May 21, 2025 | Crude Oil Rises On Concerns Israel May Attack Iran’s Nuclear Facilities. Does The US Hold Them Back?

US stocks are weaker today as US yields rise and contain stock prices. The 10-Year US Treasury yield is now at 4.54% (high for 2025 4.57%). The 30-year US Treasury is at 5.02% (high for 2025 5.04%). If these rates are exceeded and foreign buyers of the large funding needed to cover the rising US budget deficit do not show up as buyers this will be problematic. Thereafter new issues and bond renewals will see interest rates going higher. If this occurs stock prices would get clocked. If these investors of US debt go about selling their large debt holdings (Japan and China) then the problem is exacerbated. The focus is on Congress passing a budget before next week’s Memorial Day holiday. If it does then the next stress point is the Senate coming with a deal that the House can agree to and then the final bill goes to the President before the July recess and the debt ceiling deadline.

Stocks have 10-15% downside with the tech area being the most vulnerable.  WTI should decline below US$60/b and retest the April lows in the mid-US$50’s if Israel does not attack Iran and no further escalations in the Middle East occur.  Another great buy window as we saw in early April should be seen in the coming weeks, likely the end of June. Get ready to add to favourite energy ideas.

Current Challenges:

Challenges for President Trump and his administration over the next 100 days will be tough: He needs success on these issues before the end of this 100-day timeline:

• Get an extension of the debt ceiling and raise it by US$4T.
• Get his tax cuts permanently approved.
• Show that he can cut wasteful government spending.
• Get Congressional approval to close down government departments, regulations and staffing.
• Get peace deals signed between Russia and Ukraine, get Iran to end its nuclear weapons program or the US will attack and destroy their nuclear facilities, end Houthi attacks on Red Sea commercial and military shipping and reopen the waterway permanently.

I remain concerned that a Geopolitical Challenge will take place and be the ‘Black Swan’ to take the general stock markets to our downside targets.

Our expected downside targets are:

• Dow Jones Industrials Index 35,000 (now 42,340)
• S&P 500  4,800 now (now 5,911)
• NASDAQ 13,000 (now 19,093)
• S&P/TSX Energy Index <225 (now 257)
• WTI  <US$56-58/b (now US$62.36/b)

As this decline progresses in the coming weeks we should see more capitulation from leveraged investors who get nasty margin calls. Intermarket pressure should take energy stocks down as well as the overvalued tech sector (AI and semiconductor stocks the most overvalued still) and provide energy investors with the next low risk BUY window. This should trigger a Table Pounding BUY signal during the coming weeks into June and we will send out to SER subscribers another Action Alert with new BUY ideas when that signal is triggered.

The Trump tariffs have still not been seen by customers as inventories of current stock need to be sold and then new imported items will carry the tariffs and become relatively expensive. This is now expected to hit stores during June. Both Walmart and Target have warned of the cost of new inventory. President Trump has jawboned both to eat the higher tariffs and not pass the cost increases to consumers. Some economists see tariff prices impacting households by US$2,800 by year end.

We have not yet seen in the current market decline a lot of disgorgement of assets. Investors, especially retail investors have been buying the dips. Historically at market bottoms they are in fear mode and selling. 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 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.

Josef Schachter May 21st, 2025

Posted In: Schachter's Eye On Energy

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