New Tariff Threat And New War Front In Middle East Keeping Traders On Edge

Energy markets are moving cautiously higher Wednesday after 2 straight days of strong starts and lackluster finishes to start the week. New tariff threats and a new front in the Middle Eastern wars both seem to be keeping traders on edge this week while soft economic data and ample supplies seem to be keeping a lid on any rally attempts.

The fact that Israel bombed another country in the Persian Gulf was certainly a shocking headline Tuesday, but seemed to have minimal impact on oil prices, in yet another sign of how ample global capacity is acting as a major buffer on the market. The fact that Israel was targeting Hamas officials and not Qatar itself seems to be preventing further escalation so far and if that continues there should not be any impact on energy supplies flowing through the vital region.

This morning’s PPI reading came in negative for the month of August, which was below most published forecasts, as a decline in service prices offset a build in goods. Even though the 12 month PPI reading held at 2.6%, slightly above the FED’s target level, the CME Fedwatch tool shows that 100% of the money in Fed Fund Futures is betting on a rate cut at next week’s meeting, with 10% of the money betting on a 50 point reduction.

The API estimated inventory builds across the board last week with diesel stocks adding 1.5 million barrels, crude oil up 1.25 million and gasoline stocks up 329,000 barrels. Given the holiday hangover effect on demand, those relatively small builds in refined product inventories seem modestly bullish. The EIA’s weekly report is due out at its normal 9:30 eastern release time this morning.

The EIA’s short term energy outlook was published yesterday and continues to predict sharply lower prices for oil and products over the next year, as the return of shut-in supply from OPEC & Friends is expected to outpace demand growth. U.S. gasoline prices are forecast to drop by 20 cents on average in 2025, and another 20 cents next year thanks to those lower crude prices, which will more than offset a tick higher in the predicted consumption of gasoline domestically.

The agency’s hired analysts also increased their GDP estimate for both 2025 and 2026 due to the Advanced Estimate of Q2 2025 GDP coming in much higher than expected. That status suggests the government’s hired analysts are completely ignoring the tariff impact on the quarterly readings as a 30% drop in imports pushed the headline number higher, while things like consumer spending and investments were much lower or negative. In other words, the government analysts don’t appear to be looking beyond the headline figures in making their forecasts for both economic activity and energy demand. Considering the company providing the macroeconomic model used in this report is the same one that rated credit default swaps as AAA investments during the 2008 financial crisis, it’s hard to be surprised by this news.

Meanwhile, the EIA certainly isn’t the only agency struggling with its statistics these days. After the BLS announced it was reducing its job-creation estimate for the year ending March 2025 by 911,000 positions, the largest adjustment on record for that benchmark. Almost all industry classes were adjusted lower in the most recent update.

Speaking of struggling: California officials are reportedly considering paying Valero hundreds of millions of dollars to reconsider shuttering its Benicia refinery next year. What a difference a year makes: it was just August of 2024 when Chevron agreed to pay $550 million to the local government across the Bay in Richmond to continue their operations.

Today marks the traditional peak of the Atlantic hurricane season, and yet there’s not a single active storm being tracked for the first time on this date since 2016 and if no storm forms in the next week – which is what the NHC is currently predicting – that will be the first time in more than 30 years that we’ve gone that far into September without a storm. Despite the rare lull in activity, AccuWeather forecasters continue to predict that the back half of the month, and the season, will be busy as dry air moves out of the way and stops prohibiting development.