area. They have thousands of Ukrainian soldiers surrounded on three sides and the fourth is for them to escape west or be captured. Russia is reported to already have regained 64% of the Kursk territory with the help of 13,000 North Korean first line troops.
Regarding energy,
Our WTI BUY price target of US$66-69/b was reached and we sent out to our subscribers an Action Alert with new ideas. We expect a period of backing and filling for WTI crude in the coming weeks and another test of the lows (lowered to US$64-66/b). Subscribers please watch your emails.
If you want to see our new Action Alert BUYS, sign up now for access to the Schachter Energy Research reports.
EIA Weekly Oil Data:
The EIA data for last week was a moderately bullish report. Commercial Stocks rose 1.4 Mb to 435.2 Mb and the SPR rose 0.3 Mb to 395.6 Mb. Motor Gasoline Stocks fell 5.7 Mb while Distillate Fuel inventories fell 1.6 Mb. Overall Stocks fell 5.7 Mb to 1,594.9 Mb. Refinery Utilization rose 0.6% to 86.5% but was around the 2024 level of 86.8%.
US Production rose 87K b/d to 13.58 Mb/d and is 475 Kb/d above 2024 levels of 13.1 Mb/d. Exports fell 846 Kb/d to 3.29 Mb/d. Overall product demand rose 1.06 Mb/d to 21.60 Mb/d, as Propane demand rose 551 Kb/d to 1.61 Mb/d. Motor Gasoline rose by 305 Kb/d to 9.18 Mb/d and Jet Fuel consumption rose 196 Kb/d to 1.78 Mb/d. Very strong demand growth for the week. Cushing Inventories fell 1.1 Mb to 24.5 Mb. However this is below the 2024 level of 31.5 Mb.
Overall US demand is now up 3.4% from last year while Gasoline demand is up 0.6% from last year. These are good indications that the US consumer and the economy remain healthy despite the recession chatter.
OPEC Monthly Report:
The March 2025 report was released today and showed that in February, OPEC increased production by 154 Kb/d, not waiting for the April start that they were telegraphing. The biggest increases of 34 Kb/d each came from both Iran and Nigeria. The UAE lifted production by 25 Kb/d to 2.95 Mb/d, Iraq by 19 Kb/d to 4.00 Mb/d and Saudi Arabia lifted production by 18 Kb/d to 8.96 Mb/d. Even Venezuela lifted production by 6 Kb/d to 918 Kb/d. This will reverse quickly as the Trump administration has reversed the Biden approval of Chevron sending down 250 Kb/d of diluent and then bringing to the US 350 Kb/d of heavy oil for their refineries.
Production over the current quota system is 364 Kb/d. OPEC will have to maneuver well once they get into April and members fight for more market share. How strong summer demand is will decide the final volume increase.
Canada now is number four in the world production rankings. First is the US at 23.0 Mb/d, then Russia at 8.97 Mb/d, then Saudi Arabia at 8.96 Mb/d and then Canada at 6.1 Mb/d. Canada exported to the US, 4.09 Mb/d (59.9% of US imports) in the last week of February 2025. This was 12.6% above the 2024 level of 3.63 Mb/d. Below us is China at 4.6 Mb/d. We could be producing so much more if there was support at all levels of government and we could add more western takeaway capacity.
OPEC now sees 2025 demand growth at 1.45 Mb/d. We remain at 1.5 Mb/d for 2025. 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 South Central and the Midwest helped to draw storage down last week. Storage fell 80 Bcf to 1.76 Tcf with the largest decline in the South Central with a 30 Bcf usage. This compares to a decrease of 40 Bcf last year and the 5-year average withdrawal rate of 54 Bcf.
US Storage is now 24.9% below last year’s level of 2.35 Tcf and 11.3% below the five year average of 1.98 Tcf. This comparison in the negative for the five year comparison is really bullish for prices. NYMEX is today priced at US$4.17/mcf. The withdrawal season ends at the end of March and the injection season starts in April historically.
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 summer 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 new Plaquemines LNG plant recently shipped 1.6 Bcf/d and is ramping up to its 3.2 Bcf/d capacity.
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 around US$15/mcf as storage is depleting quite quickly. Inventories are now <49% of capacity versus 67% last year at this time.
Baker Hughes Rig Data
In the data for the week ending March 7th, the US rig count fell one rig to 592 rigs. Rig activity is now 4.8% below the level of 622 rigs working last year. Of the total US rigs working last week, 486 were drilling for oil and this is 3.6% below last year’s level of 504 rigs working. The natural gas rig count is down 12.2% from last year’s 115 rigs, now at 101 rigs. This decline in drilling and production should continue for a few more months as the industry waits to see Trump’s industry support especially on the regulatory side. Approval of new infrastructure will also be closely watched. Weak WTI prices < US$70/b at this time have slowed energy companies drilling plans for early 2025.
In Canada, there was a 14 rig decrease to 234 rigs as some work ended due to early breakup areas. This rig activity rate was above last year’s 225 rigs, or up by 3.8%. As we get closer to LNG Canada ramping up in July 2025 (Petronas – recent forecast by one of the owners) and natural gas fills the Coastal GasLink pipeline, prices should lift. AECO prices are now around $2.10/mcf due to the moderate weather in western Canada.
Energy Stock Market
The S&P/TSX Energy Index today is at 257 (up 16 points over the last week) as quarterly results for Q4/24 and 2024 Annual results for many E&P companies were better than forecasted. The US$2/b WTI increase (to US$67.70/b) over the last week should get some of the credit as well. Also a sigh of relief that trade talks will occur between Canada and US trade representatives has lifted the negative sentiment. We still expect a bit lower crude prices and a decline in the S&P/TSX Energy Index to below 240 (range 235 – 240) in the coming weeks. Last week’s low reached 240.14.
We like to BUY when stocks are cheap and being ignored. Bargains are clearly being seen now in our focus of recommendations.
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.
Last week we had another low risk entry point like we saw on September 10th and in December during tax loss selling season. We sent to subscribers an Action Alert out last Wednesday and we expect another signal to be triggered in the next week or two and we will add additional BUY names at that point. Keep an eye out for this Action Alert in your email inbox.
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