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Fed’s Bowman: More hikes needed to reach 2% inflation…….. Fed’s Barkin: Further economic slowdown ‘surely’ on the horizon

United States Federal Reserve Governor Michelle Bowman said on Monday that additional interest rate hikes will likely be needed to reach the Fed’s inflation target of 2%. However, she said she will monitor economic data for “evidence that inflation is on a consistent and meaningful downward path” as she considers further hikes and the length of time rates will have to stay at a restrictive level. Bowman said she also monitors the impact of inflation and high interest rates on small businesses. “Despite high inflation and significant challenges finding workers in a tight labor market, the past few years have been relatively good for small businesses and for new business formation,” she said, citing a “remarkable surge” in the number of new business start-ups starting in mid-2020. “Recent indicators, like applications for new tax identification numbers, suggest the pace remained elevated through the middle of this year,” she said.

Fed’s Barkin: Further economic slowdown ‘surely’ on the horizon

Federal Reserve Bank of Richmond President Thomas Barkin said  in a speech that further economic slowdown in the United States is “almost surely on the horizon.” He explained that one of the reasons the country hasn’t yet seen a recession is the COVID-19 pandemic, the effects of which are still present in the dislocated economy. “Businesses experienced severe shortages over the last few years. So, they tell me they are holding on to workers and investing in safety stock … At the same time, consumers continue to spend, funded by excess savings,” Barkin said. He stated that Fed’s fight against inflation has already “pushed several industries into mini-recessions.” The policymaker added that as “pandemic-era fiscal support programs are ending” and monetary policy tightening works with a lag, it is likely that those who keep predicting a recession “will eventually be right.”

 

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OPEC’s Production Drops More Than 1 Million Bpd In July: Argus

A third survey has come in showing that OPEC’s production dipped even more than earlier estimates, according to Argus, which showed that production fell in July by more than 1 million bpd as Russia and Saudi Arabia stepped up their efforts to curtail production. Argus’ survey is just one of many, with each survey looking increasingly more bullish. On July 31, a Reuters survey showed that OPEC output fell 840,000 bpd from June levels, carried mainly by Saudi Arabia, which the survey showed had cut 860,000 bpd from June levels. In total Reuters estimated that OPEC’s production had come in at 27.34 million bpd in July. Bloomberg’s estimates, published earlier this week, suggested that OPEC’s crude oil production fell by 900,000 in July—the largest monthly drop since 2020 when the group scrambled to slash production in the wake of waning demand courtesy of the covid lockdowns. According to the Bloomberg survey, OPEC production averaged 27.79 million bpd in July, with Saudi Arabia cutting the most, followed by Nigeria and Libya. From original estimates of an 840,000 bpd cut to 900,000 bpd, and now to more than 1 million bpd in cuts, the surveys for OPEC’s July production cuts is growing increasingly bullish. The Argus survey showed that Saudi Arabia’s production fell 970,000 bpd in July from June levels, sending OPEC+ output to 35.7 million bpd—the lowest level since June 2021. The Joint Ministerial Monitoring Committee (JMMC) of OPEC+ affirmed on Friday the current levels of oil production of the group and didn’t make any recommendation to change the output at this time, largely as expected, with Saudi Arabia agreeing a day prior to extend its voluntary 1 million bpd production cut into September. NN: The market will consolidate its recent games. Do not over trade. Wait for the data to come in and confirm this rally.

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Ukraine declares ‘war risk area’ in 6 Russian Black Sea ports……. Russia launches new burst of missile and drone attacks

The Ukrainian State Hydrographic Service declared on Saturday the state of a “war risk area” in the internal and external waters of the ports of Anapa, Novorossiysk, Gelendzhik, Tuapse, Sochi, and Taman. According to the Ukrainian Coastal Notice 118, with this measure, these ports are considered to be in a war zone. The decision was taken for an indefinite period of time. The news comes after the Russian oil tanker SIG was attacked early in the morning in the Kerch Strait. According to press reports, a naval drone of the Security Service of Ukraine (SBU) allegedly carried out the strike.

