July 30, 2025 | US Commercial Crude Stocks Rise 7.7 Mb In Recent EIA Data- Crude Prices Are Vulnerable

Summary:

President Trump has announced a trade deal with the EU opening the country to US sales of vehicles, more agricultural goods, wine and mostly energy. Their tariff will be 15% and US goods entering the EU would see no tariff. Prior to the tariff war EU cars paid a 2.5% tariff to enter US markets. Some big numbers were thrown around. Europe would BUY US$750B of energy (crude oil, products and LNG – fully displacing Russia), invest US$600B in creating businesses and high paying jobs in the US – and the biggie – buy massive quantities of military equipment as they move to spend 5% of GDP on defense versus the current 2%. The EU seemed pleased with the deal as they were facing 25% tariffs. However cracks are being seen in that German car makers worry about being viable in the US market as steel and aluminum still face 50% US tariffs. The deal is preliminary and aspirational. Many commentators do not see the numbers as realistic as the US does not have sufficient production of oil and LNG to meet the lofty expectations. Great to announce the deals but the details are lacking. So far no enforcement mechanisms have been seen and there are no formal written agreements. It is likely that the 15% number will be used to move other deals to completion. Opening these markets are good press but what if the foreigners don’t want to buy the products. Items like cars in countries with right hand drives may not see much business as the US auto industry does not focus on this market. Some of the investment funds committed may not be equity investments but may be loans.

Crude oil strengthened over US$70/b for WTI on the back of optimism of global growth as more tariff deals are done. However crude inventories are growing at a time when they should be shrinking (see EIA weekly oil data below).

Tariff revenues are rising for the US Treasury. This month the take could be US$27B and forecasters are suggesting 2025 revenues could be in the US$240B area.

President Trump is now very frustrated with President Putin for not working to end the war in Ukraine. Instead more deadly drone and missile attacks against Ukrainian civilians are occurring and diplomacy is seeing no progress. Trump thought he had a deal weeks ago and now is making scathing attacks against Putin. His 50 day window for a ceasefire deal was shortened to 10-12 days then today to August 8th. He is considering stronger secondary sanctions such as to India to impose a penalty of 25% if they buy Russian energy. India has been a laggard in dealing with the Trump tariff team.

Russia and China have been doing military exercises close to the US. Some near Alaska were joint exercises but recently Russian nuclear submarines have been seen conducting drills just 66 miles from Florida.

The ongoing US stock market rally (new highs for S&P 500 and NASDAQ but not the Dow Jones) has been focused on the AI and tech sectors and is very narrow in leadership. NVIDIA has crossed a market cap of US$4T), a new record market cap for any stock. We saw this same gapping up in early February 2025 just before the Dow fell from 45,100 to 36,600 or a decline in 2.5 months of 19%. With sluggish economic data especially in the consumer areas, we suspect we could see a 20%+ general stock market correction (led by tech) over the coming months. Caveat Emptor! More on this below.

Investors should consider building up some cash reserves and be ready for a material market correction. It could get very nasty in September!

This week’s Eye On Energy Details:

Current Challenges:

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

• 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.
• The current deficit looks to be US$2.2T for this fiscal year, despite June’s US$26B surplus due to tariff revenues. Markets are watching to see how upcoming Treasury offerings do. So far so good! US Interest rate payments are now over US$1T and could rise much more as the debt raised 2, 3 and 4 years ago was at much lower cost. The renewal will add to the interest cost of this budget.
• Trump has announced that he would impose a 50% tariff on copper imports as he works to get more of this critical metal produced in the US (now only 50%). Canada gets smacked down again as Canada exports $4.8B of copper concentrate (99% of US imports). Copper prices jumped and were at US$5.50 per pound yesterday up from US$4.23 per pound just a month ago. Next on Trump’s hit list is the pharmaceutical industry where he plans at a “very, very high rate, like 200%,” if deals are not done to lower US prices significantly.
• China is now signalling to the US that no trade talks are possible without US concessions on Taiwan. With China agreeing to sell more rare earth critical minerals needed for high tech equipment built in the US, Trump has reversed his decision to hold back sale of NVIDIA and AMD high end semis to China. Those stocks have added to their runs due to this reversal. A bit of progress but not enough.

I remain concerned that other Geopolitical Challenges could 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 44,658)
• S&P 500 4,800 now (now 6,384)
• NASDAQ 15,000 (now 21,182)
• S&P/TSX Energy Index 230 (now 278)
• WTI US$57-59/b (now US$70.13/b)

We see WTI rising after the next dip and the potential issues that could drive prices quite high in coming years are:

• Global growth in late 2025 into 2026 exceeds supplies (Venezuela sanctions impacting as well).
• Lack of production growth from the non-OPEC world.
• US Production levels flattening as seen in this week’s EIA report.

The Trump tariffs are just having an impact and future months should see much more tariff revenue and higher prices impacting inflation. The US Economy is humming along at a 3% pace and jobs are growing according to the ADP which announced hiring recovered by 104,000 jobs in July. Wage pressure is evident with wages up 4.4% at an annual pace in the month, boxing in the Fed from rate cuts. The Fed noted that ‘inflation remained elevated’.

The Federal Reserve kept interest rates unchanged today despite President Trump’s cajoling. The Fed Funds rate was kept at 4.25 – 4.50%.

Josef Schachter July 30th, 2025

Posted In: Schachter's Eye On Energy

Next: Are Stock Markets Setting Up for a Major Correction? »