Latest news with #Hirs
Yahoo
14-04-2025
- Business
- Yahoo
Oil prices may need to fall another 20% before a 'Trump put' stops this year's slide
President Trump's wish to bring down oil prices has so far gone his way, with crude oil futures hovering near four-year lows. And some on Wall Street think prices have a lot further to fall before the administration would be motivated to step in to support oil markets the way cascading bond prices may have been the catalyst for a 'Trump put' in the form of a pause on tariffs. "The price floor is now much lower," wrote JPMorgan head of global commodities strategy Natasha Kaneva and her team on Monday. "Unlike the Biden administration, which limited downside risk by guiding the refill of the US SPR [Strategic Petroleum Reserve] when WTI prices fell below $70, the Trump administration is actively pursuing lower oil prices, with intervention unlikely unless price drops to $50." That would imply about a 20% drop in oil prices from current levels, as West Texas Intermediate (WTI) crude oil prices, the US benchmark, hovered near $61 per barrel on Monday. Brent (BZ=F) crude oil, the international benchmark, sat just below $65 a barrel. Both gauges were down over 14% so far this year as of Monday afternoon. Read more: The latest news and updates on Trump's tariffs Though President Trump said in February the US will fill up the strategic reserve — a move that would increase demand and, in theory, support prices — no specific timeline has been given. Wall Street analysts have been lowering their price target for crude in recent weeks as demand fears grew out of an escalating trade war sparked by Trump's tariff policy. Prices were also weighed down by the Organization of Petroleum Exporting Countries and its allies, known as OPEC+, voting to increase output next month. On Monday, JPMorgan lowered its year-end average price forecast for Brent to $66 per barrel and WTI to $62. The firm also predicted WTI will dip below $60 a barrel on a monthly average basis starting this August, closing the year at $55. "US shale producers will bear the brunt of these developments," Kaneva wrote, forecasting a contraction in production in 2026. Industry insiders have also highlighted that the rising cost of drilling is already causing production to plateau after the US produced record amounts of oil last year. Rig count data for the week ending April 11 showed 567 rigs operating versus 598 in 2024, according to Bake Hughes data. "Drill, baby, drill ... cannot happen with prices below $70 per barrel simply because US oil patch can't afford that," Ed Hirs, senior fellow at the University of Houston, told Yahoo Finance on Monday. Despite deregulation and industry-friendly policies from the Trump administration, the cost of drilling has risen. Hirs says 25% steel tariffs have made it up to 15% more expensive to build wells and drill pipes into the ground. He adds the cost of manual labor around the oil patch has also increased. "There's no way to save enough in deregulation to make up for losing $20 a barrel in revenue. The cost numbers just don't work," Hirs said. Meanwhile, energy-related stocks have tumbled in recent weeks, wiping out their first quarter gains that saw the sector serve as a market leader to begin 2025. As of Monday, the S&P 500 Energy Sector (XLE) was down nearly 8% year to date, the third-worst performer for the year behind Tech (XLK) and Consumer Discretionary (XLY) and only barely outpacing the index's overall loss. Ines Ferre is a Senior Business Reporter for Yahoo Finance. Follow her on X at @ines_ferre. Click here for in-depth analysis of the latest stock market news and events moving stock prices Sign in to access your portfolio
Yahoo
31-01-2025
- Business
- Yahoo
Trump promised to lower gas prices. His tariffs could have the opposite effect.
