March 13, 2025 | WTI Prices Lift As US Consumption Rises 5.1% Last Week.

President Trump freaked out stock markets with his on-off switch of new tariffs and threats against the US’s key trading partners. Canada is getting the brunt of these social media attacks. Trump threatens, then trade negotiators from both sides get to work on the details and persuade Trump to relent and there are reverses in the trade tariff levels. He seems to want to antagonize Trudeau with his Governor of the 51st State and the appeal of no tariffs if he becomes a supporter of this integration. However he has forgotten that the Liberals have a new leader that will become Prime Minister in a few days. Trump has yet to find a derogatory name for Mark Carney.

Yesterday was a particularly nasty day that fortunately ended well. After Premier Ford announced a surcharge on electricity from Ontario going to three US States, Trump threatened to increase the tariff on steel and aluminum from 25% to 50%. He also threatened to end Canada’s auto industry in a fit. Cooler heads got negotiations going and Ontario suspended the symbolic 25% surcharge on electricity and Trump backed off on his 50% rate back to 25%. Thursday is an important date for the trade negotiators to get resolution on the dairy and other contested issues that President Trump wants to fight on.

Headlines seem to come hourly. I would watch the last hour of trading to see how investors are taking the roller coaster. If strong intra-day and then weak at the close this is disconcerting for investor confidence and we may see more downside once the April 2nd tariff – trade reciprocity on a global basis is announced.  The Dow Jones Industrials Index is today at 41,491 (down from its high of 45,077 in late January 2025). We see further downside to the 37,000 level in the near term if the tariffs shocks and drama continue. The one month reprieve for the auto industry is a key one to watch as bringing auto plants back to the US from Mexico and Canada may take years. Does Trump want an early renegotiation of the USMCA deal?

Canada is talking about removing barriers to interprovincial trade and finding ways to trade more with Europe and Asia. Mexico has already reached out to European and Asian oil buyers to sell their oil there and not pay any US tariffs. How does losing a reliable nearby provider of energy help the US? This summer we will see if energy prices rise materially and impact daily inflation concerns of US consumers.

Today’s aluminum and steel tariffs of 25% will raise prices for US auto manufacturers and those that use aluminum cans for their products. The US imported $11.6B of aluminum last year (41% of what the US imported). The CEO of Alcoa recently said that the 25% tariff on Canadian aluminum could cost the US 100,000 jobs. With shrinkage already impacting the government sector, losing large numbers of jobs in the business sector would be a double hit to the US economy. The stock market is worrying about layoffs in government and the private sector, hiring is slowing as seen from the recent jobs report (more below), consumer confidence is eroding and inflation is likely to pick up due to tariffs.

Europe today retaliated against the 25% tariffs on steel and aluminum with countertariffs of US$28B on US goods effective early April. Canada put on tariffs today on $21B of US goods. Items include: computers, sports equipment, and certain iron products.

The US economy is showing mixed results at this time but seems to be deteriorating. Some of the recent releases show:

• The US Trade Balance for January 2025 was the worst yet. The deficit was US$131B for the month, up from US$98B deficit in December 2024. More fodder for Trump’s tariffs agenda.
• US Labour Costs rose 2.2% in Q4/24 versus 0.8% in Q3/24. Nonfarm productivity rose 1.5% in Q4/24 versus a prior reading of 2.2%.
• Non-farm payrolls for February rose 151K versus the 170K expected. Average hourly earnings rose 4.0% and the unemployment rate rose to 4.1% from 4.0%.
• Core CPI for February rose 3.1% year over year, but below the forecast of 3.2%.
• The House got their continuing funding resolution with the help of one Democrat (the rest all voted no) and it now goes to the Senate where the battle to get it passed may be a bigger challenge.

On the diplomatic front a ceasefire deal leading to a peace deal between Ukraine and Russia is being worked on in Saudi Arabia. Ukraine has agreed to a 30-day ceasefire and the release of prisoners and now they await if Russia will concur. As a reward for Ukraine’s agreement the US lifted its pause on aid and intelligence that Ukraine desperately needs. Russia may stall as they are making progress in regaining the lands Ukraine took in the Kursk area.  They have thousands of Ukrainian soldiers surrounded on three sides and the fourth is for them to escape west or be captured. Russia is reported to already have regained 64% of the Kursk territory with the help of 13,000 North Korean first line troops.

Josef Schachter March 13th, 2025

Posted In: Schachter's Eye On Energy

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