The American Commerce Secretary Lutnick said yesterday that Trump could decide on tariff relief as soon as today (Wednesday). The key word is ‘could’ and who knows what ‘relief’ means. When he announced this, the market stabilized, but it is still very nervous. Trudeau and Trump are expected to speak today on the phone.
Why do I say this is a nervous market? NYMEX crude oil futures are trading near four-year-lows and natural gas is trading near 2 year highs (remember that oil trades down in a crisis but natural gas trades up). When I look at the price of crude oil, what I think about is demand. High crude prices mean lots of demand (people want to drive everywhere) which implies good economic times. However, low crude oil (and unleaded gas and heating oil) prices are a sign of an economic downturn. Why are consumers not driving all around if gasoline is cheap? Does that mean they lost their job and they don’t have the money, or that they are really worried about the future?
The worst possible scenario is a recession (when nobody has money to spend) along with a supply disruption (which results in high gasoline prices). Think 1973 or 1979 when an oil embargo caused stagflation. (Think tariff!)
When I look at Natural Gas, I think of supply because supply impacts long term pricing. The economic uncertainty of this tariff implies a disruption to supply so the price heads up. When the market gets confident that supply will fill storage for next winter, then prices will come off. Demand impacts price short term, which is why we follow the weather closely for Dawn Daily Index.
What the market needs now is solid concrete news without ‘maybe’, ‘could’, or ‘stay tuned.’ All this flailing about implies the people in charge are not in charge and they don’t actually have a plan. This only unsettles things more, and that is not good for trade nor business. I want understand the plan for filling storage for next winter but all this noise is getting in the way.
To be honest, I find following all this to be a bit like watching a crazy TV show where each episode is a cliffhanger… They ‘could’ decide something, or they ‘might’ talk, ‘maybe’ they will decide… over and over each and every day. I think the real purpose is to make us focus on the news 24 hours a day. (And I normally don’t tune in to the news because I have work to do.)
The ADP Jobs report came out in the US at 77,000 new jobs in February vs expected 140,000. This is a big miss. Keep an eye both on Canadian jobs report and on the US Non-Farm Payrolls report on Friday for confirmation.
US government bonds are trading higher, which means lower interest rates. While that might seem like a good thing, the markets are forward looking and the bonds usually rally in anticipation of a recession (so it might not be such a good thing after all…).
The storage report is forecast to show a -97 Bcf withdrawal from storage for the week ending Feb 28th. This would be in line with the 5-year average. The weather is forecast to be similar or a bit warmer for the next three reporting periods. Spring is just around the corner but we always keep the weather eye out for a cold snap.
All that being said, we are ending the withdrawal season with less working gas in storage than last year, so we have some work to do. Production is up but it needs to increase even more and it needs to be consistent in order for storage to be full by November. I would not expect last year’s summer prices in 2025, but I would be happy to be wrong on that prediction.
[WFG]