Russia launches massive assault on Ukraine, says Ukraine attacked Donetsk

Aug 6 (Reuters) – Russia launched a multi-wave overnight attack on Ukraine with 70 air-assault weapons including cruise and hypersonic missiles as well as Iranian-made drones, Kyiv’s Air Force said on Sunday, and at least 10 missiles appear to got through air defences. Local media said a worker at a grain silo had been wounded in the overnight attack, which appeared to be focused on an area of western Ukraine, far from the front line. President Volodymyr Zelenskiy said people had been killed and wounded in an earlier hit to a blood transfusion centre in the town of Kupiansk, a railway hub fewer than 10 miles from the front in the eastern Kharkiv region. Rescue workers were extinguishing a fire at the scene, he said on Saturday evening, describing the strike as a “war crime.” He did not say how many casualties there were. Russia denies deliberately targeting civilians in a full-scale invasion that has killed thousands of people, uprooted millions and destroyed cities. NN: As you can see these attacks represent a serious escalation in Putin’s war. The world is in denial. Soon this war will spread to NATO countries and then its Rock and Roll time.

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Russian oil tanker attacked by SBU naval drone….. Major escalation Ukraine attacking Russian oil tankers

One of Russia’s biggest oil tankers was struck by a maritime drone, the latest salvo in a Ukrainian military campaign employing unmanned vehicles to attack far-away Russian targets by air and by sea. The Russian-flagged ship, the Sig, was hit by a drone carrying 450 kilograms (992 pounds) of TNT shortly before midnight, according to a Ukraine Security Service source. The strike created a hole in the vessel’s engine room at the waterline on the starboard side, forcing the 11-strong crew to fight the water intake, Russian authorities said. The flooding eventually stopped. Russia’s Federal Agency for Marine and River Transport said no casualties were reported and that the Sig was not carrying oil when the drone crashed into ship. Ukrainian officials, however, said some crew were injured and that the tanker was carrying fuel for the Russian military. The strike on the Sig came just hours after Ukrainian sea drones targeted a major naval base in Novorossiysk, a coastal city on the Black Sea that is home to Russia’s largest port by volume of cargo handled. An amphibious Russian landing ship was hit, leaving it tilting badly and sitting very low in the water. Ukraine has stepped up its attacks using unmanned aerial vehicles in recent weeks, hitting targets well within Russian territory, including in Moscow. The new generation of powerful sea drones, however, could open up a new front for Kyiv in the 18-month conflict. The weapons are fast, semi-submersible drones, and are proving very difficult to defend against. They can be easily launched at sea and at least some variants are capable of traveling several hundred miles to their targets. Their payloads so far have proven capable of crippling large vessels.The two sea-based attacks Friday took place near the Kerch Strait, which connects the Crimean Peninsula to mainland Russia.

Friday’s assault is one of the biggest to date. In addition to the attacks on the Sig and the naval base, Friday morning saw Ukrainian aerial drones target an oil storage facility in Feodosia, a town on the Crimean Peninsula’s south coast. Ten unmanned aerial vehicles in total were downed over Crimea, according to Russia’s Defense Ministry

Ukrainian authorities have vowed to continue targeting the bridge and ships navigating Ukrainian territorial waters, even if they are controlled by Russia. The head of the Ukrainian Security Service, Vasyl Maliuk, called such attacks “absolutely logical and effective.” Maliuk said that if the Russians wanted such incidents to stop, “they have the only option to do so – to leave the territorial waters of Ukraine and our land.” Ukraine’s State Hydrological Service also warned ships against using several Russian ports due to the war.

Ukrainian agencies, especially the Security Service, have been notably vocal about the use of these drones in the Black Sea after months of reticence.

