US Crude Production To Hit Record 13.41 Million Bpd In 2025 Before Falling, EIA Says

Oil prices were little changed on Wednesday after falling in the previous session after an industry report showed U.S. crude stockpiles climbed last week illustrating the end of the seasonal summer demand period is nearing.Brent crude futures gained 3 cents to 66.15 a barrel at 0102 GMT after dropping 0.8% in the previous session. U.S. West Texas Intermediate crude futures fell 3 cents to $63.14 after declining 1.2%.

Crude inventories in the U.S., the world's biggest oil consumer, rose by 1.52 million barrels last week, market sources said, citing American Petroleum Institute figures on Tuesday. Gasoline inventories dropped while distillate inventories gained slightly. Should the U.S. Energy Information Administration data set for release later on Wednesday also show a decline, it could indicate that consumption during the summer driving season has peaked and refiners are easing back their runs. The demand season typically runs from the Memorial Day holiday at the end of May to the Labor Day holiday in early September.

Analysts polled by Reuters expect the EIA report to show crude inventories fell by about 300,000 barrels last week. Outlooks issued by OPEC and the EIA on Tuesday pointed to increased production this year which also weighed on prices. But both expect output in the U.S., the world's largest producer, to decline in 2026 while other regions will increase oil and natural gas production.U.S. crude production will hit a record 13.41 million barrels per day in 2025 due to increases in well productivity, though lower oil prices will prompt output to fall in 2026, the EIA forecast in a monthly report.

The Organization of the Petroleum Exporting Countries' monthly report said global oil demand will rise by 1.38 million bpd in 2026, up 100,000 bpd from the previous forecast. Its 2025 projection was left unchanged.The White House on Tuesday tempered the expectations for a quick Russia-Ukraine ceasefire deal, which may lead investors to reconsider an end to the war soon and any easing on sanctions Russian supply, which had been supporting prices.U.S. President Donald Trump and Russian President Vladimir Putin are due to meet in Alaska on Friday to discuss ending the war.

"Trump downplayed expectations of his meeting with President Putin ... However, expectations of additional sanctions on Russian crude continue to fall," ANZ senior commodity strategist Daniel Hynes wrote in a note.

Source: Yahoo Finance

Key points:

Aggressive shopping by consumers may mute the impact of tariffs on inflation but could also lead to a cycle of falling demand and rising unemployment, Richmond Fed president Tom Barkin said on Tuesday, while adding he is hopeful a sharp rise in the jobless rate will be avoided because household spending has held up well so far.

Barkin, in prepared remarks to a health group in Chicago, said he felt some of the earlier "fog" that clouded the economic outlook is lifting with the passage of a major tax bill, more visibility on changes in immigration, and the finalization of tariff and trade deals by the Trump administration.

The net outcome, he said, will now hinge on how consumers respond to any emerging price pressures. He suggested that so far their shift to bargain hunting, an earlier wave of spending to front-run anticipated tariffs, and other actions may actually be helping to mute price pressures.

"Amid all the talk of tariffs and higher goods prices to come, we’ve seen people stock up on iPhones and cut back on services, such as air travel and lodging. If we see this kind of demand destruction more broadly, the inflationary impact of tariffs would be less than many anticipate," Barkin said.

New data showed July consumer price inflation largely in line with expectations, with a measure of "core" or underlying inflation rising to 3.1%.

The risk, Barkin said, is that consumers pull back so sharply that "businesses will see volumes drop and margins squeezed. They will look for costs to cut. Employment could take a hit as a result,"

However, he feels that outcome can be avoided given that businesses have been reluctant to shed staff, and given the likely slower growth in labor supply from tightened immigration policy and ongoing retirements among older workers.

"Job gains have slowed recently, which is certainly worth watching. But I’m hopeful that even as businesses face cost and price pressure, they’ll largely avoid the type of large layoffs that would spike unemployment," he said.

Barkin is not a voter this year on interest rate policy, but said he felt the current benchmark rate of 4.25% to 4.5% is "well positioned" to respond to either rising inflation or rising unemployment, both of which remain possible.

"We may well see pressure on inflation, and we may also see pressure on unemployment, but the balance between the two is still unclear," he said. "As the visibility continues to improve, we are well positioned to adjust our policy stance as needed."

Source: Reuters

MARKET WRAP

Stocks were bid on Tuesday while the Dollar was sold and T-Notes steepened in response to a "not as bad as feared" CPI in the face of Trump's tariffs, keeping a September rate cut on the table following the weak July jobs report - for more on CPI, please see analysis below. Outperformance was led by the Russell, which rose almost 3% while the other three indices saw gains of c. 1%. The majority of sectors were green, with notable outperformance in Communication and tech stocks, while Real Estate, Consumer Staples and Health Care lagged. T-Notes steepened, with the front-end bid while the long-end was sold after CPI, with T-Notes hitting lows after Trump announced he is considering suing Fed Chair Powell over the Fed renovations, raising more concerns over Fed independence and boosting term premium. The CPI and post from Trump hit the buck, seeing the Dollar and CAD underperform in the FX space while CHF prospered, paring some of the recent weakness in the fallout of the US/Switzerland trade war. GBP also performed well after the latest jobs data showed an easing in the pace of the labour market slowdown. Crude prices settled red with attention still on the Trump/Putin meeting on Friday, although Ukraine announced that Russia has made more advances today and that Ukraine is not willing to pull out of Donbas. Elsewhere, the OPEC MOMR saw world oil demand unchanged, but the EIA boosted their forecasts for 2025 and 2026. Meanwhile, Fed Speak saw Schmid maintain a hawkish tone - stating that the Fed are close to neutral and he still favours a wait-and-see approach.

US

JULY CPI: Headline CPI rose 0.197%, in line with the 0.2% forecast and cooling from the prior 0.287%, Y/Y rose by 2.7%, below the 2.8% forecast and matching the prior pace. The Core CPI rose by 0.322%, accelerating from the prior 0.228% but in line with the 0.3% forecast, while Y/Y was hotter than expected at 3.1% (exp. 3.0%, prev. 2.9%). Regarding the Fed, the inflation levels are manageable and would likely endorse a September rate cut given the slowdown in the labour market. Pantheon Macroeconomics notes that core goods prices, ex-autos, rose 0.2%, less than the 0.5% increase in June, but still outpacing the 2024 trend, when prices were flat. The desk notes that it remains the case that prices have risen the most since January for goods that are primarily imported. Pantheon also highlights that Core Services prices rose by 0.4%, but Pantheon says it is no cause for alarm as a 4.0% rebound in airline fares contributed 0.05pp to changes in overall prices. Nonetheless, a move higher in services prices alongside rising goods prices, disputes the theory that the fall in services prices will be offset by the rising goods prices - this will be something to watch in the months ahead. Reminder, this is July data, and the latest tariff rates did not kick in until August. We will be looking at the August metrics and data ahead to see the implications of the latest tariff rates. Despite keeping the door open for a September rate cut, in the wake of the data, Fed's Schmid (hawk) spoke, noting that retaining a modestly restrictive policy stance is appropriate, adding that inflation is too high. However, Barkin noted that they may see pressure on inflation and unemployment, noting the balance between the two is unclear. Meanwhile, in regard to PCE implications, Pantheon suggests the CPI data is consistent with a 0.23% increase in Core PCE.

FED’S SCHMID (2025 Voter) struck a hawkish tone and said retaining a modestly restrictive policy stance is appropriate for the time being, and he supports the patient approach on rates. The Kansas City Fed President said there is a limited effect from tariffs on inflation and is a reason to keep policy on hold, not an opportunity to lower rates, given policy is not far from neutral, and inflation is too high. Schmid continued to strike this hawkish rhetoric and noted that the muted effect on inflation from tariffs is likely a sign that policy is appropriately calibrated. He did note he will adjust views accordingly if there are signs of significant weakening in demand growth.

FED’S BARKIN (2027 voter) said may well see pressure on inflation and unemployment, and the balance between the two is unclear. Barkin said the Fed policy is well-positioned to adjust as visibility about the economy improves. The Richmond Fed President said for the economy to falter, consumer spending would have to pull back more significantly, and though spending has softened, a serious pullback is hard to envision given low unemployment and ongoing wage gains. On the labour market, said employment could take a hit if consumers pull back, but large layoffs may be avoided, and any increase in the unemployment rate may be less than expected due to decreased immigration and lower labour supply growth.

FIXED INCOME

T-NOTE FUTURES (U5) SETTLE 2+ TICKS LOWER AT 111-26

Treasury curve steepens after CPI keeps September rate cut on the table. At settlement, 2-year -2.1bps at 3.733%, 3-year -1.2bps at 3.707%, 5-year +0.2bps at 3.824%, 7-year +1.1bps at 4.032%, 10-year +2.0bps at 4.293%, 20-year +3.7bps at 4.857%, 30-year +4.1bps at 4.882%.

INFLATION BREAKEVENS: 1-year BEI -4.4bps at 3.223%, 3-year BEI -3.7bps at 2.699%, 5-year BEI -2.6bps at 2.454%, 10-year BEI -1.3bps at 2.372%, 30-year BEI -0.3bps at 2.272%.

THE DAY: T-Notes steepened in response to the US inflation report. To recap, headline CPI was in line with expectations M/M, and Y/Y softer than forecast. The core prints were inline M/M but hotter than forecast at 3.1% Y/Y. The data saw an initial rally across the curve to see T-Notes peak at 112-06. The move was short-lived, however, with the long-end quickly selling off thereafter, albeit the front-end futures remained bid as the net neutral inflation data bolstered bids for a September rate cut, with a 25bps cut now priced with a 98% probability, according to LSEG data. Nonetheless, the long end of the curve had largely pared the upside, with T-Notes falling to lows of 111-19+. The downside ensued quickly after the data, but selling pressure was exacerbated after Trump announced he is considering suing "too late Powell" for the Fed renovations, raising concerns around Fed independence and seeing participants price in more term premium. It is also worth noting that within the inflation report, although not too concerning on the headlines, core goods and services picked up. This may worry those who were hoping for the downward trend in service prices to offset the expected move higher in goods prices as a result of tariffs. T-Notes then meandered into settlement, but Fed speak saw 2025 voter Schmid (Hawk) reiterate his hawkish language, advocating for the Fed to maintain a wait-and-see approach. Focus remains on data between now and the September meeting to fully shape expectations for the meeting.

SUPPLY

Bills

STIRS/OPERATIONS

CRUDE

WTI (U5) SETTLES USD 0.79 LOWER AT 63.17/BBL; BRENT (V5) SETTLES USD 0.51 LOWER AT 66.12/BBL

The crude complex was lower on Tuesday as participants await the upcoming Trump/Putin meeting in Alaska on Friday. Heading into the meeting, Trump and the White House are seemingly attempting to temper expectations, highlighted by the White House today noting it is a “listening exercise for Trump”. Ahead of the confab, Russia have seemingly made some advancements in the war with Ukraine, with NY Post saying Moscow troops made one of their most dramatic advancements of the year when they pushed deeper into the Donetsk region of Ukraine. Meanwhile, Zelensky said the current Russian push in eastern Ukraine was timed to coincide with Trump-Putin talks. Some strength was seen in the crude complex after the Ukrainian President said Ukraine will not pull out of Donbas, as such a move would open the way for Russia to attack Dnipropetrovsk, Zaporizhzhia, and Kharkiv. Pushing back somewhat on The Telegraph report Monday that Ukraine could agree to stop fighting and cede territory already held by Russia as part of a European-backed plan for peace. Elsewhere, no move was seen on the MOMR, which maintained 2025 demand growth forecasts and nudged up 2026 metrics. The EIA STEO marginally raised its 2025 and 2026 world oil demand forecasts. Ahead, private inventory metrics are due after-hours, whereby current expectations are (bbls): Crude -0.3mln, Distillates +0.7mln, Gasoline -0.7mln.

EQUITIES

US FX WRAP

The Dollar Index was lower on Tuesday and was weighed on by a US inflation report and Trump saying he is considering a lawsuit against Fed Chair Powell. The first to hit was the US CPI, which was largely deemed as "not hot enough" to prevent a September rate cut by the Fed. Recapping, M/M figures were in line, while Core Y/Y was slightly hotter than expected, but headline was marginally cooler than forecasted. Digging beyond the headline figures, it is worth noting that core goods inflation rose 1.2% Y/Y - its highest level since June 2023. Post-CPI, Trump posted on Truth that he is "considering allowing a major lawsuit against [Fed Chair] Powell" due to the construction of the Fed Buildings, which saw the Greenback take another leg lower. Elsewhere, Fed's Barkin and Schmid spoke, with the latter being distinctly hawkish and noting they are close to neutral and that he still prefers a wait-and-see approach after the recent data.

