⚡Sanctions vs Tariffs

February 20, 2025

PRESENTED BY: Commodity Research Group

Morning,

Oil’s in wait and see mode while nat gas continues higher on weather demand. Nat gas is now up 44% on the month!

EIA inventory for both crude and nat gas are due out later today in addition to the jobless claims number that the Fed has been watching closely.

And, as if things aren’t strange enough already, apparently the egg arb is wide open.

~Doug​

What's in this issue:

• Energy Market Recap

• EIA Expectations

• Headlines

Energy Markets

🛢️Front month WTI ended higher by just .5%, but oil seems practically asleep compared to nat gas. The reality is that uncertainty has brought the market to a standstill for now.

WTI Spreads

Apr/May: +0.25
Jun/Dec: +2.54
Dec5/Dec6: +2.34

🔥Natural gas prices ended yet another big day higher by 6.8%. Prices have already moved higher by 18% in the last two trading sessions on top of last week’s 12.5% gain.

Cold weather is the culprit, and you can expect continued inventory draws in the wake of this high demand event.

PRESENTED BY CRG
EIA Expectations, Another Crude Build

This week’s EIA expectations from Commodity Research Group’s Andy Lebow. This week Andy is calling for a build of 4.8 million barrels, larger than the consensus number.

Sanctions vs Tariffs

Sanctions have proven to dent profits, but not the actual flows of oil. Suppliers just lower their price to make up for the difficulty, and determined customers will find a way to get these cheap barrels. There is a whole supply chain that exists outside of the US banking system, and it includes Iranian oil going to smaller Chinese refiners.

Analyst John Kemp points out that:

“China’s independent refiners have no direct or secondary links to U.S. banks and corporations, putting them outside the scope of the U.S. sanctions regime.

Reducing Iran’s oil exports would require physical interception of tankers carrying Iranian crude by the U.S. navy, or bringing China’s independent refiners within the scope of sanctions and coercing them to comply.”

However, tariffs have proven more effective at changing the equation. The 25% tariffs on Canadian oil would effectively price it out of the market for US refiners. And now, the 10% tariff that China has placed on US oil imports has shut us out of that market.

China does not import that much oil from the US. However, as Kemp puts it:

“Because of the tariffs, U.S. crude has lost the option of being delivered to China’s refiners if it cannot find another nearer or more suitable.”

That loss of optionality is leading speculators to prefer to own Brent over WTI.

Stay tuned…

Headlines

“It's not the first time that Washington has gotten its geology wrong in a war zone. Back in 2010, the US announced it had discovered $1 trillion of untapped mineral deposits in Afghanistan”
+Rare Earths in Ukraine? No, Only Scorched Earth. - Bloomberg

“A group of 48 institutional investors has called on BP to give shareholders a vote on any plan by the oil major to row back on its climate goals, setting up a potential clash with US activist hedge fund Elliott Management.”
+BP investors call for vote on any rowback on climate goals - FT

“"For now, the investment focus will remain on oil and gas exploration and production... as securing a fair return from renewable energy sources such as offshore wind is challenging due to rising costs,"
+In a major shift, Japex to prioritise oil and gas investment through 2030 - Reuters

Economic Calendar

Monday -
Tuesday -
Wednesday - Housing Starts, FOMC Minutes,
Thursday - Natural Gas Storage Report, Jobless Claims, Crude Oil Storage Report
Friday - Consumer Sentiment, Existing Home Sales