Good Tuesday evening MacroEdge readers & community,
It’s great to be back for another edition of the War Note series. I continue to improve and am looking forward to things continuing to do so through the week - I will be headed back to our Texas office on Thursday for a meeting, and I remain deeply optimistic about the second half of the year. I am going to start getting back on the road on a more frequent basis in the second half of the year - and we are planning on having a resumption to the ‘On the Ground’ research series - for a Part 3 from the Permian Basin in September, of which I will have more details on - on Friday.
Today was another very muted and boring day in equity markets - US equities remained largely flat - and the biggest story was the dip in front-month crude, led by another batch of ‘TACO’ headlines that we will discuss below. This is part of the ‘patience’ timeline I have frequently pointed out now for the better part of the last 8 weeks - and with midterms so close now (just two months out, give or take a week) - they are going to start pulling out all of the stops to try and improve things in this final 60 day stretch. While there’s not much to salvage, the Administration sent Ratcliffe to Moscow for discussions - and China clearly exerted some influence over Iran in getting flows a notch higher out of Hormuz over the last several days. I think the Administration is living on borrowed time as it pertains to oil inventories - and we’ll burn through more seabound inventory here over the next 2 months until things begin flaring back up again. Once that occurs, that is where we can see crude begin a climb back to the $100bbl level (see chart below in ‘The Patience Game Continues for the Crude Trade’).
We’re going to keep this evening quite brief - given the time of the evening it already is - and John has a great addition below covering the latest on ag and the surge in farm bankruptcies underway with soaring costs, poor margins, and difficult drought conditions that we’ve been discussing now for much of the year. On the market front - Nvidia will report tomorrow - and the Admin needs to continue to see the can kicked long enough for the Anthropic and OpenAI IPOs to make it through the pipeline - which acts at least somewhat of a bailout for the infrastructure component of the stupid buildout that is slowly hitting a wall. OpenAI itself will not be the future of AI, even if Sam manages a close network in the White House right now - which is going to start fracturing as quality continues to decline - and spending continues to rise:
While the Soviet-style buildout continues to provide a great nominal sugar high for the economy, that’s at the expense of an absolute acceleration in our ‘i-shaped’ economic conditions - and shift to a more ‘Argentina-like’ economy, of which I expect to continue in the years to come.
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Reports for the Remainder of the Week
For the remainder of the week - there’s a lot of quality information we’re going to be covering.
Wednesday: Midweek Macro Note (Early), and Oil and Gas Research Strategy Note
Friday: To Be Announced
Saturday: Oil and Gas Research Weekly Macro Note
TACO Tuesday - Reviewing the Headlines
Today there were about a dozen different ‘TACO’ headlines about the war - which sent crude prices sharply lower. They began early in the morning with news Pakistani officials were in Tehran for discussions on restoring flow to the Strait of Hormuz - and this continued throughout the day with Russian headlines, AlArabiya headlines, and so on/so forth.
Here is a continued preview of what we saw throughout the day:
There was another headline from TankerTrackers discussing 25mmb in ship-to-ship transfers underway, a lot of noise in the headlines, and I think it all plays into the continued need for patience in the crude trade - which is taking a long, long time to play out - even with the record spreads in product prices.
Which one of these headlines and which ones aren’t? I don’t think it matters - and the markets are looking right to Hormuz flows for actual signals. With the midterms coming up, there’s going to be a significant hand in the market for the next two months, regardless, though I think the next SPR release announcement will tighten the markets globally to a great degree as we begin to trend toward Congressional minimums (which I expect Trump to blow through, eventually).
The Patience Game Continues for the Crude Trade
For the crude trade - the patience game continues to be the only game in town. Crude fell about 5% today, and is down another 1% or so overnight - the two pathways remain intact - though scenario b - the line dipping into the mid-70s or so now looks to be more likely if the trend breaks down. Whenever Brent has dipped too far from $85/bbl Iran has responded very quickly - and their most opportune time for actually causing election damage is now approaching the golden window - so they may just be holding off until the first week of September before doing just that.
Continue reading with Ozone below:
