Conflict and Opinions. The Energy Report 04/22/2025

ECB policymaker Olli Rehn, unlike our Fed Chairman Jerome Powell, gets that the so-called trade war is not inflationary and has what he says is a conflicting impact on inflation. Mr. Rehn said that inflation is stabilizing at 2% target in the ECB because of downside risks to growth the ECB should be looking to cut rates and not be hampered by concerns that tariffs might cause inflation.

Fed Chairman Jerome Powell otherwise known as” Mr. Inflation is Transitory” won’t commit to a rate cut as he fears inflation even as it’s clear that overall tariffs are disinflationary. Powell treats President Trump differently than Biden. He ignored Biden’s excessive spending but is now concerned about raising rates under Trump’s administration. Previously, Powell avoided commenting on Biden’s fiscal policies, stating it was not his job. Now, he is suddenly worried about US deficits and seems intent on keeping rates high, potentially leading to a recession.

Zero Hedge pointed out that back in August 2019, former NY Fed President Bill Dudley wrote a Bloomberg oped saying, “the Fed shouldn’t enable Donald Trump” and urged the central bank not to “provide offsetting stimulus” in Trump’s trade war with China. It seemed that Mr. Dudley wanted to put politics ahead of doing what’s best for the economy and the American people and it seems to me that Jerome Powell is cut of the same cloth.

Jerome Powell has taken steps to support President Biden’s spending policies while also implementing measures that may affect President Trump’s agenda, including efforts related to intellectual property and trade practices. These issues influenced oil prices yesterday, but they appear to be recovering as some markets begin to stabilize.

The International Energy Agency (IEA) realized they misled the world by suggesting we could stop investing in fossil fuels and still have a viable economic future. OIL Price reported that global energy supply remains at risk, according to International Energy Agency chief Faith Birol. Before a political gathering in London, Birol emphasized three key rules for energy security: diversification of supply, political stability to encourage long-term investments, and global cooperation.

Despite these fundamental principles, Europe and the United Kingdom have faced challenges ensuring energy supply security, indicating that these objectives are easier to articulate than to achieve. Additionally, the recent imposition of tariffs by President Trump is further complicating the situation by impacting the third principle of cooperation. According to Birol, the tariff war will also influence the demand for oil and gas, although he did not specify the direction in which demand would be affected.

Mr. Birol should be subject to scrutiny due to his participation in the green energy initiatives that have negatively impacted the European economy and posed risks to global energy security. As a proponent of divestment from fossil fuels, Mr. Birol now appears to be altering his stance. Additionally, he has not provided adequate information regarding the anticipated effects of tariffs on supply and demand. This shift in his position suggests inconsistency, as he seems poised to claim success regardless of the direction in which market prices move.

Despite trade tensions, China’s US ethane imports may rise by 20% this year as petrochemical producers switch to economical US shale gas feedstock, Reuters reports. Reuters notes that limited US export capacity and a shortage of tankers are hindering ethane trade. Chinese plastic factories may face significant closures if US ethane supplies vanish. Ethane is crucial for manufacturing, and Bloomberg News reports that these factories are preparing for widespread shutdowns as the world’s two largest economies brace for prolonged challenges.

Yet Mike Greenberg CEO of the Plastics Exchange says that China plastics factories facing major closures might be a bit of a stretch. It is noted that China continues to rely on naphtha-based feedstocks; however, they have been constructing crackers—at least 21 of them—to utilize liquefied natural gas (LNG) and natural gas liquids’ (NGL) ethane, which is a more cost-effective feed. Mike mentions that he does not know the number completed so far but suggests that the issue could become more significant in the future. He says China’s current issue is having 30 PDH units that convert propane from LPG into polymer-grade propylene for making polypropylene. As they aim for polypropylene dominance, this situation is now being disrupted.

China faces significant challenges in attempting to sustain an extended trade war with the United States. Pressure is likely to increase on China and President Xi to reach a resolution. Without such a conclusion, the Chinese economy may face serious repercussions.

Oil prices also weakened after reports that President Trump discouraged an Israeli attack on Iran’s nuclear infrastructure, indicating his desire to avoid war with Iran and give them a chance to negotiate. Meanwhile, Trump is signaling urgency for Iran to make a deal.

The petroleum markets are expected to receive support from the monthly data provided by JODI. According to their report, oil demand increased by 2.1 million barrels last month compared to January levels.

Meanwhile, oil production rose by only 253,000 barrels per day, and overall crude oil inventories increased by 18.9 million barrels month over month. The supplies of oil products were below the five-year average by 188.2 million barrels.

Overall oil product inventories decreased by 10.8 million barrels from the previous month. Diesel demand remains strong despite tariff concerns, driven by below-normal temperatures and tight supplies.

So, if you analyze the numbers if you look at supplies and demand oil prices and product prices are still undervalued, there does seem to be a risk off premium that’s keeping prices low but the buoyancy in the markets today seems to suggest that we’re going to get more in line with supply and demand reality.

Natural gas prices are experiencing a decline, characteristic of the shoulder season. However, this downturn presents an opportunity to lock in prices for the upcoming summer. The prevailing sentiment suggests that natural gas supplies will become increasingly scarce over the next year and a half. Thus, it is prudent to consider strategies to capitalize on what may be a long-term bottom in this market.

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