As I have said before, it’s a myth that tariffs are inflationary. President Donald Trump took that a step further by declaring that, “It’s a myth” that tariffs are largely paid for by consumers through higher prices. That point seems to be true especially when you are gaging the reaction to the tariff news with today’s commodity prices and the reaction to so many historic events. Not only tariffs but some out of the box thinking of foreign policy that could lift sanctions on Russia and potentially Iran at the same time with a new Trump driven nuclear deal.
While the announced sanctions on Mexico Canada and China have caused some prices to rise, they have caused other prices to fall. Which means the impact on overall inflation should be minimal. Yes, some goods may be more expensive for consumers, but others may be cheaper because inflation is not caused by tariffs or taxes but by government money printing and other factors.
Oil prices are down big partly because of the OPEC decision to follow through with their production increase in April and it’s a fact that sanctions will make gas prices rise in the Northeast and California. Yet other parts of the country may see a decrease because of falling oil prices. Gas Buddy reports that gasoline and diesel prices in ME, CT, VT, MA, RI, NH are likely to begin rising today- pace will vary- but by mid-March could be 20-40c/gal higher. Jumps may stretch into NY as well. Wholesale prices as already started to rise in this area. Tom Kloza reported that it looks like tariff shoes are dropping in New England. Reports indicate Irving Oil is hiking U.S. gasoline and diesel wholesale postings by 20cts/gal or more.
Yet we know the biggest cost associated with the gallon of gasoline is the price of an oil. So, after the price jumps, if oil stays down, then the price spike may be short lived.
Consumers may see lower food costs as grain prices drop, except for oats from Canada due to China’s tariff on US grain. While some food products from Canada and Mexico, like meat and fresh vegetables, might be more expensive. Other grains like corn and soybeans will be cheaper. According to the USDA, 77% of fresh vegetables were imported from Mexico and 11% from Canada in 2020.
Copper prices surged yesterday due to positive Chinese economic data but are now falling due to tariff prospects, potentially lowering some consumer goods’ prices. Lumber prices rose but might decrease today with declining oil prices. Add to that unconventional fright policy from President Trump that could see ceasefire deal in Ukraine along with Russia negotiating a nuclear deal for the US with Iran that could lead to a softening of sanctions on Russia and potentially drive down oil prices and free up some natural gas for Europe that they are desperately in need of.
This comes as OPEC moves ahead with what they call a gradual and flexible return of 2.2 mbd voluntary adjustments starting on 1st April. The reason is that Saudi Arabia gave into pressure not only from Russia and the UAE but also the diplomacy of President Trump. Yet at the same time OPEC says that they see healthy market fundamentals and a positive outlook for demand going forward.
Beyond tariffs, there’s the potential for a peace dividend. President Trump is working on a nuclear deal with Iran through Putin, hinting that strict sanctions might be avoided. Putin’s connections with Iran could help secure a deal, keeping Iranian oil available. Meanwhile, diesel and gasoline crack spreads have slightly rebounded, indicating stable demand despite tariffs.
This comes at a time when we should start getting the refiners geared up for the upcoming summer driving season. The American Petroleum Institute report comes out today and we expect to see slight builds across the board. But after that get ready for some big draws in the weeks ahead.
Natural gas prices are already looking ahead to summer. Not only are we seeing the European inventories at generously low levels reports that this summer here in the United States by some weather forecasters could be warmer and drier than normal is causing the market to show some strength. The natural gas market seems to be shaking off its doom and gloom about the future and it’s now embracing the much tighter market than the market thought imaginable just a few months ago.
Oil Price reported, “U.S. natural gas futures jumped in Monday’s early trading session, rebounding from recent lows driven by robust export flows and strong demand forecasts. Henry hub gas was trading at $3.98 per MMBtu at 11.25 am ET, up from a two-week low of $3.74 per MMBtu a week ago. U.S. LNG exports hit a fresh record 15.6 bcfd in February, boosted by new units at Venture Global’s (NYSE:VG) Plaquemines plant. The Arlington, Virginia-based LNG exporter commenced LNG production at its Plaquemines LNG plant 30 months after the final investment decision (FID) was made, making the plant with a 20 mtpa nameplate capacity one of the two fastest greenfield projects to reach first production. Once fully operational, Plaquemines will be among the largest LNG facilities in the world, featuring 36 electrically-driven 0.626 million tonnes per annum (mtpa) liquefaction trains, configured in eighteen blocks.
The U.S. is rapidly developing LNG plants to meet Europe’s surging demand for the commodity. Two weeks ago, Cheniere Energy (NYSE:LNG), for the first time, started producing liquefied natural gas (LNG) from the first train (Train 1) of its Corpus Christi Stage 3 Liquefaction Project. As of Nov. 30, the overall project completion for the project was close to 76%; however, the company expects substantial completion achieved at the end of the first quarter of 2025. The project consists of seven midscale trains, projected to produce over 10 million tonnes per annum (mtpa) of LNG.
Meanwhile, gas demand in the Lower 48 states is projected to be higher than previously anticipated despite milder weather expected through March 18. Also, stockpiles remain about 12% below the five-year average due to earlier extreme cold. U.S. gas output hit a fresh record of 104.7 bcfd in February.