More Evidence. The Energy Report 03/27/2025

If you are looking for more evidence that tariffs are not inflationary you only have to look at the oil market. Yesterday the oil markets were rallying on supply and demand data from the Energy Information Administration (EIA) and traded above $70.00 a barrel. Yet later in the day President Trump started getting serious about auto tariffs and even suggesting not only a 20% tariff but the fact that interest on car loans for cars made in the United States might be a write off. That would be a big win for American’s that have been struggling with car payments and an especially a big boost for the poor that have struggled with inflation and gotten saddled with high interest rates. President Trump also warned the EU and Canada if they collided in the trade war with the US they would face more duties.

On Truth Social the President warned that, “If the European Union works with Canada in order to do economic harm to the USA, large scale Tariffs, far larger than currently planned, will be placed on them both in order to protect the best friend that each of those two countries has ever had!” Of course we could end all this nonsense if the EU and Canada would just agree to drop all tariffs against the United States then we would do the same. That sounds like an easy solution and that might help the UK and Canada because they may find a better way to compete in the global market without government handouts. Hey, I can dream, can’t I? The EU is saying it’s preparing its response to new tariffs announced by the US but no timing for that announcement yet.

According to the Energy Information Administration (EIA) report, refiners will need to resume operations to meet demand. Contrary to earlier predictions of an oil surplus in America, this has not occurred.

On top of that, the Dallas Fed seems to suggest that oil producers are not happy with Donald Trump even as he has work to remove some of the most burdensome regulations that they have been complaining about.

Dallas Fed reported that, “Activity in the oil and gas sector increased slightly in the first quarter of 2025, according to oil and gas executives responding to the Dallas Fed Energy Survey. The business activity index, the survey’s broadest measure of the conditions energy firms face in the Eleventh District, remained in positive territory but declined slightly from 6.0 in the fourth quarter 2024 to 3.8 in the first quarter. The company outlook index decreased 12 points to -4.9, suggesting slight pessimism among firms. Meanwhile, the outlook uncertainty index jumped 21 points to 43.1.

Oil and gas production increased slightly in the first quarter, according to executives at exploration and production firms. The oil production index moved up from 1.1 in the fourth quarter to 5.6 in the first quarter. Meanwhile, the natural gas production index turned positive, rising from -3.5 to 4.8. Costs increased at a faster pace relative to the prior quarter. Among oilfield services firms, the input cost index advanced, from 23.9 to 30.9. Among E&P firms, the finding and development costs index increased, from 11.5 to 17.1. Meanwhile, the lease operating expenses index rose from 25.6 to 38.7.

On average, respondents expect a West Texas Intermediate (WTI) oil price of $68 per barrel at year-end 2025; responses ranged from $50 to $100 per barrel. When asked about longer-term expectations, respondents on average said they expect a WTI oil price of $74 per barrel two years from now and $82 per barrel five years from now. Survey participants foresee a Henry Hub natural gas price of $3.78 per million British thermal units (MMBtu) at year-end 2025. When asked about longer-term expectations, respondents on average said they anticipate a Henry Hub gas price of $4.30 per MMBtu two years from now and $4.83 per MMBtu five years from now. For reference, WTI spot prices averaged $67.60 per barrel during the survey collection period, and Henry Hub spot prices averaged $4.10 per MMBtu.

The EIA reported a supportive report with U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 3.3 million barrels from the previous week. At 433.6 million barrels, U.S. crude oil inventories are about 5% below the five-year average for this time of year. Total motor gasoline inventories decreased by 1.4 million barrels from last week and are 2% above the five-year average for this time of year. Finished gasoline inventories increased and blending components inventories decreased last week. Distillate fuel inventories decreased by 0.4 million barrels last week and are about 7% below the five-year average for this time of year. Propane/propylene inventories decreased by 0.2 million barrels from last week and are 11% below the five-year average for this time of year. Total commercial petroleum inventories increased by 3.2 million barrels last week.

Total products supplied over the last four-week period averaged 20.2 million barrels a day, up by 0.5% from the same period last year. Over the past four weeks, the motor gasoline product supplied averaged 8.9 million barrels a day, down by 0.2% from the same period last year. Distillate fuel product supplied averaged 3.9 million barrels a day over the past four weeks, up by 1.8% from the same period last year. Jet fuel products supplied was up 3.9% compared with the same four-week average.

Natural gas dipped down a bit but the return of the Freeport LNG plant could limit downside action. Natural Gas Intelligence reported that natural Gas is at 16.56 million Dekatherms: U.S. LNG feed gas demand is heading back to lofty heights after a brief force majeure on Gulf South dropped deliveries to Freeport LNG by 1.3 Bcf/d. Pipeline nominations to LNG terminals rose to 16.56 million Dth Wednesday, according to NGI calculations. Freeport LNG reported a flaring event Monday related to the pipeline interruption that caused an outage of all three trains.

My take on natural gas is we should be heading to the seasonal low here and it might be a good time to put on bullish option strategies.

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