Oil Took Back The Whole Drop. The Strait Is Why

EYES ONLY

SUBSCRIBER ONLY // DO NOT FORWARD WITHOUT PERMISSION

BLACKOPS
FINANCE

COVERT FINANCIAL INTELLIGENCE. INTERCEPTED DAILY.

MISSION BRIEF

Tuesday’s letter reported that Brent had fallen 2.7% to $97.57 on one sentence from the Saudi energy minister. That was the morning. By the close, oil had taken the whole fall back.

Brent closed Tuesday at $100.58, up 0.26% on the day, after trading as low as $97.06. Today it rose as high as $102.59, then gave the gain back; late this afternoon it was trading near $100 to $101, roughly level on the day. Those are intraday marks. Friday’s close was $102.25.

A correction belongs here. Yesterday’s warning said oil had given up about 4.6% in two sessions. That was true of the morning price. On closing prices, Brent gave up 1.6% from Friday to Tuesday, and this afternoon it is between 1% and 2% below Friday. The figure was accurate when printed. It did not last to the close.

Nothing changed in the pipeline. The minister’s 5.8 million barrels a day still stands, and no official source has contradicted it. What changed was the count from the other route. UKMTO, the British naval office that logs attacks on merchant shipping in the region, has recorded nine attacks on vessels in the Strait of Hormuz so far in October. That is half of September’s total for the strait and the Gulf combined, in six days.

The bypass gave the market an official number, and the number was good. The strait gave it a count, and the count is rising. On Tuesday the number moved the price for half a session. By CBS News’s account, reports of the count moved it back.

Why the count outweighs the number. Kpler, the ship-tracking firm, estimates that about 40% of September’s Gulf crude exports outside Iran left the region without crossing Hormuz. The other 60% still went through it. At 5.8 million barrels a day against capacity of about 7 million, the East-West line has, on those figures, roughly 1.2 million barrels a day of room left. The strait carried several times that in September. A good pipeline figure lowers the risk. It cannot replace the strait.

SPONSORED

“Elon Musk’s One Stock Retirement Plan”

Legendary investor Stanley Druckenmiller once said:

“You don’t get rich by diversifying into 50 mediocre assets. You get rich by finding two or three asymmetric home runs.”

Jeff Brown just found this NEW asymmetric home run he calls “Elon Musk’s One Stock Retirement Plan.” (Click here for details.)

THE OPERATION

Two governments describe two different straits. The attack count keeps rising

This morning’s statements describe two different waterways.

In Athens, Secretary of State Marco Rubio said: “The Straits of Hormuz are open. There’s almost as much oil flowing out now as there was before this conflict began.” In Tehran, Brigadier General Mohammad Reza Naqdi said Iran has “full control” of the strait and will soon block what he called “illegal routes”. He called the oil still moving minimal. Both men speak for a party to the conflict. Neither statement is a measurement.

The measurements sit between them. Kpler has Gulf crude exports outside Iran back near pre-war levels in September. Shell’s chief executive put Middle East flows at about 80% of pre-war on Tuesday. And the attack log shows the pace rising: at least one a day since 2 October, by UKMTO’s reports as tallied by Al Jazeera. On Tuesday the MT On Peace was hit, and 12 crew were injured. No new incident had been reported for Wednesday in the sources found by late afternoon. Several reports and statements name a party responsible. This letter does not.

The cost shows up in freight. Hiring a supertanker from the Gulf to China hit a record of about $1.3 million a day on Monday, according to Baltic Exchange data as reported, against an average of roughly $60,000 a day last year. Freight is where each incident in the strait is priced first.

Diplomacy moved, a little. Vice President JD Vance told Reuters Iran should “do something meaningful on their enrichment capacity”, which CBS News read as a softening of the demand for zero enrichment. An unnamed Iranian official told Reuters the American ideas were “at odds” with Iran’s demands. Neither is an offer.

