Global Economic, Political & Military Update
President Trump used his Tariff threats against Mexico and Canada to get support in the battle to keep fentanyl and illegal immigrants outside of the US. Mexico’s team found the right solution of adding 10,000 National Guard soldiers to lock down the border and plan aggressive moves against the cartels. They also accepted Trump’s remain in Mexico policy. One pressure point by Mexico was to require the US to halt the massive influx of high powered weapons that gives the cartels the power to take on the government’s forces. A success here could be meaningful in giving Mexico the power to take back many parts of the country controlled by the cartels.
Canada took this template and also agreed to fight fentanyl and move 10,000 troops and border agents to lock down the border. Canada made a major concession calling the cartels ‘terrorist groups’ which gives them additional tools to fight the gangs in Canadian cities. Even if they move military troops, border agents and RCMP agents, Canada does not have the manpower to do this, not in a month nor a year. So a one month reprieve to see implementation would be good for Mexico but not for Canada. We can send more drones but if they pick up illegal crossings how do we get manpower to the area fast enough to apprehend the illegals. A month from now Canada will likely be in Trump’s cross hairs again. In the meantime Canadians disgusted by this attack are booing the US national anthem at sporting events and are looking to BUY Canadian if possible. Watch for stores to run out of Canadian made products as they did during the rush for items during the Covid crisis.
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. 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 Maduro has announced that he will take back Venezuelans held in the US but no planes have landed yet. In the meantime the worst of the violent Venezuelans have been shipped to Guantanamo Bay (Cuba) where the US has 30,000 beds ready for the worst criminals before they can be sent back to their home countries. Mexico, El Salvador and Colombia are now taking back their citizens with more deals being worked on by Secretary of State Rubio.
China tagged with an additional 10% tariff responded tactically. It imposed additional tariffs on US coal and LNG imports starting February 10th with a 15% tariff. China also imposed a 10% levy on crude oil, farm equipment and certain cars and trucks. It added export controls on critical minerals (tungsten, tellurium, bismuth, molybdenum and Iridium) which will annoy US manufacturers especially the military. Notably China did not impose new tariffs on US agricultural products.
The US economy remains resilient especially on the jobs side. This Friday there will be the jobs data for January and it is expected to be strong. Q4/24 Core PCE remains hot at 2.5% up from 2.2% in Q3/24 slightly below analyst forecasts of 2.5%. Core for December was a hot 2.8%. PCE price index rose 2.6%. This is before the data of higher food and energy prices which will hit the data in the coming reports. The Trade Deficit for December rose to US$98.4B from US$78.9B in the prior month. NOT GOOD!
Trump’s DOGE team is investigating most departments for waste and it has its eyes on the International Aid agency which has given out funds to many DEI projects. Funding has been frozen and the staff put on leave. To cut government spending they offered all employees pay until September if they accept terminating their jobs this Thursday. So far 20,000 have accepted or about 1% of the federal workforce. Trump wants 5-10% gone. Democrats, especially left leaning ones, are freaking out that their favorite programs to their supporters are being gutted. Some Democrats (the leftist of the lefties) are planning to bring impeachment charges against Trump once again. If they do, they open up the Trump team to go after the bad actors of the Biden administration. Tit for tat!
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$71.54/b (down US$1.50/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$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 mixed report. Commercial Stocks rose 8.7 Mb to 423.8 Mb and the SPR rose by 300 Kb to 395.1 Mb. Distillate Fuel inventories fell 5.5 Mb due to strong heating demand during the cold weather. Overall Stocks fell 2.5 Mb to 1,605.7 Mb. Refinery Utilization rose 2.4% to 81.1% but was below 2024 which was at 86.9%.
US Production recovered 238 Kb/d to 13.48 Mb/d and remains 178 Kb/d above 2024 levels. Exports rose 645 Kb/d to 4.33 Mb/d. Overall demand fell a modest 12 Kb/d to 21.08 Mb/d, as Propane demand fell by 682 Kb/d to 1.30 Mb/d but was offset by Other Oils demand growing by 418 Kb/d to 4.80 Mb/d. Motor Gasoline rose by 25 Kb/d to 8.33 Mb/d and Jet Fuel rose 234 Kb/d to 1.74 Mb/d. Cushing Inventories fell 100 K to 20.9 Mb. However this is below the 2024 level of 28.1 Mb.
Overall US demand is now up 3.3% from last year while Gasoline demand is down 0.1% from last year.
EIA Weekly Natural Gas Data
Cold weather across eastern and southern USA helped to draw storage down sharply. Storage fell 321 Bcf (a record so far this year) to 2.57 Tcf with the largest decline in the South Central with a 136 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 152 Bcf. Warmer weather is forecast for the next week and then colder weather.
US Storage is now 5.3% below last year’s level of 2.72 Tcf and 4.1% below the five year average of 2.68 Tcf. This comparison in the negative for the five year comparison is the first this year and is really bullish for prices. NYMEX is today priced at US$3.25/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 last week.
Baker Hughes Rig Data
In the data for the week ending January 31st, the US rig count rose six rigs to 582 rigs. Rig activity is now 6.0% below the level of 619 rigs working last year. Of the total US rigs working last week, 479 were drilling for oil and this is 4.0% below last year’s level of 499 rigs working. The natural gas rig count is down 16.2% from last year’s 117 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 258 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 11.2%. 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 up moderately as cold weather persists across western Canada. Prices have lifted to around $2.00/mcf.
Energy Stock Market
The S&P/TSX Energy Index today is at 268 (down 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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