Recession fears are cooling off as well as the risk that Iran will attack Israel anytime soon. Perhaps diplomacy had Iran change their mind about a direct attack against Israel or maybe it was because they knew that if they did it might be goodbye to the Iranian regime.
Iran knows in a direct confrontation with Israel they would lose, and they did not like the fact that Israel was relishing the opportunity to have an excuse to take out all of Iran’s nuclear and oil-producing capabilities.
Yet Iran, flush with cash, continues to add instability in the world by funding terror groups creating global instability. And while the Biden administration may take credit for the diplomatic dance that held back the Iranian attack, it was the Biden administration's failure to enforce sanctions and freeing up billions of dollars that provided Iran the capabilities to create havoc in the world. The reality is that Iran will continue to try to destabilize Israel.
Meanwhile, oil prices are back on the rise as everyone asks whether the worst is over for the stock market. Despite the job market jitters and the unwinding of the yen carry trade, the sense is that the data while slowing is still from recessionary.
While some data and measurements suggest a recession is coming or maybe already here, it is not being backed up by the oil economic reports and the oil demand data. Yesterday Fed Officials like Chicago Fed President Austin Goolsby seemed to give the market stability by suggesting that the market action was overdone, and the Fed would fix it if need be.
Talk of an inter-meeting Fed cut also seemed to be less likely after the Institute for Supply Management came in at a higher-than-expected 51.4% last month from 48.8% in June. The June reading was the lowest since May 2020 and the rebound this month shows that last month’s number was impacted by weather and other transitory factors.
This morning, Caterpillar (NYSE:CAT) reported better than expected second-quarter earnings which was a surprise considering the fact that many thought that the agricultural sector was in bad shape. This does not feed into the recession scenario.
Javier Blass at Bloomberg reports, ”SunPower, once a venerated name in the US solar industry, has filed for bankruptcy. TotalEnergies (EPA:TTEF) is the majority shareholder. In 2021, at the peak of the ESG bubble, SunPower (NASDAQ:SPWR) was worth >9 billion; yesterday, it was ~$200 million.”
Remember how the Biden administration lauded California for its forward-thinking green energy policies? John Kemp at Reuters pointed out that California’s residential electricity customers paid twice as much per kilowatt-hour as those in Texas in 2023.
California residential power prices have increased at a compound average rate of almost 6.0% per year over the last decade compared with an increase of just under 2.4% per year in Texas.
The biggest comeback story in yesterday’s oil market was gasoline futures that closed higher and a big run-up in the gasoline crack spread when all of a sudden gasoline demand seemed to rebound at a time when everybody thought it was easing.
And it’s been focused on potential supply risk coming from the Israeli-Iranian conflict. We saw that Libya’s Sharara oil field, Libya’s biggest, halted crude production due to anti-government protests and security concerns. The Sharara oil field was producing 270,000 bpd before it was shut down.
Tonight, we will get the American Petroleum Institute supply report. We’re hearing mixed signals from many of the analysts, but we expect to see a drawdown of 2,000,000 barrels in crude oil a 2,000,000 drawdown in gasoline inventories and a 2 million barrel drawdown in distillates. Refineries will see lower activity down 0.5%.
Traders still have to be on guard. If the market gives up the recovery gains but as wicked as the market actions seem to be, it’s looking more and more like a much-needed correction.
Regardless, it all but assures us that we will get that much-needed interest rate cut in September and it gives the Fed to go bigger if they want to. That should provide us with a floor for oil unless the market melts down. But a total meltdown at this point is looking less likely.
Natural gas is still getting pressure, hurricane Debbie did shut down some terminals temporarily but it’s the power outages it’s really going to take its toll on natural gas.
Massive flooding could cause more power outages in the days ahead. Let’s keep the people impacted by the storm in our prayers.