November 28, 2024 | Crude Oil Retreats US$2/b On Israel/Hezbollah Ceasefire.

President elect Trump is moving quickly on his tariff plan with a threat on social media to tax Canada and Mexico 25% and add 10% to China tariffs. His argument is that he needs support on keeping drugs out of the US and to stop the migrant invasion. If his need was economic he would have focused on specific economic problems with Canada and Mexico. This seems to be a political trial balloon to throw angst into the political calendar while he waits for his inauguration on January 20th. Both Mexico and Canada’s currencies have fallen as a result of this threat.

Mexico has taken an adamant stance against this threat. Canada’s tone has been more toned down as the Federal and Provincial Governments work to get a united front if this is real and not just a typical Trump bargaining posture. Quebec and Ontario get hurt quite a bit if this is implemented. Ontario’s large auto sector would be impacted but so would the US’s as they are integrated on parts and product offerings. Quebec would get hurt on autos but also aluminum, lumber and aerospace. Alberta and Saskatchewan would be hurt significantly on energy. We don’t buy into this concern as most of our 4 Mb/d of crude exports go to US refineries in the Midwest and the Gulf coast and there is no alternative to Canadian heavy crudes to these markets. It would lift prices to consumers materially and this is the reverse of one of Trump’s key platforms of lower energy prices for US consumers. The states affected will be alarmed and will be lobbying for Canadian heavy crude to be exempted (natural gas would also be lumped in with the increase in costs affecting the area’s consumers). Remember it was the key midwest swing states that gave Trump his electoral college victory. He also would not be waving the Keystone Pipeline being built if he was not thinking about a continental energy policy.

Canadian energy stocks are flat today after a smackdown yesterday. 

Crude oil has retreated US$2/b over the last week as Israel and Hezbollah have agreed to a 60 day ceasefire that can be extended if there are no attacks from either side. Hezbollah has agreed to move its forces north past the Litani River and Israel would withdraw its forces back into Israel. In the south, forces from Lebanon’s army and UN forces would patrol the area. President Biden wants this US sponsored deal to extend to Hamas ending its attacks on Israel and releasing all the hostages (those alive and the bodies of those dead). Iran is key to this deal with Hezbollah and may arm twist Hamas to a deal as they know that they are a key focus of Trump’s and may want to offer an olive branch so that his rhetoric is less warlike. Remember they held hostages from the US embassy during the Carter administration, and released them minutes after Reagan was sworn into office.

Economic, Stock Market Update:

Some of the interesting economic and market data points over the last week are:

• US GDP grew at a 2.8% pace in Q3/24 in line with the forecast.
• US October Durable Goods Orders were positive (up 0.2%) compared to a decline of 0.8% in September.
• Core PCE inflation came in at 2.1% just below the forecast of up 2.2%.
• The US Trade Deficit came in at US$99B below the forecast of US$102B but a number that has the incoming administration focused on fairer trade and for the US to have a much lower trade deficit. What needs to be remembered is that the US has a surplus when it comes to financial transactions.
• Very cold weather in Europe has lifted TTF natural gas prices to US$16.10 per mmBtu. Asia prices have risen to over US$15 per mmBtu as they compete for LNG cargoes.
• Coffee is going to be more expensive as Arabica futures as supplies in growing countries are poor this year. Arabica Coffee futures have gained 60% this year.

Regarding energy,

Our WTI price target of US$66-69/b was reached once and is likely to do so again in the coming weeks before year end. Today WTI is at US$68.72/b as it holds a small US$2-3/b war premium due to the ongoing escalations in the Ukraine/Russia war.

We expect a period of backing and filling for WTI crude in the coming weeks and another test of the recent lows (US$66/b). If this occurs we should see another BUY signal triggered. We plan to add additional BUY ideas at that time. Subscribers please watch your emails on weak market days as this is when such an Action Alert would be issued.

Josef Schachter November 28th, 2024

Posted In: Schachter's Eye On Energy

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