
Phil Flynn
Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
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Holy Guacamole! The Energy Report 02/04/2025
Democratic Minority Leader Senator Chuck Schumer can rest easy as both Canada and Mexico were able to get a 30 day pause in tariffs yesterday. This should make Senator Schumer very happy as he was freaking out that the cost of guacamole and his beloved Corona beer might see a price increase before his Super Bowl party due to tariffs. The Senator should also be happy that Mexico agreed to send 10,000 troops to the US Mexican broader stop the flow of illegal drugs like fentanyl that has caused the deaths of way too many Americans. He should also be happy that Canadian Prime Minister Justin Trudeau took steps to crackdown on the Canadian border and the fentanyl labs that are in Canada.
Fox News reported that President Donald Trump will pause additional tariffs on Canadian imports for 30 days after a call with Prime Minister Justin Trudeau, who made some concessions to temporarily stave off the levies. Trump and Trudeau spoke via phone on Monday, hours before additional 25% tariffs were to take effect on Canadian goods coming into the United States. In a post on X, Trudeau said Canada will implement a $1.3 billion border plan and appoint a fentanyl czar according to Fox News. Now Maybe Senator Schumer can enjoy his party.
The markets breathed a sigh of relief after the pause reversing an upward spike in oil and gas and crude and a downward spike in stocks. The reality is the tariff drama is just getting heated up. Stocks got shaky after China retaliated against the Trump 10 percent tariff.
According to Barrons, China announced import taxes of 15% on U.S. crude oil, machinery, and some cars, as well as a 10% increase of tariffs on coal and liquified natural gas. In a move that wasn’t explicitly tied to Trump’s tariffs, China also said it was starting an antitrust probe into Alphabet’s GOOGL. It is Interesting that unlike the leader of Canada’s most populous province of Ontario, Doug Ford said that he’s ripping up a contract with Elon Musk’s Starlink. China is seemingly leaving Tesla and Musk alone. I would also expect the internet and broadband service in Ontario to get worse if Doug Ford has his way. Better start digging up the ground to install those soon to be obsolete cables my friends.
China also failed to hit US Ag products directly, mainly because they need the food.
And the other thing that a lot of people are freaking out about, which is just incorrect, is that sanctions in and of themselves are inflationary. The truth is that inflation isn’t caused by tariffs. Yes, tariffs are like a tax, It can make prices go up. Europe, China, Mexico and Canada over the years have used tariffs and it didn’t have a long-term impact on inflation. The reality is that that inflation isn’t caused by tariffs. It’s caused by government spending and the printing of money. Tariffs are basically a tax. Taxes in and of themselves are not inflationary. Theoretically if the government is taking in more money because of the tax, inflation would be lower because the need to print money would be diminished.
That’s assuming of course that the government is a good steward with that money. And that is another debate. Sometimes they are and sometimes they are not.
Of course, we’re finding out more about that with the Department of Government Efficiency DOGE which is finding ridiculous amounts of government waste that I don’t have time to get into. After reading some of the outrages that DOGE has discovered anybody who complains that tariffs are inflationary better look at the way that the government is spending your money.
Now there are some who theorized that we should just ignore the fact that other countries treat us unfairly when it comes to tariffs or stealing intellectual property. Some believe that we should just stand by and stand down. Yet in the real-world long-term ignoring unfair trade and border practices our partners, have had bad consequences for Americans by reducing their economic and personal security which is, by definition, reducing their freedoms that we hold dear.
The reality is that at some point if you continue to ignore the fact that other countries are unfairly dumping products, restricting imports of our products, stealing our intellectual property, it’s costing the average American jobs and ruining our standard of living. In a perfect world tariffs should be discouraged. Yet in the real world at some point, you must stand up for yourself.
If it takes tariffs to save Americans lives by reducing the flow of fentanyl and if it takes tariffs to get countries to respect our borders and laws, then I believe it’s a small price to pay.
And hopefully our trading partners are starting to get the message. We will hold them accountable for fulfilling their duties and respect our laws as a sovereign nation. They should not turn a blind eye or encourage illegal migrant flow. They need to not allow drugs that flow over our borders. A good trade partner would not say that that’s our problem but help solve the problem.
As far as commodity trading goes, the swings because of the drama has been exciting. We saw oil prices surge and then drop to nearly a one month low and a little bit everything in between. With all the excitement we really didn’t get out of any major trading ranges either to the upside or the downside.
As expected, the biggest surge came in heating oil and products but as soon as it was announced that Canada was going to get a reprieve from tariffs, we saw those prices start to come back down. And while China is going to tariff US oil that’s only going to mean that they’re going to buy more illicit barrels of oil from Iran and Russia. But China better be careful because the Trump Administration is bound to crack down on Russian oil exports to China and Iranian oil exports to China.
The poor little OPEC cartel almost was ignored during the wild action. Reuters reported that, “OPEC+ agreed to stick to its policy of gradually raising oil output from April on Monday and removed the U.S. government’s Energy Information Administration from the sources used to monitor its production and adherence to supply pacts. OPEC+ and Donald Trump clashed repeatedly during his first administration in 2016-2020 when the U.S. President demanded it raise production to compensate for the drop in Iranian supply that resulted from U.S. sanctions. We’d better keep an eye on Truth Social to see what President Trump thinks of that.
I told you to download the Fox weather app. Natural gas prices surged in part because of the tariff drama but also because winter is making a big comeback. Despite the forecast earlier, Fox weather is reporting another cold blast hitting the US that is party causing the rally in the natural gas market. Yet in the big picture when you look at natural gas prices in the United states when you adjust for inflation last year we saw some of the lowest natural gas prices in history due to the prolific production of the US energy producer. So, I think you could say that oil and gas production is deflationary.
The EIA reported that average natural gas spot prices at most major trading hubs in the Lower 48 states declined in 2024 compared with 2023 in real terms, according to data from Natural Gas Intelligence.
Inflation-adjusted natural gas prices in the Northeast at Algonquin Citygate and Eastern Gas South averaged 32 cents per million British thermal units (MMBtu) and 6 cents/MMBtu lower in 2024, respectively, and western prices at Northwest Sumas and SoCal Citygate averaged $2.51/MMBtu and $4.55/MMBtu lower compared with 2023, respectively.
In West Texas, prices at the Waha Hub near Permian Basin production activities traded below zero for 42% of trading days in 2024 as natural gas production from the Permian Basin outpaced available pipeline takeaway capacity. The Matterhorn Express Pipeline, capable of carrying 2.5 billion cubic feet per day from the Permian Basin to demand centers on the Texas coast, entered service in October 2024 and helped clear some of the regional production bottleneck. Since mid-November the price at the Waha Hub has been more than zero.
Prices at regional trading hubs decreased last year primarily because of relatively high natural gas inventories in each of the storage regions, sustained U.S. natural gas production, and mild winter temperatures. Because of relatively warm winter temperatures, particularly in the Northeast and Midwest (the largest consumers of natural gas for space heating), regional natural gas storage levels remained above the five year (2019–23) average for most of 2024.Spot natural gas prices at the Henry Hub in Erath, Louisiana, which serves as the U.S. benchmark, averaged $2.22/MMBtu in 2024, the lowest average annual price in inflation-adjusted dollars ever reported.
So, make sure you download the Fox Weather app! Also stay tuned to the Fox Business Network because they are the only network in America that is truly invested in you.
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Thanks,
Phil Flynn
Senior Market Analyst & Author of The Energy Report
Contributor to FOX Business Network
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