OIL: Crude Continues Falling On Supply Hopes, Diesel Prices Rise

NZGBs are 1bp richer despite US tsys finishing Friday’s session 2-5bps cheaper, with a flatter curve. Early trade on Friday saw the drift higher in yield halted around 730am ET on a report that Iranian President Pezeshkian was in favour of ending the war with the US, but the impulse faded after further comments were decidedly less conciliatory.

• Cash US tsys then bear flattened, with the 2-year yield rising 6bps to a high of 4.2501% and a Fed hike going from partially (22bps) to fully (26bps) priced by year-end. There was no clear catalyst for the move but it confirmed that the cash curve bear flattened for the week, a directional shift that of course was helped by Treasury's surprise announcement Wednesday that it was upping long-end buybacks.
• NZ retail sales ex. inflation fell 0.5% q/q (estimate +0.2%) in Q2 versus revised +1.0% in Q1.
• The 2-year swap rate is at 3.66%. We have flagged previously that 4.0% looked to be a target given the expected peak OCR. That target is currently looking like a stretch unless the recent paring in the expected peak halts (3.65% to 3.41%).
• RBNZ-dated OIS pricing is little changed across meetings. 24bps of tightening is priced for September, while February 2027 assigns 66 bps.

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Oil prices were lower on Friday but the move was more a stabilisation as the market waits on Middle East developments. Moves have been subdued at the start of today’s session. Last week President Trump stated that a new US sanctions package will hit Iran’s economy as well as those that aid the country but details were lacking. Further information is due to be given on Monday by Treasury Secretary Bessent.

• WTI fell 1.4% to $86.64/bbl after declining to $85.80 and then rising to $87.51. Key resistance is at $88.07. It is currently lower at $86.34. The benchmark rose 6.4% over the week and is up 15.2% since 5 August.
• Brent was down 0.2% to $93.60/bbl to be 5.7% higher on the week. It fell to $92.74 during European trading and then rose to $94.83, approaching key resistance at $95.30. The bullish trend remains intact. Brent has started the week at $93.66.
• Small private refiners in China are the main buyers of Iran’s discounted crude and so could be impacted by US measures. However, China is also affected by the closure of the Strait of Hormuz with reports of three Chinese tankers turning around and not risking the waterway.
• Crude flowing through Hormuz remains a fraction of what it was pre-war, but the US is assisting smaller vessels through on the Omani side that have transponders turned off and then fill larger tankers in the Gulf of Oman. Saudi is maximising the capacity of its east-west pipeline but faces issues from the Iran-backed Houthis in the Red Sea. Iran allowed some Iraqi tankers through on request of Iraq’s government.
• Due to the Houthi threat, Saudi Arabia is using the Suez canal more but that means cargoes need to go around Africa to reach Asia adding significant time and cost to shipments. Also, Bloomberg reports satellite images showing tankers accumulating in the Gulf of Oman.

"*NZ 2Q RETAIL SALES EX. INFLATION FALL 0.5% Q/Q; EST. +0.2%" - BBG

"*NZ 2Q Adj Retail Sales Value +0.9% on Qtr vs Consensus +0.3%" - DJ/BBG