April 16, 2025 | Expect Near Test Of Last Week’s WTI Low of US$56.06/b. This Should Provide Great Buying Opportunity For Energy Investors.

Products in stock are being bought aggressively by global consumers as they buy what they think will cost much more in the coming months once tariffs hit. Auto lots for new and used cars, electronic products and imported goods are seeing the strongest interest. Tariff negotiations between the US and over 75 countries are progressing but have not yet reached agreements. It is good that President Trump is spending a lot of time golfing so that he holds off tweets that drive stock markets nuts. Today chip stocks are getting hit on new export controls and the NASDAQ is leading the stock market down. Near term tariffs on pharmaceuticals could have a strong impact on markets if they are punitive.

We are watching geopolitical issues more closely as the Iran nuclear talks are not progressing well as they do not want to give up their nuclear program. The US on the other hand is adamant that they must not get to be a nuclear weapons country. Some intelligence services have reported that Iran would have sufficient nuclear material for more than six nuclear intercontinental ballistic missiles in the coming weeks. These weapons can easily hit Israel, Middle East oil fields of competitors, European targets and even the continental USA. If diplomacy fails in the coming weeks then the US has moved sufficient military resources to the area (carrier fleets) to knock out all of Iran’s nuclear, military and energy infrastructure and cripple the despotic Ayatollah’s regime. The clock is ticking here and it is a ‘black swan’ that would drag stock markets down.

One more area facing military escalation is around Taiwan. China has increased flights over the area at a greater pace and closer to Taiwan military bases. In addition, they are practicing with new landing craft and portable ports to unload soldiers and weapons for the capture of Taiwan and its smaller islands. The US has assets in the area (Guam) but not sufficient to stop China if they decide to invade. I would be watching Russia  and its Kursk region. If Russia, with allies North Korea and Chinese troops, retakes all the lands Ukraine captured then that might be the timeline for China to move on Taiwan if the world is angry with the US and its tariffs.

The war drums are beating and any miscalculation could set off some more regional wars. The US military is overstretched and its munition stocks are low from supporting Ukraine.  Europe, Japan, the UK and Australia all have the same empty munition stocks. China knows this and will take advantage of the trade war and turn it into a real war. There can be no real winners if a conflagration commences.

We remain cautious about the near term for stock markets. There are issues of go forward earnings warnings by companies (some not even giving go forward guidance due to the uncertainty). The Dow Jones Industrial Index is at 40,148 as I write this and I see downside to 35,000 in the coming weeks. The S&P 500 is today at 5,337 and we see downside to the 4,800 area. The NASDAQ today is at 16,507 and we see downside to the 13,000 area. So hold cash and take advantage of big down days. We have not yet seen in the current decline a lot of fear and disgorgement of assets. Panic climactic action is always seen at market bottoms and we expect this to occur in the coming weeks. Use this market mayhem to add to your favourite energy positions. If we are right that by year end Iran will lose production of >1.5 Mb/d and Venezuela > 500 Kb/d then there will be a significant shortage of daily crude production and prices will lift over US$80/b. Remember global inventories are low historically so even a 1 Mb/d shortfall can drive prices up materially.

President Trump doesn’t care about the market turmoil and impact on 401 k’s. Trump said “he doesn’t want stocks to go down but sometimes you have to take medicine”. His historic desire to change global trade to America first is disruptive and may take time to resolve but markets discount the worse and then recover. Just remember how markets reacted during Covid in Q1/20.

For the energy sector we have bargain levels right now. We have already gotten all three of our BUY indicators saying BUY. The third one and the most reliable historically is the S&P Energy Bullish Percent Index. When this reaches over 90% it is a time to take profits and when under 10% a BUY signal. In March 2020 it fell to a Table pounding BUY level of 3.7%. Last Monday it plunged to 0%. The only other reading this low was in 2008 at the worst levels for the market averages and stocks during the financial crisis. Use upcoming weakness to BUY your favourite energy investments and consider moving to a full weighting; whatever that is for your personal portfolio needs. Check with your investment manager/advisor to make appropriate decisions.

Josef Schachter April 16th, 2025

Posted In: Schachter's Eye On Energy

Next: Will Gold Stocks Eventually Catch Up to Bullion? »