Shut It Down. The Energy Report 05/02/2025

The maximum pressure campaign is back, and it couldn’t have come at a better time. The Iranians just didn’t seem to get the message as they continue to help support terrorist groups. So now President Donald Trump is putting out a stark warning to those that do business with Iran that if they continue to do so they are going to have bigly problems.

On Truth Social the President posted: ALERT: All purchases of Iranian Oil, or Petrochemical products, must stop, NOW! Any Country or person who buys ANY AMOUNT of OIL or PETROCHEMICALS from Iran will be subject to, immediately, Secondary Sanctions. They will not be allowed to do business with the United States of America in any way, shape, or form. Thank you for your attention to this matter, PRESIDENT DONALD J. TRUMP. Thank you, Mr. President, and yes, the oil market is paying attention to this matter.

President Trump has been working with Iran to try to negotiate a deal with them but is demanding that they stop supporting Hamas and the Houthi Terror groups. US Defense Secretary Pete Hegseth posted an X April 30th that, “Message to IRAN:  We see your LETHAL support to The Houthis. We know exactly what you are doing. You know very well what the U.S. Military is capable of — and you were warned. You will pay the CONSEQUENCE at the time and place of our choosing. This came after the Houthi Rebels on April 28th massacred civilians by attacking a correctional facility that was used to give shelter to migrants in Saada killing at least 68 people Injuring 47.

Iran support of Houthi rebels and the support of Hamas is especially disturbing considering the October massacre in Israel. They are making it almost impossible to try to deal with the Iranian government. President Trump is doing everything he can to avoid a war and a direct conflict with Iran. Yet it appears Iran and their terrorist agenda isn’t giving President Trump much room to negotiate. So, unless Iran dramatically changes course, the odds of an attack on Iranians nuclear facilities is rising every day.

In the meantime, President Trump says he’s working furiously to try to release all the hostages that are being held by Hamas and those held by Iran. Iran is behind these heinous attacks and once again it shows that they have no regard for decency or human life. Or as the President put it when reporters asked him about his Truth Social post he said simply, “We’re working to free hostages. Things are heating up. Trump: Whoever takes oil from Iran cannot do business with the US. Trump: We put sanctions on Iranian oil yesterday.

And while the geopolitical risks are rising for oil, we are also seeing economic optimism start to creep back in and there’s more signs than China is open to starting to go negotiating a trade deal. Forbes wrote that, “Chinese officials said Friday they are examining purported U.S. efforts to initiate trade talks—prompting a rise in U.S. stock futures and European markets—signaling a shift in tone by Beijing, a week after it dismissed the chance of any such dialogue while President Donald Trump’s “unilateral tariffs” remained in effect. China is also reaching out to some U.S. companies to give them waivers on tariffs.

There was also a report that Europe is ready to make the US a 50 billion euro offer to settle some trade conflicts. Many other countries are working feverishly to cut a deal with the United States.

As I said before, the trade war is probably already over but the market hasn’t realized it yet. The signs suggest that we are going to see a lot of deals cut over the coming weeks and months. And if that continues to go smoothly and the market gets some clarity, we could see explosive moves in the stock market as well as in the commodity space.

Barrels sometimes speak louder than unnamed OPEC sources. Yesterday, we reported that OPEC refuted claims of a significant increase in oil production. Current barrel production suggests better compliance by OPEC than expected, contradicting the idea of internal stress within OPEC Plus that could lead to an oil market surplus.

OPEC oil output fell in April despite plans to increase, according to a survey. OPEC’s crude production decreased by 200,000 barrels a day in April to 27.24 million a day, mainly due to a drop in Venezuela. Producers like the United Arab Emirates and Kazakhstan are interested in increasing oil production, but they are working within the framework of OPEC. Other members indicating compensation cuts suggest that the tensions within OPEC might not lead to a production war as previously speculated.

