Crude Prices on the Rise; Hurricane Gordon

Crude prices are on the rise amid an evacuation of two platforms in the Gulf of Mexico ahead of Hurricane Gordon and a supply crunch in Nigeria. Additionally, as Bloomberg News reports, with a potential reduction in Iranian exports, renewed strife in Libya, and Venezuelan exports interrupted by an accident at the key Jose terminal, there is more than enough variables at play to support upward momentum in prices.

Crude jumped 2.2% to $71.36 earlier this morning and is currently trading at $71.21 a barrel as of 9:00am ET.

Hurricane Gordon is expected to make landfall tonight along the central U.S. Gulf Coast. According to reports, the storm surge could reach up to 5 feet and it could drop as much as 8 inches of rain across Mississippi, Alabama and Louisiana. Many of the targeted areas are still struggling to make a full recovery from hurricanes that hit this time last year.

The U.S. failed to reach an agreement with Canada ahead of the self-imposed Friday deadline after striking a deal with Mexico earlier in the week on Monday. Over the weekend the president again threatened the future of NAFTA should a “fair” deal with our neighbors to the north remain unattainable. “There is no political necessity to keep Canada in the new NAFTA deal," President Trump tweeted on Saturday. "If we don't make a fair deal for the U.S. after decades of abuse, Canada will be out. Congress should not interfere with these negotiations or I will simply terminate NAFTA entirely & we will be far better off."

NAFTA negotiations have been ongoing for the past year but there remain several sticking points. While Mexico and the U.S. have incentives to accelerate the timeline, adding in Canada will complicate the timeline for a formalized deal. With a presidential transition underway in Mexico, a comprehensive pact won't be approved until December at the earliest. In the U.S., this most likely means approval in 2019 when a new Congress will be in session.

Supreme Court nominee Brett Kavanaugh will face four days of hearings this week on his judicial record and legal philosophy. As the WSJ points out, Supreme Court confirmation battles are always controversial, but only in recent years have they become so partisan. 

In international news, the BOJ is unlikely to raise interest rates for "quite some time," according to Governor Haruhiko Kuroda, and recent steps to make policy more flexible are not a preparation for policy normalization. Speaking in a published interview with the Yomiuri Shimbun on Saturday he added, "As long as uncertainties remain, the commitment is to maintain the current low rates.”

At present, the BOJ policy rate is at -0.10% with ¥80trn ($734bn) a year targeted in asset purchases.

This morning, construction spending is expected to rise 0.4% in July, a two-month high and following a 1.1% decline in June.

The ISM Manufacturing Index is expected to decline from 58.1 to a reading of 57.6 in August, a four-month low.

-Lindsey Piegza, Ph.D., Chief Economist