Petroleum markets are giving up gains as they hope for soft economic landing is starting to look less likely. The possibility of war in the Middle East is getting real with Iran threatening to retaliate against Israel for taking out a Hamas leader. Israelis seem to be suggesting to Iran to go ahead and make their day and even reported that they might take out Iran’s oil fields.
Bloomberg is reporting, “Iran signaled it wants to avoid all-out war with Israel, perhaps because they have a soft spot in their heart for their money-making oil fields."
Reuters is reporting that Iran is not looking to escalate regional tensions but believes it needs to punish Israel to prevent further instability, the country’s foreign ministry spokesperson said.
Despite these risks, we are seeing markets melt down in a risk-off mode. The stock market falling as the jobs report has the market convinced that the Fed once again fell behind the curve and the talk of the massive unwinding of the Japanese carry trade.
The monthly jobs report on Friday saw an increase of just +114,000 non-farm jobs versus Wall Street’s expectations for a gain of +180,000. Plus, we saw downward revisions for the previous month down from 179,000 to 206,000 initially.
There was also a notable jump in the unemployment rate to 4.3% from +4.1% previously. This fear along with mixed data overseas is putting markets in a risk-off mode.
The unwinding of the yen carry trade is part of the weakness but weak job data in the US has the market believing that the Fed is once again behind the curve.
This comes against a backdrop of other supply issues. Reuters reported on Saturday that protesters at the field had forced the personnel at the field to begin winding down production, citing two unnamed engineers working at there. Sharara has a capacity of 300,000 bpd.
Bloomberg reported that Saudi Arabia raised the price of its flagship crude to Asia for the first time in three months, a tentative sign that the kingdom remains confident about demand in the world’s largest importer.
State-owned Saudi Aramco raised the September official selling price of Arab Light crude for customers in Asia by 20 cents to $2 a barrel above the regional Oman-Dubai benchmark, according to a price list seen by Bloomberg. Still, it was less than the increase of 50 cents forecast in a Bloomberg survey of five traders and refiners.
There were significant cuts for other regions. In Europe, the kingdom slashed its Arab Light price by $2.75, the biggest reduction since the depths of the Covid-19 pandemic. The equivalent price in the US was cut by the most since February.
The oil and product trade is going to be cautious as the market tries to get a handle on how bad the global market meltdown is going to be. Our expectations are that this is a major correction and not a crash but until the market gets more confidence, it will be a rocky road. Look to buy options.
Natural gas is also getting caught up in the oversupply situation economic instability doesn’t help the market mood. On top of that Hurricane Debbie didn’t really impact production or exports.
Fox Weather reported that – Hurricane Debby made landfall early Monday morning along Florida’s Big Bend, blasting the state with flooding rain, damaging winds and life-threatening storm surge.
The Category 1 storm hit near Steinhatchee at about 7 a.m. ET with winds estimated at 80 mph. Shortly after landfall, power outages skyrocketed to above 250,000 utility customers in the Sunshine State.
By midweek, the storm is expected to dump extreme amounts of nearly 2 feet of rain on parts of Georgia and South Carolina.