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Hurricane Harvey adds uncertainty to gasoline prices for the upcoming Labor Day weekend

Hurricane Harvey, which first made landfall on August 25, 2017, has created considerable uncertainty for gasoline supply and prices, as the area affected by the hurricane is home to much of the nation's petroleum infrastructure. On August 28, the U.S. ...

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Eid al-Adha in Sudan

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Gold Jumps, Dollar Dumps After Pitiful Payrolls

While the excuses are already flowing for the big miss in August's payrolls, markets are reacting with currencies the biggest factor.

 
The dollar dumped immediately and precious metals spiked, bond yields fell marginally and while Nasdaq jumped...

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Ugly Jobs Report: August Payrolls Miss, Slide To 156K; Hourly Earnings Also Disappoint

We warned readers yesterday to "Prepare For Disappointment" with today's jobs report, and sure enough that's precisely what we got when moments ago the BLS reported that in August just 156K jobs were created, a big miss to the 180K expected, and follow...

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Eid al-Adha in Aleppo

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Harvey Hangover Hits Pump Prices, Jet Fuel Premium Highest Since 2008

"It's only just beginning," warned one seasoned veteran energy trader as the hangover from Hurricane Harvey flows downstream to retail gas prices and jet fuel premiums.

As Bloomberg notes, Harvey impact currently includes:

  • Colonial says it’ll commingle Rbob and conventional gasoline
  • Explorer Pipeline planning to start lines Saturday, Sunday
  • Logjam grows to 29 oil tankers as 11 ports remain closed
  • Total Port Arthur is said facing extended shutdown on power loss
  • Texas storm bucks N.Y. traders with wild gasoline expiry swings
  • NHC issues final advisory on Harvey; losing tropical character

Which has left retail gas prices at the pump are now at their highest in 2 years...

 

And judging by their usual lagged response to RBOB, are set to go dramaticaly higher in the next few weeks...

 

And while inventories are high, deliveries are slow and fears of shortages have created lines at many Texas gas stations...

 "This is going to be a substantial ouch for consumers," said Tom Kloza, global head of energy analysis for Oil Price Information Service. "Satan could not have drawn up a more horrible geographic scenario for knocking out Texas refining."

But it is Jet Fuel premiums that are even more worrisome...

New York jet fuel’s premium to Nymex futures rises 20.5c to 36c/gal., widest since 2008, data compiled by Bloomberg show.

 

And U.S. Gulf jet fuel premium widens 10.25c to 19c/gal., also widest since 2008...

 

And unlike Gasoline - where inventories are high - Jet fuel inventories are below average.

The latest EIA data implies jet fuel inventory levels are just over 23 days of forward cover, seasonally-adjusted, 8% below the five-year average. Flooding and crude oil supply disruptions have led to the temporary closing of more than 21% of the country's refining capacity, primarily in the Gulf Coast, contributing to further draws on jet fuel inventories.

 

All of which could be a problem for Delta, United, and American who have shunned hedging after some incurred losses when oil prices collapsed in 2014.

  • American - No open hedge contracts, unhedged since 2014
  • Delta - Stopped entering fuel hedge contracts in 3Q 2014, no plans to resume hedging, co. says in Dec.
  • United - No fuel hedges as of June 30

“We are definitely watching this closely,” said Josh Freed, a spokesman for American Airlines Group Inc., the world’s largest carrier. “We don’t expect any immediate impact on our ability to operate our schedule. We are continuing to manage our fuel supplies and monitoring inventory levels regularly.”

Southwest has some fuel hedges...

  • 2H 2017: 62% using derivatives tied to WTI, Brent
  • 2018: 78% using derivatives tied to WTI, Brent - 79% was hedged in 1Q
  • 2019: 61% using derivatives tied to WTI, Brent - 36% was hedged in 1Q
  • 2020: 7% using derivatives tied to WTI

But the largest U.S. airline by domestic passengers, is working to ensure a steady supply of jet fuel after Hurricane Harvey forced the shutdown of crude-oil refineries and pipelines along the Gulf Coast. “It’s something we are concerned about and are working very aggressively to manage,” Chief Executive Officer Gary Kelly said in an interview Thursday. “I don’t expect any problem, but this is an evolving crisis.”

The rush to guarantee the fuel supply underscores the fallout on U.S. supply chains from widespread flooding in Houston and along the Texas and Louisiana coast after record rainfall. Southwest relies on the region for more than a third of its jet kerosene, although not all refineries were affected, Kelly said. Two pipelines that supply the Dallas-based carrier have been closed.

