A Bad Day to Be a Houthi. The Energy Report 05/07/2025

I don’t know if you can call it unconditional surrender, but President Trump yesterday said that the Houthis don’t want to fight anymore. This ragtag group of terrorists supported by Iran though had an incredible run as nasty terrorists as they’ve been attacking shipping lanes in the Red Sea and the Bab- al-Mandab Strait for years causing havoc in International Waters. This group has been violating international law, costing companies millions of dollars due to redirected ships and increased insurance risk premiums for oil and various products.  Houthi attacks in the Red Sea, including anti-ship ballistic missiles likely supplied by Iran, endangered U.S. personnel, civilian mariners, and international trade. The attacks impacted  over 50 nations, with crews from more than 20 countries threatened or taken hostage. Over 3,000 ships changed routes to avoid the area, causing delays and costs. Yet despite the need for decisive action, the Biden administration failed to address this issue for some time until only later coming up with an coalition to deal with them with increased surveillance an limited strikes against a number of targets in Yemen

In contrast, President Trump initiated a significant military campaign against rebels in Yemen in March and now it appears that the Houthi’s have been defeated and may have got the message to not mess with international shipping lanes or the USA and the Trump administration.

Yet despite the dropping the Hothi Rebel risk premium  oil rallied  appears that the United States and China are going to engage in talks.

I wouldn’t call it unconditional surrender on China’s part but there’s a certain realization that China knows that they cannot win a trade war.

Following reports that China plans to engage with the United States, the dollar surged, stocks rallied, and the recent gold rally stalled.

China’s Vice Premier He Lifeng will meet US Treasury Secretary Bessent to initiate trade negotiations, according to the Chinese Ministry of Foreign Affairs. US Treasury Secretary Bessent and USTR Jamieson Greer are set to meet with China.

China is presenting this meeting as a response to global demand for cooperation. China has stated its intention to protect its interests, while U.S. Secretary Bassett mentioned that China’s participation in global trade discussions has been lacking. This meeting marks a significant step towards aligning international perspectives on fair trade and tariffs with the Trump administration’s policies.

As I’ve said before President Trump’s stance on trade with China it’s a battle that’s already been won.

The Chinese just must figure that out. As does the rest of the market. If a trade agreement with China is reached, it holds the potential for new highs in the stock market, assuming the deal is made promptly. I is anticipated that a Big Beautiful US-China trade agreement might be achieved soon, potentially even before a big, beautiful budget bill is passed in Congress.  OK I know this expectation may be wildly  optimistic, but I have a strong belief that a US-China trade deal will be realized. And one that will heavily favor the United States.

The main reason for oil’s rise above $60 a barrel is basic supply and demand.

 You remember supply and demand.  I remember the good old days when oil used to follow supply and demand.

The American Petroleum Institute reported a strong demand for oil and gasoline. Crude oil supplies fell by 4.49 million barrels, far more than expected.

Additionally, there was an 854,000 barrel draw down from the Cushing, OK delivery point, and gasoline inventories decreased by 1.97 million barrels.

Despite an increase of 2.24 million barrels in distillate inventories, this rise compensated for last week’s supply loss as farmers went planting. Crack spreads remained strong, reaching multi-year highs for gasoline before a slight pullback, but levels remain solid.

The oil market is closely monitoring the escalating tensions between India and Pakistan. India fired missiles at Pakistan in response to a terror attack in the Kashmir region, which both countries claim. Although neither country produces oil, their possession of nuclear weapons has made this situation significant for traders.

Donald trump’s invisible hand on the US oil market lowering prices is also having the added benefit of squeezing Russia when it comes to their all-important oil revenue.

Reuters reported that – Russia’s budget proceeds from oil and gas sales fell by around 12% in April compared to the same month last year, the finance ministry said on Wednesday, blaming a sharp drop in the price of oil. A little hint that dropping Russian revenues had nothing to do with the price caps. OK I just must throw on that last little jab . Forgive me Janet Yellen.

There’s been a lot of talk about peak U.S. oil production after warnings from Diamondback drilling that shell oil produce production has peaked and many drillers can’t sustain these prices.

In the Energy Information Administration’s Short-term energy outlook, they did lower U.S. oil production growth for both 2025 and 2026.

The EIA said that global oil prices are expected to decrease. The Brent crude oil spot price averaged $68 per barrel (b) in April. Forecasts suggest that increasing oil production will exceed annual oil demand growth, rising by around 1.0 million barrels per day (b/d) in both 2025 and 2026, leading to the accumulation of oil inventories globally. The rising inventories are projected to result in the Brent price averaging $62/b in the second half of this year and falling to $59/b next year.

The EIA says that global liquid fuels production is forecasted to increase by between 1.3 b/d and 1.4 million b/d in both 2025 and 2026, led by production growth in countries outside of OPEC+. This forecast was completed before OPEC+ announced on May 3 that it would raise production in June. Although OPEC+ is expected to increase production somewhat in the coming months, OPEC+ production is anticipated to remain below the current target level.

•The EIA says that U.S. ethane markets. In late April, China waived a retaliatory 125% tariff on imports of U.S. ethane that had been imposed earlier in the month. With that tariff no longer in place, strong growth in U.S. ethane production and exports is projected. It is forecasted that the United States will produce 2.9 million b/d of ethane this year and 3.1 million b/d next year, up from 2.8 million b/d in 2024. Most of this growth in ethane production is expected to be exported to meet growing international demand.

The EIA said Henry Hub spot price fell to $3.44 per million British thermal units (MMBtu) in April, down 68 cents/MMBtu from the March average. The price decrease was primarily driven by relatively warm weather in March and early April, which led to higher-than-expected levels of natural gas injections into storage.

EIA expect natural gas prices will rise in the coming months as the United States exports more LNG and demand for natural gas from the electric power sector increases seasonally. We forecast the Henry Hub spot price will average nearly $4.20/MMBtu in the third quarter of 2025 (3Q25). Despite rising seasonal demand for natural gas heading into summer, our forecast for the 3Q25 Henry Hub price is almost double the price from a year earlier and is contributing to our expectation of less natural gas use in the electric power sector on average this year compared with last year.

Electricity generation. Although we expect the U.S. power sector will generate 2% more electricity this year than it did in 2024, we forecast generation from U.S. natural gas-fired power plants will decline by 3% in 2025, partially driven by rising natural gas prices. Less generation from natural gas contributes to a 6% increase in generation from coal. U.S. solar generation continues to provide the largest increases in electricity generation in our forecast, increasing by 34% in 2025 and 18% in 2026.

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