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First Look - Oil rises on Russian "secondary tariff" threat

March 31, 2025 | Narciso Cano

Tariff Threat on Russian Oil Lifts Prices
- WTI prompt-month contract rose 16c to $69.52/Bbl as of Monday morning (7:45 AM CT)
- Crude prices edged higher following President Trump’s suggestion that the U.S. could impose “secondary tariffs” on Russian oil exports
  - This follows last week’s announcement of similar tariffs targeting countries purchasing Venezuelan oil or gas
- The President’s comments reflect mounting frustration over Russia’s resistance to reaching a deal on Ukraine
- Key importers India and China, who have significantly increased purchases since Russia’s invasion of Ukraine, would face mounting pressure
- Russia’s crude exports climbed to a five-month high in March, and US sanctions targeting Russian tankers appear to be losing effectiveness
North Sea Oil Swaps Hit Record Volume (Bloomberg)
- Over 108,000 Dated to Frontline (DFL) swaps traded on Friday, surpassing the previous record of 68,000 contracts set in June 2023
  - DFL swaps track the spread between ICE Brent futures and the Dated Brent physical benchmark that underpins global crude pricing
- The surge in volume suggests traders were forced to unwind loss-making positions
- Investment funds held their largest net-short position in DFL contracts since January 2023 last week
- The sharp rally in these contracts likely added stress to short positions, amplifying the trading activity

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Natural gas trades higher amid late-season cold weather
- The May Henry Hub contract is up about 13c to $4.20/MMbtu (8:20AM)
- A winter storm is impacting parts of the US Midwest, while two-week forecasts shifted materially colder for the Northeast and Midwest regions
  - This could reduce the size of storage injections over the next few weeks
Southeast gas deliverability to expand (S&P)
- Kinder Morgan’s Mississippi Crossing and Boardwalk Pipelines’ Kosci Junction projects will add over 2.5 Bcf/d of additional capacity into the Southeast
- Growing demand for power generation and concerns of supply shortfalls have led to an increase in midstream activity in the US Southeast
- The capacity additions from these projects could reduce upside risks in basis premiums in the region, such as Transco Z4, which often trades higher than Henry Hub during summer

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