In Saudi Arabia the toll is now official. The General Authority of Civil Aviation said attacks on Abha airport and King Khalid International Airport in Riyadh on Tuesday and Wednesday killed three people and injured 36, and caused material damage. The authority did not name who carried them out; the Houthis claimed them. No damage to oil facilities has been reported, and no Saudi statement on Monday’s Rabigh claim was found.

The two routes are priced differently because they fail differently. A pipeline under attack produces a number: a ministry can say what is flowing, and loading data can check it. A strait under attack produces a count and a freight rate, and each new incident moves both. Tuesday showed the difference in a single session. The ministry’s number bought the market a morning. The count took it back by the close. Until the count stops rising, every reassuring figure about the bypass is working against it.

RULES OF ENGAGEMENT

Yields touch 2002 highs, a strong auction pulls them back, and the minutes lean firm

Oil’s reversal reached the bond market overnight. The ten-year Treasury yield touched about 5.36% early this morning, past the 5.33% that had marked its highest since 2002. The thirty-year reached about 5.72%, also its highest since 2002. Both came back. Late in the day the ten-year was near 5.28% to 5.29%, about Tuesday’s close, and the thirty-year near 5.66% to 5.67%.

They had begun to ease by mid-morning, and the ten-year auction helped. The Treasury sold $39 billion of ten-year notes at 5.300%, about 1.7 basis points below where the market was trading at the deadline. Bids covered the offer 2.77 times, against a recent average near 2.54, and indirect bidders, the group that includes foreign official buyers, took about 80%. Dealers were left with 2.5%. By the usual measures, demand was strong. The $22 billion thirty-year sale on Thursday is the next test.

The dollar index is near 102.30, up about 0.5%. Gold is near $4,108, down about 1.4%, its lowest in more than a month. Both intraday. Stocks gave back a little of Tuesday’s records. The S&P 500 fell 0.22% to 7,801.7, still above 7,800, and the Nasdaq fell 0.22% to 27,538.69. The Dow fell 0.66% to 51,179.87.

Money markets still expect no move on 28 October. Pricing for a rate rise this month was about 20% to 22% this morning and about 17% after the minutes, on CME FedWatch as reported. Those are market prices, not this letter’s view.

The official oil count arrived at 10:30. The Energy Information Administration reported US commercial crude stocks down 3.19 million barrels for the week to 2 October, as relayed by Trading Economics, after a build of about 0.9 million the week before. The American Petroleum Institute’s private survey had shown a 2.09 million barrel draw, so the two agree on crude. They split on gasoline, which the EIA has rising and the API had falling.

The minutes of the 15-16 September meeting came out at 2 p.m. The vote to raise the target range to 3.75% to 4.00% was unanimous. Most participants assessed that “another increase in the target range for the federal funds rate would likely be appropriate by year end”. Many said the longer energy prices stay high, the greater the risk that costs in some sectors spread into broader prices. The staff saw risks to its inflation forecast tilted to the upside. It is a firm document, written before this week’s oil round trip and 2002 highs in yields.

One more variable arrived overnight. Tropical Storm Isaias formed in the south-western Gulf, and by 1 p.m. Central the National Hurricane Center had its winds at 50 mph and rising. A hurricane watch runs from Bay St. Louis, Mississippi, to Indian Pass, Florida, and Chevron has begun moving non-essential staff off its Gulf platforms, according to reports. September consumer prices arrive on 14 October, with the Beige Book that afternoon. The decision follows on 28 October.

The exposure today is a loop between the two markets this letter has tracked all week. Each attack in the strait adds to the cost of moving a barrel. Each dollar on Brent feeds the inflation the bond market is pricing. The bond market touched new 2002 highs in yield this morning. A strong auction helped pull yields back; it showed buyers will take the paper at this price, not that the price has stopped rising. The pipeline figure is still the only official good news on supply, and no independent Yanbu loading data has been found to confirm it. Watch Thursday’s thirty-year auction, the UKMTO log, Saudi Arabia’s airports and the storm track. The strait has not reopened, and the storm in the Gulf has not yet reached land.

END OF TRANSMISSION.

EYES ONLY

EYES ONLY

SUBSCRIBER ONLY // DO NOT FORWARD WITHOUT PERMISSION