Global Economic, Political & Military Update
While the US federal government cuts its employee count sharply in recent weeks the private sector is adding jobs at a fast pace. Today the ADP report showed private sector jobs rose 155,000 in March above the 120,000 forecast. Professional and business services added 57,000 workers, Financial services 38,000 (tax season ramp up), manufacturing 21,000 and Leisure and Hospitality 17,000 more workers. On the wage front, earnings rose by 4.6% (year over year). The US GDP for Q4/24 came in at 2.4%, better than the 2.3% expected. Core PCE rose 0.4% in February (12-month rate 2.8%) above the 0.3% expected. All these data points will keep the Fed from lowering rates at their next meeting.
Today is President Trump’s ‘Liberation Day’ tariff day. How severe the tariffs are and the counter tariffs will dominate the news cycle. The stock market appears fragile so if we see severe tariff rates to reverse globalization then the downside for the general stock markets over the coming weeks could be in excess of a 10% haircut. Details of what tariffs and rates for the auto sector will be the most watched. Will they put in parts levels from other countries with maximums to not get tariffs. How will Canada and Mexico react tomorrow given their being part of the three country trade deal Trump negotiated in his first term? How high will new car prices built in the US go and will buyers become reluctant to pay higher prices. One interesting point made by the Wall Street Journal is that used cars may get a material price bump given the higher prices expected for new cars. Economists are forecasting slower growth in the coming months due to the tariffs and consumers now retrenching from spending. CNBC sees Q1/25 GDP growth at just 0.3% as consumer and business sentiment declines due to the emerging trade war.
President Trump is on the warpath against Venezuela and Iran. Regarding Venezuela he introduced a 25% tariff on any country buying its oil and on that country’s goods sold in the US, if they buy crude from the country after April 2nd. For China with a current tariff of 20% this goes up to 45% if not negotiated down by China. This would be very inflationary for US consumers unless China manufacturers eat the increases on US exports. Before this tariff introduction China was importing 500K b/d from Venezuela and was their largest buyer. We are watching China import data to see how they react and how quickly they stop or lower their purchases. China’s best negotiating issue is to end the export of fentanyl or their chemical precursors. India’s largest Venezuelan crude buyers agreed last week to stop buying Venezuelan crude. US buyers of heavy crude used for paving highways have been told by the Treasury Department that all imports must stop and payments completed today. The Treasury Department has also revoked waivers for Italy’s ENI and Spain’s Repsol to operate in Venezuela and to end imports to their countries. They had been allowed to operate by the Biden administration due to the debts owed to them by Venezuela (crude for debt deals).
For Iran, President Trump has them on a clock which leaves only weeks to agree to disarm their nuclear weapons program. Recent intelligence reports say that Iran is only weeks away from having sufficient weapons grade material to arm several long range strategic missiles.This has both Israel and the US getting ready to attack and destroy this capability. Iranian ballistic missiles can reach Europe and even the US. There is one US carrier group already in the area and two more are being positioned to give the US military options at the end of the grace period. A showdown with Iran is likely in May. To scare Iran’s leaders the US continues to strike Houthi targets to decimate their offensive capabilities against international shipping in the Red Sea area. The US has sent B-52 bombers to the area to fly near Iran and show how serious the US is at ending their nuclear weapons program. How far and for how long will Iran’s leaders accept this brinkmanship? Iran’s Foreign Minister mentioned that they have readied over 1,000 heavy hypersonic ballistic missiles to target Israeli facilities (including nuclear and military targets). The Iranian military is now reported to be on high alert in anticipation of a strike in the coming weeks.
Regarding energy,
Our Q1/25 WTI BUY price target of US$66-69/b was reached and we sent out to our subscribers an Action Alert with new ideas on March 5th. We expect a period of backing and filling for WTI crude in the coming weeks and another test of the lows (maybe even as low as US$64/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 bearish report. We are now past peak winter demand and into the seasonally slower spring demand season and when inventories are replenished for the summer driving season (the second strongest consumption period). Commercial Stocks rose 6.2 Mb to 439.8 Mb while the SPR rose 0.3 Mb to 396.4 Mb. Motor Gasoline Stocks fell 1.6 Mb while Distillate Fuel inventories rose 0.3 Mb. Overall Stocks rose 5.6 Mb to 1,605.9 Mb and are 27.2 Mb above last year. Refinery Utilization fell 1.0% to 86.0% but was down from 88.6% in 2024.