G10 FX saw gains against the board, and once again was largely at the whim of the Dollar, as opposed to anything headline related. However, GBP was boosted in the UK morning in the wake of the latest jobs report, which failed to show a marked deterioration in the labour market that some had been positioned for. Overall, the takeaway is that the UK labour market is softening, but the rate of slowing appears to be slowing. As such, given last week's BoE rate decision, which placed greater emphasis on the lack of progress in returning inflation to target, upcoming CPI data will likely carry greater sway for the UK rates space.

Out of Europe, albeit little move was seen in the single-currency, German ZEW data disappointed on both current conditions and economic sentiment. EUR/USD traded between 1.1599-1697 ahead of German and Spanish CPI on Wednesday, with price action dominated by the Dollar weakness.

AUD was the G10 laggard for much of the session in the wake of the RBA overnight, but caught up to peers on the aforementioned Dollar weakness. The RBA provided no surprises and delivered a unanimously expected 25bps rate cut to lower the Cash Rate to 3.60%, while it reiterated its language that inflation has continued to moderate and the outlook remains uncertain. On its Quarterly Statement on Monetary Policy, it showed a downgrade to the estimate of Australia’s long-run productivity growth to 0.7% from 1.0% and with trend GDP growth now seen around 2.0%, down from 2.25%.

EMFX was almost exclusively firmer across the board against the Dollar. Brazilian IPCA Inflation data was cooler than expected on both M/M and Y/Y metrics, while the South African u/e rate rose slightly more than anticipated. Once again, newsflow was sparse for EMs and seemed to be trading off broader macro impulses for the time being.

Source: Zero Hedge

Stocks in Asia were set to track Wall Street higher after an in-line US inflation reading bolstered speculation the Federal Reserve will have room to cut rates in September.Equity-index futures showed benchmarks in Tokyo, Hong Kong and Sydney will all open higher. US indexes climbed more than 1%, with the S&P 500 and the Nasdaq 100 hitting all-time highs. While an initial rally in Treasuries faded, money markets priced in an about 90% chance of a Fed reduction next month. Two-year yields, more sensitive to imminent policy moves, slid four basis points to 3.73%. The dollar fell.

The data bolstered expectations that the Fed can move toward rate cuts without reigniting price pressures. While underlying inflation accelerated to the strongest since the start of the year, the modest gain in goods prices eased fears that trade-related costs may feed into broader price pressures.“Inflation is on the rise, but it didn’t increase as much as some people feared,” said Ellen Zentner at Morgan Stanley Wealth Management. “In the short term, markets will likely embrace these numbers because they should allow the Fed to focus on labor-market weakness and keep a September rate cut on the table.”

Fed Bank of Richmond President Tom Barkin said uncertainty over the direction of the economy is decreasing, but it’s unclear whether the central bank should concentrate more on controlling inflation or bolstering the job market.In a social media post, President Donald Trump resumed his criticism of Jerome Powell over the central bank’s decision to hold rates steady. Trump also said he is weighing a lawsuit against the Fed chief over the renovation of the central bank’s headquarters - a project whose cost overruns have drawn scrutiny.

“The Fed’s policy stance is highly data-dependent, and with inflation contained and labor market softness increasingly evident in revised payroll data, the emphasis will now be skewed toward employment,” said Alexandra Wilson-Elizondo at Goldman Sachs Asset Management. “This inflation print supports the narrative of an insurance rate cut in September, which will be a key driving force for the markets.”

In Asia, Beijing urged local companies to avoid using Nvidia Corp.’s H20 processors, particularly for government-related purposes, complicating the chipmaker’s return to China after the Trump administration reversed an effective US ban on such sales.Meanwhile, China will implement more levies on Canadian rapeseed after an anti-dumping probe, escalating a trade spat that’s disrupted crop flows.Separately, China Evergrande Group said its Hong Kong stock will be delisted, marking the end of an era for the former high-flying developer whose demise came to symbolize the country’s property bust. The company’s collapse was by far the biggest in a crisis that dragged down China’s economic growth and led to a record spate of distress among builders.

US officials have kept rates unchanged this year in hopes of gaining clarity on whether tariffs will lead to sustained inflation. At the same time, the labor market — the other half of their dual policy mandate — is showing signs of losing momentum.With risks to the labor market rising, the Fed would likely tolerate temporarily higher-than-expected inflation prints — provided that the risk of second-round effects remains contained and price expectations stay well-anchored, according to Marco Casiraghi at Evercore.

