Oil Gains on Strait of Hormuz Tensions Ahead of US CPI Report

September WTI crude settled at $82.13 a barrel on Monday 10 August, up $3.95 or 5.05% on the session, while October Brent settled around 5% higher near $87.72. Confirmed crossings of the Strait of Hormuz fell from 15 on Friday to six on Sunday, and the US Strategic Petroleum Reserve dropped to its lowest level since January 1983.

On Wednesday, 12 August, traders will receive the July US inflation report. Consensus looks for a rebound to 0.1% on the month from -0.4% in June, with the upside in services rather than fuel.

TL;DR

• Hormuz crossings fell to six on Sunday, 9 August, from 15 on Friday, against roughly 130 daily transits before the conflict. 

• The Strategic Petroleum Reserve fell to 298.7 million barrels, the lowest since January 1983. 

• July US Consumer Price Index (CPI) lands Wednesday at 12:30 GMT. Consensus is 0.1% monthly and 3.4% annual, core 0.32% and 2.5%. 

• The EIA publishes its August Short-Term Energy Outlook today, its first since assuming the strait was reopening. 

What Happened?

Monday, 10 August, inverted the previous week. Oil prices had fallen more than 7% in the week to Friday 7 August on optimism that Washington and Tehran were close to an arrangement on shipping. That optimism did not survive the weekend.

President Donald Trump told Axios on Sunday, 9 August, that "we are only semi-negotiating with them", and said on Monday, 10 August, that Washington now holds full control of the waterway. Tehran hardened in parallel. Mohammad Bagher Zolghadr of Iran's Supreme National Security Council set out conditions on Saturday: the US lifts its blockade and sanctions, withdraws forces, pays reparations and releases frozen assets. Foreign Minister Abbas Araghchi tied a full reopening to Washington honouring the 18 June memorandum, which he called violated. (Source: CBS News)

The Physical Picture Has Barely Moved

The price has travelled a long way in eight sessions. The tanker count has not.

Confirmed crossings fell from 15 on Friday 7 August to 11 on Saturday and six on Sunday. Ship-tracking platform MarineTraffic recorded between eight and 15 crossings on 4, 5 and 6 August, against roughly 130 daily transits before the conflict. A price move can reflect a change in physical flow, or how quickly the market updates on rhetoric. Across the round trip from last Monday to this one, the flow data barely moved. Roughly 15 million barrels a day normally leaves through the strait, though not all of it is trapped when transits stop. 

The Buffer Is Thinner Than It Was

The Strategic Petroleum Reserve fell by 6.1 million barrels to 298.7 million, its lowest since January 1983, according to Department of Energy data released Monday. An Energy Department spokesperson told CNBC the minimum needed to run the reserve safely is about 70 million barrels.

The EIA publishes its August Short-Term Energy Outlook today. Its July edition, completed on 1 July, assumed the 18 June memorandum had reopened the strait and that traffic was recovering. Six weeks later the crossing counts are back near single digits. The July edition put Middle East shut-ins at an average of 8.3 million barrels a day in June, from a peak of 11.2 million in May.

What Wednesday's CPI Can and Cannot Show  

July’s US CPI is scheduled to be released on Wednesday, 12 August, at 12:30 GMT. The report covers July. The oil move happened in August. That distinction is the story.

June's CPI was soft largely because energy prices fell, at -0.4% on the month and 3.5% on the year. Core, which strips out food and energy, was flat on the month at an annual 2.6%. Consensus looks for a rebound: 0.1% on the month and 3.4% on the year, with core at 0.32% and 2.5%. 

Barclays economist sits near consensus on the headline at 0.16% and below it on core at 0.24%, with "all of the upside coming from services categories". On those numbers the print is decided in services and Monday's energy debate does not appear at all. It would appear in the August report, published on 11 September, four days before the FOMC meets on 15 and 16 September.

The committee held the federal funds target range at 3.50% to 3.75% on 29 July by nine votes to three, with Beth Hammack, Neel Kashkari and Lorie Logan each preferring a quarter-point increase. Under Chair Kevin Warsh the statement no longer carries forward guidance, so each data release does more work than it used to.The July employment report then showed US Nonfarm Payrolls (NFP) falling by 23,000, so the two sides of the mandate are pulling apart. Hammack is scheduled to speak on Thursday. 

What Else Shifted This Week?

The S&P 500 eased 0.06% to 7,753.11 on Monday, having closed at a record 7,757.64 on Friday. Sector leadership did more work than the index level.

The 10-year Treasury yield rose to around 4.72% even as equities eased, which is not typically a growth signal. Gold prices reached a two-month high above $4,400 an ounce early on Tuesday, after adding 3.6% across the previous two sessions. (Source: Bloomberg)

What to Monitor This Week

Wednesday, 12 August

• The IEA and OPEC release their respective monthly oil market assessments at 09:00 GMT.

• July CPI arrives at 12:30 GMT. Markets weigh a potential rebound against June’s -0.4% monthly and 3.5% annual figures, with core previously at 0.0% and 2.6%.

• The EIA publishes its weekly inventory status at 14:30 GMT, following a prior build of 2.479 million barrels.

Thursday, 13 August

• UK preliminary second-quarter Gross Domestic Product (GDP) lands at 06:00 GMT alongside June monthly data, after a 0.6% previous print.

• Norges Bank announces its policy rate decision at 08:00 GMT, with the benchmark currently at 4.25%.

• US July Producer Price Index (PPI) and weekly jobless claims are due at 12:30 GMT. 

Friday, 14 August

• Consumer health is in focus with US retail sales at 12:30 GMT and preliminary University of Michigan sentiment at 14:00 GMT.

Conclusion  

Oil has moved more than 5% in a session twice inside eight trading days, both times on diplomatic signalling rather than on any confirmed change in tanker flow. Wednesday's report covers a month that ended before either move, which could make it a setup rather than an event. The August print on 11 September is where an energy impulse would land, four days before a committee whose last three dissents favoured higher rates. 

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