Oil Jumped 5% On A Report. Nothing Has Been Struck.

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BLACKOPS
FINANCE

COVERT FINANCIAL INTELLIGENCE. INTERCEPTED DAILY.

MISSION BRIEF

Oil rose about 5% this morning on a report, not an event.

Brent traded as high as $105.47 early today, its highest in nearly a month, after closing Wednesday at $100.20, down 0.4%. Trading Economics and CNN put it near $105, up close to 5%, early this morning. Those are intraday marks, and screens differed.

The trigger, by the account of CBS News and Trading Economics, was a report in The Atlantic. Citing two administration officials, it said the White House has asked the Pentagon to prepare strike options for a possible resumption of attacks on Iran before the 3 November midterm elections. The size and targets were still under discussion. No decision has been reported. The White House did not immediately respond to CBS News.

What that means. Nothing has been struck. A request for options is planning, and options can be drawn up and never used. The price has moved on the possibility. If the options are shelved, it has to come back on the same kind of news. The market did not wait to find out.

A correction belongs here. Yesterday’s letter said no attack in the strait had been reported for Wednesday by late afternoon. One had been. UKMTO, the British naval office that logs attacks on merchant shipping, said a tanker about 94 km north of Madinat ash Shamal, on Qatar’s northern coast, was struck by “multiple projectiles”, with casualties reported.

What a resumption would put at risk. Kpler, the ship-tracking firm, said in a note on Tuesday that crude crossing the strait fell 27% from the previous week’s wartime high, to at least 10.1 million barrels a day, about 74% of pre-war. Exports from the Gulf of Oman coast and the Red Sea, which avoid the strait, rose to 6.7 million, more than double pre-war. Together they held Middle East exports at pre-war levels. The bypass now carries more than ever. The strait still carries more than the bypass. On the Saudi figures printed here this week, the East-West line has about 1.2 million barrels a day of room left. That is the gap.

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THE OPERATION

The worst week for tanker attacks, counted three ways. Traffic at a two-month low

Last week was the worst for attacks on tankers since the war began. The counts agree on that. They do not agree on the number.

Three maritime security sources told Reuters of at least 12 attacks on oil, gas and LPG tankers around the strait from 28 September to 5 October. Kpler counted 10 tankers struck from 28 September to 4 October, against a previous weekly high of six. The International Maritime Organization recorded nine incidents for the same week; it is slower to verify. The counts cover slightly different days and definitions. All three point the same way.

Traffic fell with them. Kpler counted seven commodity vessels through the strait on Tuesday, the lowest since 23 July, and ten on Wednesday, against more than 20 on Sunday and again on Monday. Before the war about 125 large commercial vessels crossed each day, by Reuters’ count. Ships with their transponders switched off are not in these figures. No party is named here as responsible for the attacks.

The relief valve opened faster, not wider. The International Energy Agency agreed on Wednesday to speed up the stock release its members promised in March. About 325 million of the 400 million barrels have gone out, and roughly 100 million remain, with diesel first. Oil settled lower on the news. CNN reports the agency said governments would not add to the 400 million, and European diesel futures closed 6% higher. Faster is not more.

In Saudi Arabia, the Houthis claimed a third attack this week on King Khalid International Airport in Riyadh. That is their claim. AFP reported that diplomats in Riyadh were told to shelter in place, and that some firms moved staff out of the financial district after repeated blasts. No damage to Saudi oil facilities has been reported in the sources found. At the pump, AAA has US diesel at $6.28 a gallon and regular gasoline at $4.36.

Put Tuesday and today side by side. On Tuesday an official Saudi figure, specific and on the record, pushed Brent down for half a session. Today a report citing two unnamed officials lifted it 5% before New York opened. Good news needed a minister and a number. Bad news needed a magazine and two sources. That is what a market with little spare room looks like: it discounts reassurance and pays up for risk. It is not a judgement on whether the report is right.

RULES OF ENGAGEMENT

A 2002 high in the ten-year, a governor in no hurry, and the long bond on sale

Oil’s jump reached bonds by breakfast. The ten-year Treasury yield rose to about 5.35%, a new high since 2002, and the thirty-year to about 5.70%. Both intraday.

The Fed spoke overnight too. In Istanbul, Governor Christopher Waller said: “If the economic data continue to come in as expected, I anticipate additional hikes to support a timelier return of inflation to our 2 percent goal. But there is some flexibility about when those hikes will occur.” And: “The hikes do not need to come at consecutive meetings, but they should be in place in an acceptable period of time.”

Read that carefully. The direction is up. The timing is open. The Fed last moved in September, so 28 October would be the consecutive meeting. Waller did not rule it out, and he did not call for it. Last week New York Fed President John Williams said there was “no need for urgency”, and Vice Chair Philip Jefferson said he and his colleagues would reach their own judgment, “which may take more time”.

Markets read it the same way. Pricing this morning implied about an 81% chance of no change on 28 October, and roughly three in four for a rise in December, as reported by Trading Economics. On 28 September the same pricing put about 70% on an October rise. Those are market prices, not this letter’s view, and they have moved a long way in ten days.

Why he wants more. Waller put core inflation, on the Fed’s preferred PCE measure, at 3% for the year to August: “higher than we want, above our target, and not showing sufficient progress”. He named the energy shock among the causes, and called the labour market “solid and stable” in September. Weekly jobless claims, out at 8:30, were 197,000 for the week to 3 October, down from a revised 199,000 and below the 200,000 expected, as relayed by Investing.com and Bloomingbit. Layoffs remain low by that measure.

Stocks were set to open lower. S&P 500 futures were down about 0.5% at 7:30 a.m., after Wednesday’s close of 7,801.74. Gold is near $4,124, up about 0.3% and close to its lowest since early August. The dollar index is near 102.36. Both intraday.

One more variable is in the Gulf. Isaias is now a hurricane, the first of the Atlantic season, with winds of 80 mph at 7 a.m. Central, by the National Hurricane Center. A hurricane warning runs from Ocean Springs, Mississippi, to the Bay and Gulf county line in Florida, and landfall on the northern Gulf Coast is forecast for Friday night or early Saturday. Shell and Chevron said they would curtail output. The region produced about 2.05 million barrels a day of crude in September, roughly 15% of the US total. The Treasury sells $22 billion of thirty-year bonds this afternoon. September consumer prices arrive on 14 October.

The exposure today is that the biggest moves on the screen rest on things that have not happened. Oil rose on a report of options, not on strikes. Yields rose on the inflation that oil could bring. The storm is priced on a forecast track. Each can reverse as fast as it moved, and Tuesday showed how fast that can be. Bonds are the slower variable: the ten-year is at its highest since 2002, with the long bond on sale this afternoon. The strait has not reopened, the attack count is at a wartime weekly high, and Fed officials have said the next move is likely up without saying when.

END OF TRANSMISSION.

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