“I think the real thing now to think about is should we get a 50 basis-point rate cut in September,” Treasury Secretary Scott Bessent told Fox Business. He said the Fed could have cut rates in June or July if they’d had the “original” jobs reports numbers.With CPI out of the way, the focus will shift to Friday’s US retail sales figure, where investors will see if consumers appear as upbeat as corporate earnings commentary has made them seem and amid worries about the labor market, according to Bret Kenwell at eToro.

Source: Bloomberg Europe

Underlying US inflation accelerated in July to the strongest pace since the start of the year, though a tepid rise in goods prices tempered concerns about tariff-driven price pressures.

The core consumer price index, excluding the often volatile food and energy categories, increased 0.3% from June, according to Bureau of Labor Statistics data out Tuesday. That was in line with economists’ forecasts. On an annual basis, it picked up to 3.1%.

Markets initially took the numbers in stride with Treasuries and S&P 500 futures rallying, though they later pared some of those gains. Still, traders increasingly bet that the Federal Reserve will cut interest rates next month.

The pickup in the core CPI was fueled by services prices. Excluding energy, they climbed the most since the start of the year. Airfares jumped by the most in three years, while medical care and recreation also advanced.

Goods prices, excluding food and energy commodities, rose at a tame pace. Some categories exposed to tariffs, such as toys, sporting goods and household furnishings and supplies, continued to increase, albeit at a slower pace than the prior month.

The reacceleration in services costs, after months of more subdued prints, underscores the lingering difficulties in taming inflation. Economists and policymakers have been largely concerned about goods prices given President Donald Trump’s sweeping tariffs, but consumer demand risks augmenting services inflation.

A sustained pickup in services prices would pose an additional challenge to Fed policymakers as they debate whether tariffs will lead to more enduring inflationary pressure in merchandise. Officials have left rates unchanged this year as they seek more conviction as to how tariffs will impact inflation — defying repeated calls from Trump to cut.

One of the key drivers of inflation in recent years has been housing costs — the largest category within services. Shelter prices rose 0.2% for a second month, reflecting steady housing costs and a continued decline in prices of hotel stays.

Another services gauge closely tracked by the Fed, which strips out housing and energy costs, climbed 0.5%, one of the strongest paces since the start of 2024. While central bankers have stressed the importance of looking at such a metric when assessing the overall inflation trajectory, they compute it based on a separate index.

That measure — known as the personal consumption expenditures price index — doesn’t put as much weight on shelter as the CPI. A government report on producer prices due Thursday will offer insights on additional categories that feed directly into the PCE, which is scheduled for later this month.

After months of chaotic threats and reversals, higher rates for almost all countries began last week. That may keep pressure on inflation readings going forward, even as Trump continues to negotiate with some major trading partners like China.

Some companies have been holding off on price increases for fear that consumers will pull back on spending, which will heighten interest for Friday reports on retail sales and consumer sentiment.

Central bankers also pay close attention to wage growth because it can help inform expectations for consumer spending — the main engine of the economy. A separate report Tuesday that combines the inflation figures with recent wage data showed that real average hourly earnings climbed 1.4% from the year before, rebounding from June.

The report was issued after Trump named EJ Antoni, chief economist of the conservative Heritage Foundation, to lead the BLS after firing the former head of the agency earlier this month. Antoni has been vocal about his concerns with BLS jobs data and revisions, and the president has accused the agency, without evidence, of rigging the numbers.

Source: Bloomberg Europe

Key Points:

President Trump is considering reforming the statistical methods of federal employment data collection following the recent dismissal of the Bureau of Labor Statistics director during closed-door meetings with the Department of Labor.

This shift could impact employment data credibility, raising concerns about potential political manipulation and affecting volatility in crypto markets linked to employment reports.

White House Moves to Overhaul Labor Data Collection

White House officials have initiated discussions with the Department of Labor to explore new technologies for data efficiencies in response to recent challenges in federal employment statistics. According to the Employment Situation Summary - September 2023, recent changes highlight potential impacts on national reports. The firing of the BLS director was a response to unsatisfactory job performance data, prompting President Trump to emphasize avoiding future data revisions.

Changes may involve adjustments to statistical methodologies and better survey response rates, potentially raising concerns about political motives. Questions arise over possible impacts on non-farm payroll reports, a monthly data release that influences market sentiment.

Source: CryptoSlate