Just when we thought OPEC+ return of oil cuts had become predictable, indeed, the market felt as if it was pricing in a repeated 411kbpd in August, the affiliated group upped the ante on Saturday, informing that their collective production would in fact increase by 548kbpd. The countries that involved themselves in the voluntary cuts of April and November 2023, namely Saudi Arabia, Russia, Iraq, UAE, Kuwait, Kazakhstan, Algeria and Oman will now gradually reverse these self-imposed restrictions. Within the bulletin posted on Saturday there is still insistence on motivation being that a greater opportunity now exists for cheaters to make recompense, but participants in our market now have little doubt that it is all about snatching back market share. The timing of production return is well designed and made to take advantage of the summer and its seasonal uptick in demand, with fortunate current low stocks and issues with heavier crude grades being boons to this strategy. Indeed, the bulletin nods to such climes by observing, 'current healthy market fundamentals, as reflected in low oil inventories'. Running as a faithful compatriot to this reasoning is the state of Distillates. The combination of refiners having turned around to Gasoline production, medium heavy crude issues from Murban to Alberta Sands and that those power generators that are able, burning oil rather than Gas because it is much cheaper to do so, puts a prop under prices and enabled a rally away from the lows seen after the spike and dive in prices after the US bunker busting on nuclear facilities in Iran. The gains last week are somewhat modest, and interfered with by expiries in Brent, RBOB and Heat, but nonetheless impressive and in the end registered as follows; WTI +$1.48/barrel (2.26%), Brent +$0.78/barrel (0.78%), Heating Oil +6.26c/gallon (2.71%), RBOB +2.88c/gallon (1.38%) and Gasoil +$70.00/tonne (10.37%).

These gains are eroded by this morning's opening due to the weekend's OPEC+ announcement, but last week's rally was still impressive even with polysemous Iranian statements on nuclear cooperation. We are long used to the volte-face shenanigans from the White House. Its seeking of its own particular branding of truth and be done with criticism by labelling scrutiny as fake news any who offer temerities such as reasoned debate. But last week’s odd behaviour from the Iranian regime was almost taken from the playbook of ‘The Art of the Deal’ in how to confuse markets, well ours at least. Wednesday saw Iran implement a June 25th vote where it would no longer cooperate with the International Atomic Energy Agency. This then gives a contemplation on more conflict and that within the 2015 nuclear agreement there is a ‘snapback’ mechanism where full sanctions are implemented. The very next day, the Foreign Minister Abbas Araqchi confirmed its commitment to the nuclear Non-Proliferation Treaty and reports then filtered through press circles on how Steve Witkoff, Donald Trump’s envoy, was due to travel to Oslo next week to restart nuclear talks with Araghchi. Apparently, such a meeting happened yesterday but details are sparse, but Iran’s motivation must be to avoid a full biting program of US sanctions which must come with IAEA involvement.

Meanwhile the dichotomy of market reaction continues between oil and equities. It is difficult to pick out any decent data from the swathe of PMIs that were reported last week. There was barely a nation able to provide evidence of expansion within manufacturing and industrials, but what has become even more worrying is the stagnation seen within services and non-manufacturing PMIs. This part of the economy has been relied on heavily since the pandemic to bolster activity, and while the US once again outperformed its peers with 11 out of 12 readings of over the expansion indicator of 50.0, the US ISM Non-Manufacturing PMI was hardly a gangbuster at 50.8. Where there was accord among the centres of finance was a future of uncertainty, worries over tariffs and that backlogs of order were shrinking. The extraordinary reaction by the US stock markets to a tariff deal with Vietnam which saw a 20% levy being agreed will likely be repeated when, and if, further deals are done before the deadline of Wednesday is upon us. Even if the Europeans agree to a UK-like 10% across the board fee, and Japan can pull a deal from nowhere, the reaction will remain consistent in how US investors believe any deal is good for the US and go about their business of stock portfolio building, while those in the oil sector only see barriers to trade and higher costs of business.

Growing in daily relevance is the prolific scorn poured upon the Federal Reserve by President Trump. Some of the insults are beneath repetition, but the personal attacks on Jerome Powell serve not only to undermine the FED Chair but the whole process of US Treasuries and the victim in the main has been the US Dollar. The US Dollar Index (DXY) is languishing at 3-year lows, this would ordinarily give support to dollar-derivative commodities but in fact serves as a nervousness marker. Again, not so for equities which choose to ignore the dangerous ramifications of not only a poor relationship between the government and the central bank, but also the enormous burden of debt which will now descend on the US after US President Donald Trump signed his landmark policy bill into law. There was celebratory language from the President telling on how the bill will unleash economic growth, something easily sold to equity markets, but maybe not those that quibble on the rising debt and how it is viewed by many on it being a mechanism to reward the wealthy and punish the poor. This is then why the state of US employment will become the point of focus in the months to come and how the US Federal Reserve will need pick a path to counter possible raised unemployment and tariff induced inflation. Wherever the eyes of financial market occupant wander, they must and will for some time default back to a Washington gaze.

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