US MARKET WRAP – Hurricane Harvey Wrongfoots Oil Traders As We Await Jackson Hole

US House Speaker Paul Ryan expressed confidence in passing tax reform this year as well as raising the debt ceiling, a view that was mirrored by the White House late on. Fed speakers Kaplan (voter) and George (non-voter) stuck to script, and offered little fresh powder to trade on. Broader markets (excluding oil) were pretty listless in front of the Jackson Hole Symposium.

The USD edged higher, most notably against the JPY, with USDJPY consolidating back above 109.00, while the CAD posted modest gains against the greenback despite oil trading lower.

US stocks struggled for direction in a choppy session, paring losses on Ryan’s comments, but failing to hold on to the uptick, moving back to near-worst levels, with grocery retailers falling foul of a story which stated that Whole Foods will cut some of its prices from Monday. The S&P 500 closed down 0.21% at 2,438.97, the NASDAQ closed down 0.30% at 5,834.44 and the Dow closed down 0.13% at 21,783.40.

US Treasuries edged lower as traders waited on central bank speeches from Jackson Hole for fresh indications on monetary policy (namely from FOMC chair Yellen and ECB President Draghi), while the US T-bill complex was pressured by concerns surrounding the US debt ceiling and a potential government shutdown. Although the short end experienced some respite late on as the White House noted that it is committed to raising the debt ceiling. US Sep’17 10y T-note futures settled at 126.22, down 7+ ticks.

Crude ended the day lower, with WTI crude futures settling at USD 47.43/bbl, down USD 0.98. This was after a Hurricane in the Gulf of Mexico, home to about 17% of US crude production, threatened to become the first major hurricane in nearly 12 years to make landfall in the States. Although this seems bullish for oil at first glance it represents a demand side issue as opposed to a supply side problem. The folks at ClipperData pointed out that “Hurricane Harvey looks set to hit the refinery hub of the US and it is likely that refinery runs will fall faster than offshore production. Regardless of whether refiners live up to the speculation, this storm is a much greater threat to refinery operations than to offshore production.” The BSEE also highlighted that around 9.56% of current oil production in the Gulf of Mexico has been shut-in, which equates to 167,231 bpd. It is also worth noting that the latest Genscape Cushing inventory estimate pointed to a decent enough build, adding to the bearish case for crude.

The Hurricane situation outweighed two price-positive stories. The first being that OPEC will hold its next monitoring committee on 22nd September. The cartel stated that all options regarding its production cut deal, including an extension, are on table. The cartel also noted that Libya and Nigeria will be invited to the meeting. The second supportive story was a Platts sources piece which suggested that Saudi Arabia and Russia have discussed extending the oil production cut deal for an additional three months.

24 Aug 2017 - 21:00- Fixed IncomeBank Speaker- Source: RANsquawk