Markets Weigh Economic Slowdown Against Growing Middle East Risks

Most energy contracts are seeing small losses this morning, after modest overnight gains were wiped out in the wake of an ugly jobs report. An announcement is expected today on the latest plan to re-start shipping through the Strait of Hormuz, while other signs continue to suggest we’re still a long way off from a real end to the conflict.

The July payrolls report threw a bit of cold water on markets, with the headline showing a 23,000 decrease in U.S. jobs for the month while the May and June estimates were revised lower by 103,000 jobs. Refined products dropped after the report that paints a bleak picture for the U.S. Economy that suddenly appears much less resilient than it had, but don’t be shocked to see a rally in equities today as the bad news for jobs can be good news to those hoping for accommodative policy from the FED. The headline unemployment rate ticked down by a tenth to 4.1% while the less manipulated U-6 rate held steady at 7.9%.

RBOB gasoline futures have reversed roles somewhat the past couple of days after tending to lag far behind the moves in distillates for most of the year. September RBOB were up just over 2 cents/gallon in the early morning hours, and more than 16 cents/gallon after bottoming out at a 5 month low Wednesday only to see those gains erased after the BLS dropped.

ULSD futures were hanging around break even prior to the report, and are down about a penny after it, but have gained back more than 20 cents in the previous 2 since Tuesday’s low, after dropping by 60 cents in the week prior.

Saudi Arabia has signed a mutual defense pact with Turkey and Pakistan as they prepare for wider war with Iran’s proxies in Yemen and Iraq, and Iran is already issuing warnings that the new alliance will not ensure security for the world’s biggest crude exporter.

While crude prices are still relatively tame considering the ongoing supply disruptions, A Reuters article this morning highlights the record cost for booking a tanker to ship that crude through the strait as finding the boat, crew and insurance company willing to back a voyage through the war zone continue to be a huge challenge.

Total reported 4 hours of flaring at its 238mb/day Pt Arthur TX refinery Thursday as a unit was pressured up. The filing suggests the flaring was part of restart efforts at units that have been running below capacity since a lightning strike knocked several units offline in June.

The U.S. senate failed to advance the current iteration of the Farm Bill out of committee this week. That bill included provisions that would allow year-round E15 blending (despite the increased smog caused by blending more grain alcohol in the summer time) and would include a less-dramatic revamp of the small refinery exemption criteria than the version passed by the House earlier this year. RIN values have ticked modestly higher this week after dropping quickly to a 2 month low to end July following record high domestic production of Renewable Diesel, and ethanol blends reaching a record high thanks to the combination of temporary waivers on E15 blends from the EPA, and relatively high gasoline prices.