December 26, 2024 | Next Decline In Crude Prices Should Trigger A New Long Term BUY Signal For The Sector.

The official US President Joe Biden is not being seen and his vacuum is being filled by President elect Trump and his entourage led by Elon Musk (seen by Democrats as either the President or Trump’s Prime Minister). Biden lieutenants are looking for new ways to degrade or demean Trump before he takes office. However it is not working as more reports come out from the White House that senior Democrats were covering for the impaired President Biden since 2021. He was seen on his good days and meetings were cancelled or postponed on his bad days. His non-elected neo-con staffers in the Executive branch were making the decisions for him. Of concern is that these hawks were moving decisions forward to increase the chance of an expanded war between Russia and Ukraine. This would have NATO directly involved which means that the US would be at war with Russia. Fortunately President Putin has not been entrapped and he appears to want to wait for after Inauguration Day to talk to President Trump and see if a diplomatic solution is achievable.

The US Congress dodged another funding bill crisis with a last day deal. The original bill was 1,547 pages and included a lot of wasteful pork-barrel spending that Democrats wanted. They demanded these incentives to pass the bill knowing that some Republicans would not support such spending when most were focused on cutting spending. The Speaker made a mistake and got this bill taken down by President-elect Trump and Elon Musk who went on X denouncing many of the wasteful spending included. President Trump wanted a clean deal with only funds for disaster relief (the hurricanes of 2024) and funds for farmers. His stretch request was for a debt ceiling extension to 2027. The final deal removed the pork, was less than 10% of the pages of the original bill but did not give Trump his debt ceiling request. Democrats are declaring victory over hampering Trump over the debt ceiling denial but for Americans the removal of hundreds of billions of pork spending wanted by Democratic Congressmen and women was the victory. So during Q1/25 President Trump will be focused on getting the border closed, deporting illegal immigrants with criminal records, reversing Biden’s egregious spending and regulatory policies, using DOGE to start shrinking the size of the US government and reverse the neo-cons march to WWIII.

In our upcoming first SER issue of 2025 to come out on January 16th we plan to cover the following topics which will impact the markets. If these are of interest to you, become a subscriber.

• Inflation may be re-igniting. Food costs led by eggs due to the flu disease as well as ranchers culling herds due to poor economics will lead to much higher food inflation in coming months.
• Job openings are shrinking so this may be a predecessor of recession. We saw this in 2001 and 2019 and recessions occurred thereafter.
• US long term Treasury yields have lifted nearly 50 BP despite the Fed lowering its short term Fed Funds rate. The 10-year yield has lifted to 4.59% (December 23rd) from 4.13% in early December. What is happening? Has crowding out started?
• Both the Bank of England and the US Fed are so worried about another round of bank failures that they are not releasing their moves until after the failed bank has been resolved. They did not do this in 2008 – 2009.
• Will Trump’s Tariffs hurt or help the US economy and what impact will that have on the rest of the world.
• The US Dollar has been very strong since late September rising from 99.86 to 108.29 last week. What is in store for the US Dollar in 2025?
• Many countries are facing budgetary crises and are seeing rates rise sharply. Why we may see a Sovereign debt crisis in 2025 which will result in a rush to hide in a safe place – that being the US.
• President Elect Trump is calling for ‘drill baby drill’ but also for gas prices to be cut in half. Why this is hyperbole and not realistic.
• Why we see commodities being a big winning part of the markets in 2025 and energy (especially crude oil) will be the largest contributor to this upside. We were cautious in 2024 and now we are again against the consensus.

Ukraine/Russia – Moves before January 20th

Ukraine is working to get more support from Europe before President Trump uses the US military and financial support hammer to get a peace deal done. Ukraine worries that Trump will move to demand official land concessions (Eastern Ukraine and Crimea) that Ukraine is unprepared to make.

Russia is speeding its attacks against Ukraine’s forces that invaded Kursk. Putin wants to expel the invaders before January 20th. It would give him more bargaining power when President Trump pushes for a diplomatic solution. Ukraine is sending in more forces to make this difficult but from the battlefield they have lost over half of their initial invasion capture. Large concentrations of Russian and North Korean forces are driving the land recovery operation. From reports over 1,100 North Korean troops have been killed so far in this offensive. North Korea is sending more ammunition, rocket launchers, suicide drones and self-propelled artillery to aid Russia as their relationship expands. North Korea is gaining modern warfare experience, food aid, crude oil and money from Russia. There have been talks of even more soldiers being sent to Russia for training and then sent to the battlefield.

Regarding energy,

Our WTI price target of US$66-69/b was reached in September and is likely to do so again in the coming weeks. Today WTI is at US$70.02/b. We expect a period of backing and filling for WTI crude in the coming weeks and another test of the recent lows (US$66-68/b). When 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 December 26th, 2024

Posted In: Schachter's Eye On Energy

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