This does not rule out the possibility of OPEC raising production faster at the meeting in May, but it would likely be a coordinated increase involving compensation cuts. Additionally, there is a potential downside risk from reduced demand in China, impacting the market overall. If indications arise that China will make a deal with the US, it is likely that oil prices will quickly increase by $10. In contrast, if such a deal does not occur, further market weakness may be observed.

Yesterday’s rebound from the low indicates that critical support areas are being held. More trade deals could make oil a good buy, as an attack on Iranian nuclear facilities may only impact prices short-term. If the US and Israel move on Iran, expect a temporary price surge followed by a drop, considering Iran’s weakened defense capabilities due to last year’s attacks.

As we also pointed out that despite ongoing concerns about a potential recession, there is continued strength in the crack spreads for both diesel and gasoline, indicating robust demand. This week’s oil inventory reports were supportive, and it is expected that this trend will continue as this week’s report the demand is strong, and supplies are tight.

The EIA reported that U.S. commercial crude oil inventories decreased by 2.7 million barrels from the previous week to 440.4 million barrels, which is about 6% below the five-year average for this time of year. Motor gasoline inventories dropped by 4 million barrels last week, now 4% below the five-year average.  Distillate fuel inventories increased by 0.9 million barrels last week and are approximately 13% below the five-year average for this time of year.

Total demand over the last four weeks averaged 19.7 million barrels a day, up 0.3% from last year. Motor gasoline demand averaged 8.9 million barrels a day, increasing by 3.2% year over year. Distillate fuel  demand averaged 3.8 million barrels a day, up 10.3% year over year. That jump in distillate demand was because our US farmers have been planting like crazy and they’re well ahead of the pace of a year ago keep up the great work of American farmers.  Jet fuel rose 11.9% compared to the same period last year.

Natural gas is still showing signs of bottoming after the seasonal shoulder season drop as we look forward. Along the natural gas curve the fundamentals for this market are very bullish. After a little bit of a delay yesterday the Energy Information Administration reported that working gas in storage was 2,041 Bcf as of Friday, April 25, 2025, according to EIA estimates. This represents a net increase of 107 Bcf from the previous week. Stocks were 435 Bcf less than last year at this time and 5 Bcf above the five-year average of 2,036 Bcf. At 2,041 Bcf, total working gas is within the five-year historical range.

Supply is tighter than usual this time of year. Rising electricity demand and LNG exports are expected to support the market through summer. Hurricane season starts June 1st, posing potential disruptions. This could lead to higher prices. We recommend exploring bullish strategies along the curve despite possible liquidity challenges in far-out options. The Moore Research Institute suggests a spread strategy: long June and short December natural gas. Historically, this spread has been profitable between May 7th and June 17th in 13 out of 15 years, averaging around $709. This may be viable for short-term gains and hurricane season coverage.

Supply is tighter than usual this time of year, and rising electricity demand and LNG exports are expected to support the market throughout the summer.

Fox Weather we’ll remind you that hurricane season starts June 1st and if there’s any disruptions of supply without a lot of damage to the demand side, it’s going to mean that prices could see a squeeze on the upside. On the dip we are recommending to start looking at bullish strategies along the curve and while sometimes a little bit difficult to get liquidity in the far out options. They look very attractive. Other ways to play a potential bottom in this market might be spreads. A spread that my friends at the Moore Research Institute are recommending is to be long June short December natural gas. According to Moore data, between May 7th and June 17th that spread has made money 13 out of the last 15 years for an average profit of somewhere around 709 dollars. That could be one of many bullish spread opportunities that should be looked at seriously not only for this short-term play but perhaps even longer to cover yourself through hurricane season.

To stay informed about weather developments, please download the Fox Weather app. Additionally, you can tune into the Fox Business Network for comprehensive coverage.

To enhance your trading strategy, consider signing up for the popular Phil Flynn Daily Trade Levels. If you are interested in opening an account or have any questions, feel free to call Phil Flynn at 888-264-5665 or email me at pflynn@pricegroup.com. Have a wonderful weekend.