Their use is both a moral boost and battlefield advantage, allowing Kyiv to exploit a new, domestically engineered technology at sea while its forces are are struggling to take ground in the counteroffensive on land. BlackMask Pod Cast:

Major Escalation Russian Oil Tankers Attacked
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Another Oil Rally Is Confirmed $100 a Barrel Here We come

  • Several analysts have concluded that Saudi Arabia may want to raise production this autumn in order to regain lost market share.
  • Goldman Sachs: oil demand had hit a record in July, reaching 102.8 million barrels daily.
  • Saudis  decided  to cuts oil production 250,000 to 500,000 barrels daily from next month.

Earlier this week, media reported that oil production from the members of OPEC had fallen to the lowest since 2021—or 2020, depending on the source—thanks to voluntary production cuts from Saudi Arabia and involuntary declines in Nigeria, Angola, and Libya. The news naturally pushed oil prices higher. Yet they have already begun to climb as traders have finally started paying attention to the supply warnings and demand projections that banks and other analysts have been issuing for weeks. The jump in prices should have made Riyadh happy, and it probably did. The question now is how much higher the Saudis would let prices go before starting to relax their cuts. The Saudi Arabian economy grew by a modest 1.1% in the second quarter of the year, which was down from 3.8% in the first quarter. Media and analysts attributed the slowdown to lower oil prices, even though the Kingdom’s non-oil sector booked a pretty healthy 5.5% growth rate. Yet the weight that the oil trade has in the overall economy remains overwhelming despite Riyadh’s efforts to diversify. And this means that it needs even higher oil prices—to continue with the diversification efforts. The Saudis can keep the cap on output for exactly as long as they need to in order to get prices where they want them to be. It is yet another demonstration that not only is OPEC very much alive and relevant in today’s world, but its de facto leader still has plenty of sway over the group. “The kingdom will want to see a protracted rise toward $90 a barrel and possibly improvement in Chinese economic data to start considering putting the 1 million barrels per day back into the market,” PVM Oil Associates analyst Tamas Varga told Bloomberg earlier this week. Meanwhile, Goldman Sachs updated its outlook on oil demand in a way that should please Riyadh.

The bank said oil demand had hit a record in July, reaching 102.8 million barrels daily, and that this would lead to a deficit of 1.8 million bpd in the third quarter of the year.

In such a context, there is really no rush for Saudi Arabia to return those barrels to the market. Especially if they are not exactly a whole million. This was suggested by an unnamed EU source who said that the production data for Saudi Arabia showed no cuts were being made from fields that the Saudis operate in a neutral zone that the Kingdom shares with Kuwait. In other words, Saudi Arabia may be cutting some barrels but pumping plenty in the neutral zone and selling those “under the radar.” This would allow it to benefit from higher prices, boost its market share, and simultaneously continue to exert upward pressure on prices with the official cuts. The American Petroleum Institute reported an estimated 15.4-million-barrel inventory drop for last week. The massive figure seriously exceeded analyst expectations, which were for a much more moderate inventory decline of less than a million barrels.

Traders are rushing to cover their short positions in oil, too, and this is boosting prices further. The benchmarks jumped to a three-month high this week as funds bought crude and fuels and changed their bets from bearish to bullish.

All this works in Saudi Arabia’s favor, and it also suggests prices could reach the level Riyadh would like to see sooner rather than later.  Some, like Energy Aspects’ Amrita Sen, have forecast that Brent could hit $100 before the year’s end thanks not just to cuts but the shrinking inventories as well.  Reuters is also reporting that global oil inventories are in decline. It would take a negative GDP growth reading for the U.S. or China to stop this rally. NN: I  find it interesting at the first little pull back in this oil rally both Russia and the Saudis announced further production cuts going into October. What told me its game on in this rally is the homungas drop in US oil inventories reported this week…WOW!

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Oil Up Over $2.00 as Saudis and Russia Extends Oil Production Cut

Saudi Arabia extends cut of 1 million barrels of oil a day through September

DUBAI, United Arab Emirates (AP) — Saudi Arabia said Thursday it will extend its unilateral production cut of 1 million barrels of oil a day through the end of September in its effort to boost flagging energy prices. The Saudi reduction, which began in July, comes as the other OPEC+ producers have agreed to extend earlier production cuts through next year. The kingdom announced the extension in a statement on the state-run Saudi Press Agency, quoting an anonymous official in the kingdom’s Energy Ministry. The official added that the cut “can be extended or deepened” if the need arises.