Trump said he's planning tariffs on Canada and Mexico, which could risk higher gas prices. Most of US crude oil imports come from those two countries. Economists don't expect US drillers to boost production in order to keep prices down. President Donald Trump's plan to slap tariffs on Canada and Mexico as soon as February 1 threatens to undercut one of his key campaign promises: lowering prices at the pump. The US imports around 40% of the crude oil it refines into gas for your car and other vehicles. In 2024, about half of that came from Canada and 11% from Mexico. Economists told Business Insider that slapping those imports with tariffs could strain consumers' wallets at the gas station and have ripple effects across industries. "Tariffs on crude oil is going to flow right through to the US consumer," Ed Hirs, a lecturer on energy economics at the University of Houston, said. "Canada may absorb some of the cost, but the US will absorb a lot of it, too." Shortly after taking office, Trump said he could impose a 25% tariff on Mexico and Canada on February 1 as a way to push those countries to crack down on illegal immigration and drugs entering the US. White House spokesperson Karoline Leavitt on Tuesday said the plan "still holds." Trump told reporters on Thursday in the Oval Office that he's still considering whether to include oil from Canada and Mexico in his tariffs. Patrick De Haan, head of petroleum analysis at GasBuddy, told Fox Business on Thursday that consumers in the Great Lakes and Midwest regions would likely experience some of the largest impacts of tariffs. He said gas prices there could rise by more than 20 cents within days of the tariffs taking effect. The US is producing record amounts of crude oil with domestic production amounting to about 60% of crude refined in the US, per the Energy Information Administration. But many refineries aren't equipped to process the light crude from US shale basins, Hirs said. Refineries in states like Michigan, Wisconsin, and Indiana rely on heavy crude from Canadian oil sands and it would be costly and time-consuming to convert the technology. Hirs said it's difficult to predict how much prices will rise, in part because it depends on what OPEC+ does. The oil cartel has been postponing production increases to boost global prices. Trump has called on OPEC+ to slash prices, and ministers meet on February 3 to discuss his demands. Even if crude prices rise, Hirs said the signal won't be strong enough for US drillers to boost production. US refineries that handle domestic crude already have more than enough supply. "Tariffs that increase costs but lower revenue are going to be poisonous for the US oil industry right now," Hirs said. The American Petroleum Institute, which lobbies on behalf of the US oil and gas industry, is opposed to additional tariffs. The group in December asked the Trump administration's top trade official to exempt crude oil and natural gas from levies because they would "directly undermine energy affordability and availability for consumers while eroding the U.S. oil and natural gas industry's competitiveness both domestically and globally." Higher gas prices would have knock-on effects in other industries, too, such as fresh fruit and vegetables that are trucked into the US and construction projects that need fuel to power heavy equipment. While economists predict tariffs would cause a short-term spike in gas prices, they also said broader economic instability may lead to longer-term price drops. Officials in Canada, Mexico, and China have warned that they will retaliate if Trump implements new tariffs. A trade war may slow down the global economy and depress prices, Hirs said. "It doesn't take much to throw the global economy into a recession," Hirs said. "That would help lower the price of gasoline and diesel for everybody because there would be less economic activity and less demand." Bank of America strategist Francisco Blanch similarly told Business Insider in November that tariffs will likely curb global trade, driving down oil and gas prices. Read the original article on Business Insider
Reuters
27-01-2025
- Business
- Reuters
US power stocks plummet as DeepSeek raises data center demand doubts
NEW YORK/HOUSTON, Jan 27 (Reuters) - Shares of U.S. power, utility and natural gas companies sold off on Monday in some of the biggest recorded one-day drops, as new AI technology from Chinese start-up DeepSeek cast doubt on a projected surge in U.S. electricity demand and tech spending. Power producers were among the biggest winners in the S&P 500 last year on expectations of ballooning demand from the energy-guzzling data centers needed to scale Big Tech's artificial intelligence technologies. The wider adoption of AI models like the one developed by DeepSeek, which it says it built in under two months and is cheaper than models currently used by U.S. companies, could result in less electricity demand overall and result in a smaller power build-out, analysts and economists said. "If proven true, the efficiencies used within DeepSeek's open-source model can be applied by the hyperscalers to their models, which would result in a more moderated demand," analysts with Evercore ISI said in a note. Big Tech firms, which are also known as hyperscaling data center developers, have devoted tens of billions of dollars in AI data center development over the last year. In the U.S., data centers consumed roughly 4.4% of electricity in 2023 but are anticipated to use 6.7% to 12% of all power by 2028, according to a report produced by the Lawrence Berkeley National Laboratory. Independent power provider Constellation Energy (CEG.O), opens new tab, whose shares had shot up about 100% in 2024 largely on its ability to sell nuclear and gas-fired power to U.S. data centers, sunk by about 20% in trading on Monday after news of DeepSeek's advancements. Vistra (VST.N), opens new tab was down 30% and rival Talen Energy Corp (TLN.O), opens new tab was down 22%. DeepSeek AI could also threaten the dominance of current AI leaders, which are based in Silicon Valley, and slow their deployment of data centers. DeepSeek's AI assistance had overtaken U.S. rival ChatGPT in downloads from Apple's app store on Monday. But with the wider adoption of AI, even with more energy-efficient models, power demand could surge everywhere, said Ed Hirs, an energy economist at the University of Houston. He cautioned that a sell-off of power stocks could be short-sighted and short-lived. "In this instance, if DeepSeek turns out to be what everybody wants, and they sell to U.S. companies, and the U.S. companies change their algorithms to adopt to it, it just means a greater, faster broader development," Hirs said. Still, electricity companies, and even producers of feedstocks related to power generation, were under pressure. Earlier this month, Constellation acquired private natural gas producer Calpine Energy for $16.4 billion in one of the largest U.S. power industry deals ever, a sign of rising expectations that demand for gas will grow as a generation source for AI. Shares of publicly-traded producers of natural gas, which makes up the biggest share of fuels used to generate electricity in the United States, also slumped. EQT Corp (EQT.N), opens new tab was off 9%. Midstream operator Energy Transfer (ET.N), opens new tab, which said it has received connection requests from dozens of data centers, was down about 7%. here.
