June 11, 2025 | US Total Petroleum Stocks Rise 6.4 Mb Last Week. WTI Crude Prices Have Downside Risk Below US$60/b.

Summary:

China and the US meeting in London has come out with an outline of a trade deal. This will leave US Tariff’s on China at 30% and China’s Tariffs on the US at 10%. The win for the US was that China would supply critical minerals (rare earths and specialized magnets needed for all kinds of motors) to the world. Does this mean speedier deliveries of critical minerals or a trickle down that means further negotiations?. In return Chinese students would again be able to attend US colleges and universities. Otherwise this deal is thin on details and has a lot of further negotiations regarding China buying US agricultural and energy products. China still needs access to US tech and this has not been mentioned in today’s deal.

Crude prices have recovered with today’s high at USS$66.64/b for WTI and are now very overbought on the technical indicators and the recent fundamental data. While the headline US Jobs number for May was a rise of 139,000 jobs, worker pay rose 3.9% in May up from 3.7% in April. The largest portion of the growth was in healthcare which added 62,000 jobs. Government jobs fell 22,000. Prior data (March and April) was revised downward (95,000 jobs) and the household survey showed job losses of 696,000 in May. This divergence in data is disconcerting.

Iran is slow walking a nuclear disarmament deal with the US and this may drag on for a few more weeks before President Trump gets frustrated. If so, a concerted move by the US and Israel could attack and destroy many of the nuclear sites in Iran. The UN’s International Atomic Agency is warning that in Q1/25 Iran enriched 953 kilograms reaching 9,247 kilograms enriched to 60% that are sufficient with minor further work to produce 9 to 10 nuclear weapons. The clock is ticking! Iran is preparing for an attack and has strengthened air defenses around their nuclear facilities. Both the US and Israel have forces ready to destroy the Iranian nuclear sites.

Stocks in general have 10-15% downside with the tech area being the most vulnerable. WTI should decline below US$60/b in the coming weeks as global inventories continue to build during this shoulder season. A retest of the April lows in the mid-US$50’s is expected. Another great buy window as we saw in early April should be seen in the coming weeks, likely during July. Get ready to add to favourite energy ideas.

This week’s Eye On Energy Details:

Current Challenges:

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

• Get the Senate to pass an extension of the debt ceiling and raise it by US$4T to US$41T.
• Be able to fund the current deficit and renew maturing Treasury issues when foreign investors worry about US trade policy and support of NATO. China and Japan have been selling some of their substantial Treasury issues.
• Get his tax cuts permanently approved. The Senate now has the “Big Beautiful Bill” and they may not acquiesce to the House version and get a final bill to President Trump before July 4th (Independence Day).
• Show that he can cut wasteful government spending. The current deficit looks to be US$2.2T for this fiscal year and could go higher in coming years if the growth forecast assumed by the bill does not occur. The current deal looks to add US$30T to the deficit over the next 10 years. The Moody’s rating downgrade from ‘Triple A’ was a blow but so far has not raised interest rates to get required funds. Markets are watching to see how upcoming Treasury offerings do.
• Get Congressional approval to close down government departments, regulations and staffing. So far President Trump’s moves have been halted by Judge rulings. Congress passing such legislation would allow for contraction of the Federal force and departments.
• President Trump’s volatile moves on tariffs have had a strong impact on stock markets. The latest on-off of 50% for the EU is just one such market mover. The delay to July 9th means that 27 EU countries need to agree to harsh trade changes. For Germany that means for autos and for France food and wine. We are skeptical that this can be done. So far no tariff deal has been made and signed. The one that has initial agreement is with the UK but no papering of the deal has occurred yet. His threat against Apple of 25% tariffs on imported cell phones to force them to move manufacturing to the US awaits Apple’s response. Other cell phone manufacturers may face the same increase in tariff rates.

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 43,040)
• S&P 500 4,800 now (now 6,056)
• NASDAQ 13,000 (now 19,780)
• S&P/TSX Energy Index <225 (now 268)
• WTI <US$56-58/b (now US$66.64/b)

As this decline progresses in the coming weeks we should see more capitulation from overleveraged and overly speculative investors who would 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 late 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 July. 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.

Into the year end we see much higher crude prices. 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$75/b. Remember global inventories are low historically so even a 1 Mb/d shortfall can drive prices up materially.

For long term investors, find the ideas you want to own for this energy (and most commodities) super cycle and put your BUY orders below the market on plunging days to get great bargains for significant appreciation into the end of this decade.

Josef Schachter June 11th, 2025

Posted In: Schachter's Eye On Energy

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