“This additional voluntary cut comes to reinforce the precautionary efforts made by OPEC+ countries with the aim of supporting the stability and balance of oil markets,” the official said.

The move was widely expected by analysts. Benchmark Brent crude traded Thursday at over $80 a barrel. A series of production cuts over the past year has failed to substantially boost prices amid weakened demand from China and tighter monetary policy aimed at combatting inflation. Brent has largely hovered between $75 and $85 a barrel since last October. The Saudis are particularly keen to boost oil prices in order to fund Vision 2030, an ambitious plan to overhaul the kingdom’s economy, reduce its dependence on oil and create jobs for a young population. The plans include several massive infrastructure projects, including the construction of a futuristic $500 billion city called Neom. Higher prices would also help Russian President Vladimir Putin fund his war on Ukraine, as Western countries have used a price cap to try to cut into Moscow’s revenues. Western sanctions mean Moscow is forced to sell its oil at a discount to countries like China and India. Its estimated export revenue fell by $1.4 billion to $13.3 billion in May, down 36% from a year ago, the International Energy Agency said in a report in June.

Novak: Russia to slash oil exports by 300,000 bpd

Russian Deputy Prime Minister Alexander Novak said on Thursday that the country will be voluntarily reducing oil exports to the global markets by 300,000 barrels per day through September. According to the Russian deputy prime minister, the decision was made in an effort to “balance the market.” Previously, Novak disclosed that Russia will cut its oil production by 500,000 barrels per day in August, with the plan to reduce output by 2.1 million tonnes in the third quarter of 2023. Earlier, Saudi state media stated that Riyadh would stick to its voluntary 1 million barrels per day crude oil production reduction for an additional month. Following the news, oil prices climbed on the back of supply uncertainty. NN: These Russian and Saudi production cuts was expected. The 17 million barrel drop in inventories reported yesterday was a surprise.

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Fitch Cuts U.S. Long-Term Ratings From ‘AAA’ to ‘AA+’

“In Fitch’s view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025,” the ratings agency said.

Fitch also highlighted the rising general government deficit, which it anticipates will rise to 6.3% of gross domestic product in 2023, from 3.7% in 2022. “Cuts to non-defense discretionary spending (15% of total federal spending) as agreed in the Fiscal Responsibility Act offer only a modest improvement to the medium-term fiscal outlook,” Fitch said.

The agency also noted that a combination of tightening credit conditions, weakening business investment and a slowdown in consumption could lead the economy into a “mild” recession in the fourth quarter of 2023 and first quarter of next year. The White House disagreed with Fitch’s downgrade. “It defies reality to downgrade the United States at a moment when President Biden has delivered the strongest recovery of any major economy in the world,” press secretary Karine Jean-Pierre said.This isn’t the first time a rating agency has downgraded the U.S. Standard & Poor’s cut the nation’s credit rating to AA+ from AAA in 2011 after Washington managed to avoid a default. At the time, the agency highlighted political risk as part of its reasoning. NN: this great for us because it it eliminates some buyers for US debt and get us a higher yield. This is political statement not a decision based on credit worthiness. Their is no change in the debt profile of US treasuries.

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Massive Oil Price Plunge…… US crude inventories down by 17 million barrels

West Texas Intermediate topped $82 per barrel earlier this week and Brent crude jumped above $85 per barrel as demand forecasts suggested a sizeable supply deficit for the second half of the year. Production remains constrained by OPEC+ cuts and outages As a result, the U.S. Department of Energy just pulled back an offer to buy 6 million barrels of crude for the strategic petroleum reserve. The offer was made in early July, when WTI was trading below $72. At the time of writing, Brent crude was trading at $83.11 per barrel.

