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March 5, 2025
Morning everyone,
What a day! Markets were in free fall in the morning, staged a nice recovery, then collapsed again at the close (oil skipped that last part).
Today, economic data - ADP jobs, PMI, oil inventories - comes in and you can be sure there will be a closer eye on it.
The excitement is far from over as Canada has retaliated to tariffs. More on that below…
All I can say is, remember to breathe…
What's in this issue:
Energy Market Recap
Canadian Power Play
Headlines
| Crude Oil (Apr) | $68.26 | -0.11 | -0.16% |
| Natural Gas (Apr) | $4.350 | +0.228 | +5.53% |
| Copper (Mar) | $4.5275 | -0.0490 | -1.07% |
| S&P 500 | 5,778.15 | -71.57 | -1.22% |
| Dollar Index (DX) | 105.69 | -0.98 | -0.92% |
Energy Markets
🛢️WTI ended just shy of unchanged as prices rallied after the initial sell off in the morning. Unlike equities which tanked again at the close, crude stayed near the highs (although has sold off a little after hours).
EIA’s tomorrow. Consensus expectations are for a slight build of 300k barrels. After the last two surprise draws, I think the analysts are hedging.
Big Support
The low of the day yesterday was $66.77. Getting close to long term support around $64 that goes back to 2022.
Here’s a weekly chart of the April contract that puts a longer term perspective on things:
I’m not saying things can’t get worse. After all, OPEC+ is reversing course and Russia is ready to cut deals. Tariffs are uprooting the global economy. But to break through this level of support means things are getting close to ‘pandemic ugly’, and OPEC has promised a flexible approach.
As Bloomberg columnist Javier Blas put it:
“Thinking the unthinkable is useful, especially when the global oil market’s three kings are involved.”
Also worth keeping in mind that interview with Trafigura’s head of oil. He was worried about Iran and China. Nothing there has changed:
WTI Spreads
Interesting day for spreads as the back narrowed as expected on a down day, but the front spread actually widened. Looks like May and June just didn’t participate in the recovery as strong as the front contract.
Apr/May: +0.56
Jun/Dec: +2.24
Dec5/Dec6: +1.58
🔥Natural gas ended higher by another 5.5% yesterday. Speculators are piling in.
A power play by Canada (more below) would be supportive as US gas power generation would have to crank up before summer even got going.
Haven’t seen much reference to the fact that so much of US gas output is associated gas from the Permian. If that slows, gas slows. And the President wants low oil prices.
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Power Play
Source: EPA.gov
The map above shows the North American power grid regions. You may notice that they don’t stop at the US borders.
The connection with Canada is obvious, but the western region even dips into Mexico.
Not sure if you all remember the blackout on the East Coast in 2003 (a tree falls in Ohio and 50 million people in the US and Canada are without power), but that was a good example of our interconnectedness.
There’s been plenty of coverage of the size of Canada’s oil exports to the US, but natural gas and electricity exports are also significant.
According to the EIA, the US imported 27 million megawatt hours of power from Canada.
It is with this in mind that Canada has retaliated to Trump’s tariffs. They will be imposing a 25% tariff on power it sends “1.5 million homes in Minnesota, Michigan and New York”.
Beyond the tariff, the conservative Premier of Ontario, Doug Ford, has said he is willing to just cut off the supplies entirely.
“If they want to try to annihilate Ontario, I will do everything – including cut off their energy, with a smile on my face,”
Headlines
“The deal appears to mark a retreat from international port operations by Hong Kong-based Hutchison, controlled by one of Asia’s richest people, 96-year-old Li Ka-shing. The group, which faced pressure from officials in the U.S. and Panama to divest itself of the Panama ports, will retain its ports in Hong Kong and in mainland China while selling control of 43 ports comprising 199 berths in 23 countries.”
+BlackRock Strikes Deal for Panama Ports After U.S. Pressure - WSJ
“Oil exports account for nearly all of the Maduro government’s revenue, but it will be difficult for PdVSA to sustain production, partly because Venezuela’s heavy crude requires blending with imported diluent to make it flow.”
+U.S. Revokes Chevron License to Pump Venezuelan Oil - WSJ
“The parties hoping to form Germany's next government on Tuesday agreed to create a 500 billion euro infrastructure fund and overhaul borrowing rules in a tectonic spending shift to revamp the military and revive growth in Europe's largest economy.”
+German parties agree on historic debt overhaul to revamp military and economy - Reuters
Economic Calendar
Monday - ISM
Tuesday -
Wednesday - ADP Employment, PMI, Crude Oil Storage Report
Thursday - Natural Gas Storage Report, Jobless Claims,
Friday - US Jobs Report, Employment Rate