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- ⚡Geopolitical Risk Catches a Bid
⚡Geopolitical Risk Catches a Bid
Plus, FOMC meets and China gives demand a boost
Doug Stetzer
March 17, 2025
March 17, 2025
Morning everyone,
Geopolitical risk gets a bid over the weekend and the economic calendar includes a FOMC meeting on Wednesday.
The CME Fedwatch tool prices expectations that rates will stay unchanged this week at 99% and the chances for a cut in May have moved lower over the last week. A June cut has a 58% expectation.
What's in this issue:
Energy Market Recap
Geopolitical Risk
China Looks to Boost Consumption
Headlines
| Crude Oil (Apr) | $67.18 | +0.63 | +0.95% |
| Natural Gas (Apr) | $4.104 | +0.007 | +0.17% |
| Copper (May) | $4.8960 | -0.0295 | -0.60% |
| S&P 500 | 5,638.94 | +117.42 | +2.13% |
| Dollar Index (DX) | 103.71 | -0.12 | -0.13% |
Energy Markets
🛢️WTI ended Friday higher by .95%, ending a week where prices were practically unchanged (higher by $0.14 / .21% on the week).
At the time of this writing, prices have pushed a bit higher on news that the US has launched attacks on Houthis in Yemen over the weekend.
Houthis have been attacking shipping vessels since late 2023 in support of Palestine, targeting over 100 vessels and sinking two.
The attack included an explicit demand from the President to Iran that they stop their support for the group, one of their key proxies in the region.
Chokepoint
Source: Wikipedia
The strait between Yemen and Djibouti is known as the Bab el-Mandeb, which connects the Red Sea to the Gulf of Aden and the Indian Ocean. At its narrowest point, it is just 26 kilometers (16 miles) wide, divided into two channels by Perim Island.
Geopolitical risk has slowly been draining out of oil prices since January, but with a deal with Russia far from a foregone conclusion pressure on Iran ramping up, that could quickly change.
WTI Spreads
Apr/May: +0.27
Jun/Dec: +2.35
Dec5/Dec6: +1.36
🔥After some big moves in the first part of the week, natural gas went out quietly. Prices were just on the positive side of unchanged on Friday.
After printing a high of $4.901, nat gas settled down by 6.7% on the week.
Mild weather will turn slightly cooler this week leading to a slight increase in potential demand.
In a note quoted by the WSJ, Natgasweather.com warns not to become complacent as we head into traditional shoulder season:
“We expect weather patterns will be more important this spring shoulder season versus last year due to much tighter year-over-year supplies,”
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China Demand Gets a Boost
A few weeks ago I highlighted an interview with commodity trader Trafiguria’s head of oil (article below). In it he stated that despite all of the tariff talk, nothing seemed to address the two main things he was watching - Iran and China.
He argued that these are the two x-factors leading to upside risk in the market.
Well, looks like we’re getting some action on Iran (via Yemen). So where does that leave China?
Well, over the weekend China outlined a plan to boost consumer spending. According to the NYT:
“The Chinese government and the Communist Party jointly issued a lengthy list of planned initiatives on Sunday to encourage people to spend more, in yet another move by Beijing to offset potential harm from its escalating economic warfare with Washington.”
Initiatives include plans to increase incomes and incentivize population growth.
Headlines
“The Tuapse refinery, with a nameplate capacity of about 240,000 barrels a day, focuses on exports of diesel and fuel oil across the Black Sea”
+Russia Says Drone Attack Caused Fire at Tuapse Oil Refinery - Bloomberg
“This year, the US will record its third consecutive annual deficit in food trading, with imports set to exceed exports by nearly $50 billion, according to a US Department of Agriculture forecast. It’s a shocking occurrence that reverses almost 70 years of history”
+Trade Wars Won’t Make American Farming Great Again - Bloomberg
“I have never seen such bearishness in terms of the valuation for companies with structural growth . . . The market is assuming no growth for decarbonisation [ie the sector].”
+Green energy stocks fall back to levels last seen 5 years ago - FT
Economic Calendar
Monday - Retail Sales
Tuesday - Housing Starts, Cap U
Wednesday - Crude Oil Storage Report, FOMC
Thursday - Natural Gas Storage Report, Jobless Claims, Existing Home Sales
Friday -