EIA: US crude inventories down by 17 million barrels

After the startling revision in U.S. oil demand in May, the EIA estimated an inventory draw of 17 million barrels for the final week of July, which compared with a modest decline of 700,000 barrels for the previous week. Commercial crude oil inventories in the United States, which are not taking into account those in the Strategic Petroleum Reserve, slumped by 17 million barrels to 439.8 million barrels in the week ending July 28, falling to its lowest level since January this year, the Energy Information Administration (EIA) revealed in its report on Wednesday. The figure marked a larger-than-expected draw. The country’s inventories now stand 1% below the five-year average for this time of year. US crude oil refinery inputs averaged 16.5 million barrels per day for the corresponding timeframe, which is 40,000 barrels per day more than the previous week’s average. Refineries operated at 92.7% of their operable capacity last week, while gasoline production rose, averaging 9.8 million barrels per day. Imports of crude oil in the country averaged 6.7 million barrels per day last week, rising by 301,000 barrels per day. Total commercial petroleum inventories declined by 10.4 million barrels. NN: I bet your glad we took the freeging money and ran yesterday at the highs..

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China’s Economic Woes Weigh On Oil Prices Once Again

After climbing by 13% in July, oil prices were dragged lower on the first day of August by further disappointing economic data out of China. Oil bulls thoroughly enjoyed the 13% month-on-month increase in oil prices in July, but the first day of August provided another head-scratcher as Chinese manufacturing contracted in July with the PMI index dropping to 49.2. Perceived as a positive sign for metals markets that expect Beijing to splash the cash on stimulus, Chinese woes have nevertheless halted the rise in oil prices, sending ICE Brent below $85 per barrel. However, should Saudi Arabia extend its 1 million b/d production cut, there might be a new bullish narrative to counter the year-long Chinese blues. US national gasoline prices gained 16 cents per US gallon last week, hitting $3.75/USG on Monday, as heat-related refinery outages curbed product supply and robust countrywide demand lowered gasoline stocks to their lowest July level since 2015. NN: Gasoline inventories are suppose to drop this time of year. From a refinery stand point summer gasoline build is over. They switch to heating oil and a different formula winter gasoline. China demand is leveling off still at record imports. One   interesting event i am monitoring is the big drop in import into India. they went ballistic on the Russia Urals oil price increase.

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Goldman upgrades oil demand outlook

(Reuters) – Goldman Sachs on Sunday revised up its global oil demand forecast for the year while sticking to its 12-month Brent price projection of $93 per barrel as higher realized inventories offset the demand boost from a less pessimistic growth outlook. Goldman analysts estimate global oil demand climbed to an all-time high of 102.8 million barrels per day (bpd) in July and see solid demand driving a larger-than-expected 1.8 million bpd deficit in the second half this year and a 0.6 million bpd deficit in 2024. A reduced recession risk and a strong effort by the Organization of the Petroleum Exporting Countries (OPEC) to push up prices support Goldman’s view on higher oil prices and an outlook for less volatility, the analysts wrote in a note. Oil prices hovered near three-month highs on Monday, set to post their biggest monthly gains in over a year on expectations that Saudi Arabia would extend voluntary output cuts into September and tighten global supply.  Saudi supply cuts have brought back deficits, the Goldman analysts said, adding that they see the extra 1 million bpd Saudi cut to last through September and be halved from October. The Wall-Street bank upgraded its oil demand estimate by around 550,000 bpd and sees 2023 supply higher by around 175,000 bpd.

The bank maintained its $86 a barrel Brent forecast for December 2023, and it expects prices to rise to $93 per barrel in the second quarter next year as supply deficits continue.

“However, the significant rise in OPEC spare capacity over the past year, the return to growth in international offshore projects, and declining U.S. oil production costs limit the upside to prices,” it said. Brent futures were trading around $84 a barrel by 0353 GMT, while West Texas Intermediate (WTI) U.S. crude was around $80. NN: Oil is in the danger zone. When they all see what we see and oil has had its biggest run since the Russian Invasion i get nervous. I cover this in today’s BlackMask Market Update: Play It Again Same.