Daily Brief – Oil

Oil

Traditionally the drivers for markets being Inflation, Economic Growth, Government Bond Yields, Equity Markets and Oil have all taken their turns in being the prime determinant which traders would reference. Today it is Oil and Energy prices that are driving Inflation and Government Bond Yields, as a continuing USD 100+ oil price is the key market driver as the correlation between the Oil price and the Long Bond Yield is at its highest for more than 35 years. The challenge is that the Oil price is volatile which could or will increase the likelihood of an Equity market underpinned by AI look precarious but overall, it is Oil that is driving markets and it is volatile.

Brent Oil USD 104.60.

British Pound

Not on the skids but sliding downwards, Sterling is facing the headwinds of a strong USD, a higher Oil price and concern as to what further will come out of the Labour Conference in Liverpool and in just four weeks’ time the Autumn Budget Statement. Positively UK economic data is not driving Sterling lower but as we have written before, at present it is hard to see Sterling strengthening much if at all between now and year end with the threat of a lurch downwards if USD continues strengthening.

GBP/USD 1.3206.

Cognac

The tale of the past 3 years in the 300-year-old history of the Cognac market is both a reflection and one of the definitive unintended consequences of our times. Exports of Cognac represent 98% of its production and 25% of those exports traditionally have gone to China. But following the POTUS tariffs on China and pressure on the EU to follow suit, the EU imposed 35.3% tariffs on Chinese EV’s which prompted China to retaliate with 34.8% tariffs on EU goods including Cognac. In 2023 Cognac produced 230 million bottles mostly from the Big Four-Remy Martin, Courvoisier, Hennessy and Martell and in 2026 that production has collapsed by almost 40% to 140 million with the result that Cognac as a product is under threat and some of those grapevines around the Charente River in South West France, which is the home of the industry, are currently being grubbed.

GBP/EUR 1.1652.

River Rhine

In the same way that the world has woken up to geographic choke points combined with military action slowing or blocking world shipping routes, the prevailing dry conditions across Western Europe and the lack of rainfall in the Alps has meant that the River Rhine freight traffic has ground to a trickle. The key river levels at Frankfurt and Cologne in Germany and at Lobith on the Dutch border have meant that river barges can only be filled to 20% or in some cases cannot be used at all. In turn that has meant that freight and tanker rates on the Rhine have shot up to EUR 165-170 a ton due to loads having to be split between multiple vessels. The prospects for a decent amount of rain look bleak until mid-October and the conditions on the Rhine for freight to resume flowing again look poor since the Rhine’s depths are at their worst since 1880 when records began.

EUR/USD 1.1333.

Fantasy

This day in 1995 precocious Mariah Carey began an 8-week stint at Number One with this song which became a global smash hit. MC also became the first female artiste to debut at Number One on the Billboard 100.

Oh, when you walk by every night
Talking sweet and looking fine
I get kinda hectic inside
Mmm, baby I’m so into you
Darling, if you only knew
All the things that flow through my mind
But it’s just a sweet sweet fantasy baby
When I close my eyes
You come and you take me
It’s so deep in my daydreams
But it’s just a sweet, sweet fantasy baby
Images of rapture
Creep into me slowly
As you’re going to my head
And my heart beats faster
When you take me over
Time and time and time again

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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