Five Unnamed Sources. The Energy Report 05/01/2025

The article was extremely well timed for oil bears because oil had just gained the $60 a barrel area after plummeting to the $57 a barrel handle on the GDP headline number that showed the US economy contracting by a 0.3% annualized pace in Q1, the first quarter of negative growth since 2022, when Joe Biden was President. Or at least he thinks he was. Oil later rebounded as people realized that headline GDP reading was a misleading number. Larry Kudlow,  Elizabeth Macdonald and Brain Brenberg at the Fox Business Network all pointed out that the report was skewed by ‘fluky trade import numbers by tariff front-running. According to Mr. Kudlow it suggests that if you look at private sector investment, the economy is growing at a rate closer to 3%.

Elizabeth MacDonald also pointed out that the contraction of 0.3% in the 1st quarter, was primarily due to a surge in imports as businesses accelerated purchases ahead of President Trump’s tariffs. Since imports are subtracted in GDP calculations, this front-loading significantly cut into the result. She said that in March alone the goods trade deficit widened by $14B to a record $162B, with imports spiking at an annualized rate of 50.9%.

Consumer spending and business investment remained strong, but the import surge overshadowed these gains. Plus, a decrease in government spending, partly due to public sector cuts led by Elon Musk’s DOGE, contributed to the decline. Brian Brenberg also said that, “Here’s something you haven’t seen for a while: government spending DECREASED in the first quarter of this year compared to the end of last year.  Meanwhile, private investment soared. That’s the idea—deleverage government, releverage the private sector.”

Oil also rebounded on a Reuters report that that China was quietly notifying some firms of a tariff exemption list. Goods included on so-called whitelist remain unclear and a FT report suggested that the US was reaching out to China to start trade talks allowing China to save face and perhaps sell the story to the Chinese people that the US was begging to make a deal. Oil also liked a headline that said that the European Union is going to present trade proposals to the US next week.

Then when oil broke back above $60 a barrel the headline from unnamed sources suggested that Saudi Arabia should sustain low oil prices for an extended period caused a crash. Yet the article begs the question of what the context is. Did five people ask Saudi Arabia if they could sustain low oil prices for an extended period, and they said sure? Or is this indicative of a policy change and a sign that Saudi Arabia is ready to start a production war to get what they think is theirs. Is Saudi Arabia shifting its policy to increase production and expand market share, which would be a significant change on policy after five years of balancing the market through substantial output reductions and leading that policy as endo facto leader of the OPEC+ group of oil producers.

Is this article suggesting that Saudi Arabia is now ready to put Kazakstan in their place along with other OPEC production cheaters. Are they ready to try to bury struggling US shale producers to regain market share. Is this the start of a production war or are they trying to win favor with President Trump that is a champion of low oil prices? Or is this article just regurgitating what we already know. Was that 5 questions, I lost track. We already know that there are discussions that Saudi Arabia and other producers are willing to move more quickly to get back There are voluntary production cuts that amounted close to 5 million barrels a day. We already know that the Saudi’s are not thrilled with Kazakhstan and Iraq for exceeding their OPEC+ production targets. We know that Saudi Arabia has been urging members to follow targets and do their compensation cuts. We also know that Kazakhstan oil minister said that they were going to do what was in their best interests before walking those comments back.

Now this morning ArgusMedia is reporting about the kingdom’s unwillingness to prop up the oil market with further supply cuts or its ability to handle lower prices for a longer period, responded with “Phantoms are being briefed by phantom briefers”.

News that the US sanctioned 7 entities in the trade of Iranian oil and reports that Defense Secretary is giving stark warning to Iran regarding its support of the Houthi rebels is not moving the market much yet there are demand concern for oil because China’s economy is suffering due to US sanctions.

President Trump is feeling China’s economic pain. It was very nice of President Trump to say that he was saddened to hear that China’s economy is getting “absolutely hammered” and that’s almost a direct quote. He also warmly conveyed that he wants China to do very well but at the same time he wants them to quit ripping us off and everybody else in the world. Actually, I don’t think he cared about everyone else in the world but at least quit ripping us off.

There are valid concerns about oil demand, primarily related to China, not the United States. Despite a drop in the oil market, crack spreads in gasoline and heating oil remain strong.  Trade war in China is going to shut down many factories and put perhaps millions of Chinese workers out of work. Bloomberg News reported that, ”the world’s big industrial-scale consumers of oil are flashing warning lights for demand as the tariff war causes the outlook for the global economy to deteriorate.

Several US airlines withdrew earnings guidance for this year over the past several weeks, citing uncertainty in the global economic environment and a recent spate of soft domestic bookings. In the freight market, more than 40% of container ship capacity between Asia and the US has been canceled for some of the coming weeks and top liners are using smaller vessels to meet customer needs.

Oil demand expectations have decreased, influenced by OPEC’s potential production increase and slowing demand. U.S. oil producers saw prices close above $58 a barrel yesterday, a critical marker. Today, $57 is the key level; if prices close below this, expect a decline toward $50 a barrel. If that happens then we will see US producers really pull in their horns.

In the meantime the volatility is going to be fun. Look for signs of a bottom at 57. It might be a good opportunity to play options out of the money on both sides of this market. If you’re bullish, the calls are cheap. If you’re bearish you could expect this sharp drop. In fact the way things are going you might be able to eke out profits on both sides of that trade.

Natural gas is starting to look like a bottom after the seasonal sell off.

I found it interesting that that S&P Global ratings downgraded the credit rating outlook for Australia’s Woodside to negative from stable after its $17.5 billion final investment decision on a Louisiana liquefied natural gas project signaling financial risk concerns.

And on the positive note for Russia fans, Gazprom reported a 2024 net profit of 1.2 trillion rubles now if you translate that into dollars that’s $14.76 billion and that is recovering from last year’s previous loss that was driven by improved gas and business interest income.

Reuters reported that Saudi Arabia’s economy grew in the first quarter, supported by activity in the non-oil sector as the kingdom pushes on with diversifying away from hydrocarbons. Real gross domestic product (GDP) increased 2.7% year-on-year in the first quarter, flash estimates by the government’s statistical authority showed on Thursday.

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