What A Fool Believes. The Energy Report 05/08/2025

After the Federal Reserve decision yesterday and Federal Reserve Chair Jerome Powell’s press conference, President Trump said, ” too late Jerome Powell is a fool who doesn’t have a clue.” The President rightly pointed out that the Fed Statement made headlines leading with the Fed judged, “that the risks of higher unemployment and higher inflation have risen” even though evidence of that is to the contrary. 

The Fed even said that although we have seen swings in net exports that have affected the data, recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. The Fed also said that inflation remains somewhat elevated.

Yet the reality is that we are seeing signs with lower energy costs and food costs that inflation is abating and should drop significantly in the coming quarters. As far as employment there are job losses because of the trade war but most of them happen to be in China. In the United States we are not seeing any evidence of massive job losses, nor do we expect to see any. That is even as corporate earnings did suggest some concern about the impact of the trade war and a lot of uncertainty. The trade war so far has brought back more investment to America and is creating more jobs. And on the inflation front, this continued mantra that a trade war and tariffs add to inflation is a total misunderstanding from the Fed of where inflation comes from.

The Federal Reserve has to realize that inflation comes from government money printing huge deficits and wasteful government spending. In the past, trade wars and tariffs generally led to disinflation as opposed to inflation. There is always a balance. Prices may rise in a trade war tariff situation, but some prices will actually decrease. Meanwhile, inflation will drop, leading to higher real earnings. In this case, Jerome Powell’s assessment is off the mark.

The question arises: Is Mr. Powell politically motivated, or is he, as the President suggests, simply “clueless”? Some people believe what Mr. Powell is saying, expecting inflation, and anticipating significant job losses. However, we believe the concerns about an economic slowdown due to the trade war and a potential recession are exaggerated. It is our view that Jerome Powell missed an important opportunity to cut interest rates or at least indicate a rate cut for June.

The oil market did not like the fact that we didn’t get additional stimulus from a federal rate cut, raising concerns that Jerome Powell’s stubbornness could lead to a slowdown in the economy thereby hurting oil demand.

President Trump mentioned on Hugh Hewitt’s radio show that he is not aiming to destroy Iran’s nuclear centrifuges but is also prepared to do so in an attack if necessary. This statement comes as the United States suggests that if Iran strikes a deal with President Trump, they could restore their position in the global community. There are indications that Iran might reconsider its stance, particularly after the Trump Administration decimated the Iranian-backed Houthi rebels.

News of President Trump announcing a comprehensive accord at 10:00 AM Eastern Time has boosted oil optimism. Oil prices surged as reports emerged of the United Kingdom’s Prime Minister Keir Starmer confirming the trade deal with the United States. More details will be provided by him today.

The details of this trade deal are going to be very important because it will be the first major deal that has a specific outline and could be a road map for other countries to follow. It also is a big win for the Trump Administration and it should be a signal to the market that the United States is going to achieve their goals in this global trade dispute. If the market starts to realize that the trade war initiated by Donald Trump is going to be very bullish for the stock market and it should also be very supportive for oil prices. With trade talks starting early with Scott Bessent and China, even though Treasury Secretary Scott Bessent seemed to downplay the significance of these talks, is really another sign that we’re moving in the right direction in this trade war and that should be very supportive.

In fact, the trade deal might be exactly the situation we need to get oil and gasoline prices out of their funk. Trade deals should be very supportive for the demand side of the equation and while President Trump’s invisible hand of lower regulations should allow US producers to respond more quickly to demand, we expect the prices shouldn’t get firmer from this point.

Natural gas prices are starting to move as the natural gas storage end of season is projected to be below average for the first time in many years. Right now natural gas inventories are very close to the five year average and we’re looking at the possibility that we get a hot summer coupled with lower than normal inventories. We have record exports and production that could fall and that is creating the opportunity for the comeback for natural gas. We still like to be buying bullish option spreads along the curve. The key thing of course, as always, will be weather. 

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