“It’s not to the point where there should be panic,” Kelly said. “The concern is along the lines of, we know there’s an issue and we have to take steps to mitigate it and that work is underway. We won’t have trouble based on what we know right now sourcing jet fuel to power our flights.”

But somehow, Airlines stocks are soaring post-Harvey.

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Labor Department Having “Lockup Tech” Problems, Jobs Report To Be Released On Web

Moments ago, Bloomberg blasted that unlike every other payrolls Friday when at 8:30am precisely, news feeds are flooded with headlines breaking down the jobs report, prompting algos to buy or buy stocks, this time that won't happen:

LABOR DEPT HAVING ...

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The week in pictures

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Putin’s Warning To The World: North Korea “On The Verge Of A Large-Scale Conflict”

As tensions between the US, its regional allies and North Korea continue ebb and flow, depending on what and where Kim lobs the next missile and whether Kelly can block Trump from tweeting for the next few hours, Russian President Vladimir Putin has decided to personally weigh in on the conflict for the first time since the UN passed new sanctions against the North earlier this month. In an article published on the Kremlin’s web site, the Russian president warned that the two sides are “balancing on the verge of a large-scale conflict," adding that any efforts to pressure the North to end its nuclear program would prove “futile,” and that the only tenable solution to the standoff would be a "dialogue with preconditions."

"It is essential to resolve the region’s problems through direct dialogue involving all sides without advancing any preconditions (for such talks)," Putin wrote. "Provocations, pressure, and bellicose and offensive rhetoric is the road to nowhere."

His remarks about a diplomatic solution alluded to a “road map” to peace formulated jointly between Russia and China.... without the U.S.

According to the joint Russian-Chinese deescalation plan, North Korea would stop work on its missile program in exchange for the US and South Korea halting large-scale war games, allowing tensions to gradually subside.

Here’s more from AJ:

"Russia believes that the policy of putting pressure on Pyongyang to stop its nuclear missile programme is misguided and futile," he wrote in the article sent to media in Brazil, Russia, India, China and South Africa - the BRICS member states.

 

"The region's problems should only be settled through a direct dialogue of all the parties concerned without any preconditions. Provocations, pressure and militarist and insulting rhetoric are a dead-end road."

As recently as last week, tensions between the two sides appeared to be easing, with US Secretary of State Rex Tillerson praising the country’s restraint after the North went nearly a month without a new missile test, despite restrictive new UN sanctions that took effect on Aug. 5. That quickly changed with the beginning of the US and South Korea’s annual 11-day joint military exercises, which appeared to provoke an especially vitriolic response from the North this year, prompting not one but two rocket launches over the next few days.

Two days ago, Russian Foreign Minister Sergey Lavrov reportedly warned Tillerson that it would be “dangerous” to push for more sanctions against North Korea.

Here’s Newsweek:

“Russian Foreign Minister Sergey Lavrov told Tillerson that the U.S. should avoid taking military actions against Kim Jong Un’s regime and that the Russian government believes additional sanctions could prove “counterproductive and dangerous.”

 

Tillerson’s response to Lavrov is unclear, but the pair did condemn the North’s most recent test on Monday, when a missile sailed over U.S. ally Japan.”

Of course, the North’s missile launch earlier this week which flew over Japan airspace appeared to - at least temporarily - startle investors, triggering a short-lived selloff in global stocks. A day ago, US and South Korea insisted on a provocation of their own, conducting a bombing drill with nuclear-capable US bombers and the new F-35 stealth fighter.

Despite the bellicose rhetoric from both sides, an all-out war is much less likely than the public might believe. Echoing comments made by former White House chief strategist Steve Bannon, a professor warned yesterday that the US is in “no position” to start a war with the North because of the unprecedented devastation the North’s artillery could unleash on Seoul, the densely populated South Korean capital.

As Bannon said during an interview with the American Prospect, the US doesn’t have a tenable military option for toppling Kim Jong Un.

“Until somebody solves the part of the equation that shows me that ten million people in Seoul don’t die in the first 30 minutes from conventional weapons, I don’t know what you’re talking about, there’s no military solution here, they got us.”

As the war of words stretches into its eighth month, observers will surely keep this in mind. Investors, on the other hand, are just looking for an opportunity to "buy the fucking nuclear war dip."

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Eid al-Adha in Morocco

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