⚡Turn Those Machines Back On

April 14, 2025

Morning everyone,

It’s another week, and despite last week’s exhausting action we’re going to do it all over again.

It is impossible to foresee any trend in an economy driven by one man’s whims, so it’s just day-to-day and headline-to-headline for now. This, of course, makes markets essentially broken and untradeable.

~Doug​

What's in this issue:

• Energy Market Recap

• When Does Production Drop?

• Headlines

Energy Markets

🛢️WTI was basically unchanged yesterday as volumes and open interest decline in unruly markets. Just to recap, prices ended last week lower by just $0.49 (.79%), but had a trading range that went from $55 to $64.

The market is developing a bit of a sideways range just above $60, consolitdating after a significant move lower.

Hard to see where the good news will come from on the economic side, but threats of geopolitical events are real.

WTI Spreads

The front spread narrowed slightly yet remains backwardated as the threat of supply chain disruptions are ever-present. Not to mention military attacks on Iran or elsewhere.

However, the contango 5/6 spread shows the threat of recession and demand destruction in the long term is real.

May/June: +0.48
Jun/Dec: +1.76
Dec5/Dec6: -0.46

🔥 Natural gas fell by 5.7% yesterday, tacking on more decline to last week’s 8.1% drop.

Natgasweather.com continues to peg weather-related gas demand at moderate as winter drags into spring, perhaps keeping the market from falling even further.

I know I woke up to a light dusting of snow outside my window yesterday morning!

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When Does Production Drop?

Goldman Sachs recently released an updated oil note highlighting its price forecasts under a US recession scenario:

“the bank noted that in a typical U.S. recession and their OPEC baseline scenario, they estimate that Brent would decline to $58 by December 2025, and $50 by December 2026, respectively.”

That’s a problem. According to a recent survey by the Dallas Fed:

“firms need $65 per barrel on average to profitably drill, higher than the $64-per-barrel price when this question was asked in last year’s first-quarter survey. Across regions, average breakeven prices to profitably drill range from $61 to $70 per barrel. Breakeven prices in the Permian Basin average $65 per barrel, unchanged from last year.”

How will oil producers in the US shale and elsewhere will manage the recent drop in oil prices amid rising uncertainty is the big question in the oil patch.

But no one thinks the answer will be “drill more.”

Baker Hughes reported a decline of 9 oil rigs in its weekly rig count report, and this will continue to be closely watched.

Margin Calls

Lower oil prices are already triggering knock-on effects for producing nations.

For example, the oil-producing African nation of Angola just received a little phone call from JP Morgan asking for an extra $200 million in collateral against a $1 billion loan as the value of bonds sank in the open market.

And it isn’t just countries. As the FT notes, the junk bond market is essentially frozen and that includes financing for private equity.

“Lowly-rated companies have failed to sell any debt in the $1.4tn US high-yield bond market since Trump unleashed market turmoil and raised fears of a US recession with the wave of tariffs he announced earlier this month.”

Additionally, the inability to refinance short-term debt into longer term bonds is saddling Wall Street firms with potentially billions in losses.

Headlines

“The two sides conducted in-depth exchanges on China-UK relations and military-to-military relations, international and regional situations and issues of common concern, and had communication on strengthening exchanges and co-operation between the two militaries,”
+Head of British military makes first Beijing visit in 10 years - FT

“There is real pressure across the globe to sell Treasuries and corporate bonds if you are a foreign holder,”
+Liquidity worsens in $29tn Treasury market as volatility soars - FT

Economic Calendar

Monday -
Tuesday - Empire State Manufacturing
Wednesday - Retail Sales, Cap U, Crude Oil Storage Report, Fed Minutes
Thursday - Initial Jobless Claims, Housing Starts, Natural Gas Storage Report
Friday -