US Production was flat at 13.58 Mb/d and is 480 Kb/d above 2024 levels of 13.1 Mb/d. Exports fell 728 Kb/d to 3.88 Mb/d. Overall product demand rose 885 Kb/d to 20.12 Mb/d, as Other Oils demand rose 601 Kb/d to 4.69 Mb/d. Motor Gasoline consumption fell by 148 Kb/d to 8.50 Mb/d. Cushing Inventories rose 2.4 Mb to 25.1 Mb. This is below the 2024 level of 33.2 Mb.
Overall US demand is up 1.8% from last year at 20.28 Mb/d while Gasoline demand is down 0.3% from last year highlighting the consumer spending contraction. These are indications that the US consumer and the economy remain healthy despite the recession chatter. WTI is at US$70.89/b today.
EIA Weekly Natural Gas Data
Warmer weather continues to lift storage injections. Last week there was an injection of 37 Bcf. This raised storage to 1.74 Tcf with the biggest increase coming in the South Central area at 37 Bcf. Other areas were flattish. NYMEX now trades at US$4.03/mcf as more gas is sent to the Gulf coast for LNG exports. In 2024 there was a 7 Bcf increase and for the five-year average a draw of 30 Bcf. US Storage is now 24.2% below last year’s level of 2.30 Tcf and 6.5% below the five year average of 1.87 Tcf.
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 (first LNG tanker expected to arrive in April at Kitimat and first shipment expected in June or July) 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. US LNG exports reached a new high of 15.8 Bcf/d this month. AECO is trading at C$2.20/mcf.
LNG tankers are being redirected from Asian customers to Europe as prices are much higher there. European natural gas prices are around US$15/mcf (versus US$13/mcf in Asia) as storage is depleting quite quickly. European inventories are now at 33% of capacity. Germany at 28% full and France at 24.5% storage have the biggest challenges to meet next winter’s needs. Rebuilding storage to the required 90% level by November 1st for winter 2025-2026 will be a big challenge across Europe and should keep import prices high.
Baker Hughes Rig Data
In the data for the week ending March 28th, the US rig count saw a decrease of one rig to 592 rigs. US Rig activity is now 4.7% below the level of 621 rigs working last year. Of the total US rigs working last week, 484 were drilling for oil and this is 4.3% below last year’s level of 506 rigs working. The natural gas rig count is down 8.0% from last year’s 112 rigs, now at 103 rigs. This overall decline in drilling 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. Low WTI prices at just around US$70/b at this time have slowed energy companies drilling plans. Current oil and gas prices are not sufficient to justify incremental drilling. Companies remain financially disciplined despite the Trump administration edict to ‘ drill baby drill’. WTI will need to exceed US$80/b for some time before drilling activity will pick up for crude. Natural gas needs to be over US$4.50 for NYMEX to incentivize natural gas drilling activity.
In Canada, there was a 17 rig decrease to 163 rigs as breakup comes to more areas. This rig activity rate is above last year’s 151 rigs, or up by 7.9%. Natural gas rigs working are 54 down 28.9% from 76 in 2024. The oil rig count is up 44% to 108 rigs compared to 75 working at this time in 2024 as oil volumes can be moved via the TMX line west and there is still some capacity to move crude south to the US.
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 $2.20/mcf.
Energy Stock Market
The S&P/TSX Energy Index today is at 276 (same as last week). The US$4+/b WTI increase over the last few weeks came from a bounce from the March 5 oversold level (and when we sent out new Action BUYS) and the international tensions. We still expect lower crude prices due to near term weaker energy demand. A decline in the S&P/TSX Energy Index to below 240 (range 235 – 240) is likely in the coming weeks. The low in early March at 240.14 gave a nice rally but should be tested in the coming weeks as we are now quite overbought. Next week is the annual CAPP conference in Toronto so energy stocks may hold up until after this event.
We like to BUY when stocks are cheap and being ignored. Bargains are clearly being seen now in our focus of recommendations. More should show up in the coming weeks. Mid-to late April should provide a great window to add to favourite positions.
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 Q4/25 and global demand should exceed supplies at that time. We see WTI prices above US$100/b consistently during 2026.
We expect another BUY signal to be triggered in the next few weeks and we will add additional BUY names at that point. Keep an eye out for this Action Alert in your email inbox. Possibly three or four great BUY ideas could be sent to subscribers.
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