Here's our summary of key economic events over the weekend that affect New Zealand, with news an OPEC decision overnight may bring lower fuel prices much sooner. But then, this will depend on the volume of Hormuz crossings.
But first, this coming week locally will be dominated by the RBNZ's OCR review on Wednesday. Economists are divided on whether an inflation-fighting hike will come, and financial markets are pricing one in at 66%. The split voting at the May 27 review, where the external members all wanted a hike, but the majority internal members didn't, is just as likely to be repeated.
ASB is saying that locally, easing oil prices have strengthened our economic outlook and reduced the risk of a prolonged inflation shock. Lower fuel costs and stronger than expected economic momentum have put the recovery back on a firmer footing.
In Australia, the data out this week will be mainly about the Melbourne Institute's monthly inflation gauge, and about job ad changes.
In the US, their data releases will focus on service sector activity and existing home sales as they, like Europe, start to battle excessively hot conditions.
In Japan, the focus will be on defending the yen. They will also release June machine tool order data.
China will release June CPI and PPI data this week.
Over the weekend, China released their unofficial services PMI and it came in quite positive for June, similar to May. Growth rates for activity and new business remain strong. They recorded the strongest rise in employment since July 2024 and the fastest input cost inflation in over two years. Service sector firms there are optimistic about the immediate future. The overall result was better than the official China services PMI.
In Japan, their services PMI returned to growth in June, but cost pressures intensified, but here business confidence remained subdued. Which is in contrast to their quite positive factory PMI.
In South Korea we should probably note a very bumpy run recently by their stock market. It is dominated by major technology and semiconductor companies like Samsung Electronics and SK Hynix, so it is like the Nasdaq on steroids. This gives it unusual volatility, and that volatility has been on display in the past two weeks. This market hit a new record high on June 22 but has fallen -11% since. On Friday, it rose +5.8% however but even that still left it down -3% for the week. Over the past year, this equity market has risen a stunning +165% with most of it in 2026 and most of it tech-related.
In Vietnam, they posted a high Q2-2026 growth rate of +8.4%, building on their +7.8% Q1-2026 rate. (How can they report so quickly?) But this latest result will disappoint them because they have set a 2026 target of +10% and that now looks unlikely to be achieved, derailed somewhat by the Middle East conflict, also by missing their infrastructure build-out targets. Inflation eased to 4.7% in June from May's 5.6%, moving closer to the government's 4.5% inflation target this year. The World Bank has now reclassified Vietnam as an upper-middle-income economy, effective July 1.
The FAO global Food Price Index retreated for a second consecutive month in June, led down by falling cereals prices as harvests stay high, despite concerns in the US and Australia. Dairy prices eased slightly too, but meat prices stayed elevated. However it is vegetable oil prices that are keeping this index from falling faster.
In the US, the latest update of the AtlantaFed's GDPNow tracking reveals a sudden turn from high optimism about economic expansion, to a dour outlook. It has been rare that this model has come in lower than 'consensus' forecasts.
The UST 10yr yield is now just on 4.49%, unchanged from this time Saturday but a +12 bps rise from this time last week. The key 2-10 yield curve is now at +36 bps (up +1 bp). Their 1-5 curve is now at +28 bps (unchanged) and the 3 mth-10yr curve is at +87 bps (-1 bp). The China 10 year bond rate is unchanged at 1.74%. The Japanese 10 year bond yield is still at 2.77%, up +16 bps for the week and back to the 30 year-high levels we saw in May. The Australian 10 year bond yield starts today at 4.80%, down -2 bps from Saturday, up +4 bps for the week. And the NZ Government 10 year bond rate is at 4.48%, also unchanged from Saturday, but up +9 bps for the week.
The price of gold has risen to US$4174/oz, unchanged from Saturday, up +US$100 from a week ago. Silver is now under US$62.50/oz, unchanged from Saturday too, up +US$3.50/oz for the week.
Oil prices are little-changed but slightly firmer from Saturday at just under US$69/bbl in the US, while the international Brent price is still at US$72/bbl. Hormuz transits picked up Friday but then on renewed uncertainties fell back again over the weekend with just 10 crude or product tankers exiting over the past 24 hours (1 dark with transponders off) but 15 entering for new loads (1 dark). Large tankers which are exiting are now choosing to do so in Oman-controlled lanes.
And we should probably note attacks on a ships in the Red Sea near Yemen over the weekend, adding another layer of uncertainty.
OPEC met over the weekend, and raised output by +188,000 barrels/day. They have Middle East members who need maximum revenues to recover from the conflict. So we may end up awash in oil and sharply lower prices.
The Kiwi dollar is unchanged from this time Saturday at just over 57.1 USc, up +70 bps from a week ago. Against the Aussie we are unchanged at 82.3 AUc. Against the euro we are still at just on 49.9 euro cents. That all means our TWI-5 starts today at just on 60.9 which is unchanged from this time Saturday, up +60 bps for the week.
The bitcoin price starts today at US$62,563 and up +0.7% from this time Saturday, but up almost +4% from this time last week. Volatility over the past 24 hours has been low at just under +/- 0.8%.
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15 Comments
So the tankers are now using the western side of the strait ("Large tankers which are exiting are now choosing to do so in Oman-controlled lanes.") Which means some at least are confident the US has cleared any mines that Iran put there. However Iran continues to state they will impose transit fees to ships passing through the strait. To enforce this they will need, again, to force the ships away from the Omani side. The need for active, effective policing of the strait has escalated and will need to continue for the foreseeable future.
Hard to see how they can enforce a toll when they have agreed to a ceasefire.
DC's comment is a long way short of big-picture.
We have to add in the damage to plant - not just the ME, but Russian, and I've yet to see how Venezuela fared. Then there is the logistics snarl-up, knocking-on from Hormuz. Then there are the locked-in wells - you cannot just turn the tap on and off, field management doesn't work like that. And the Northern Hemisphere is only just heading into a summer - and probably another, worse one - which will result in record A/C energy demand (and probably other demand; maintenance, for starters.
Then the OPEC decision doesn't make sense - putting more into a market causing a glut, would return you less per barrel, and no barrel is replaceable; this is a depletion of a finite resource, which we're still reducing by a billion barrels every 10 days. They're not that silly - so ask why they really want to do it? The answer almost certainly is that global total production is either down or static, and maybe too they realise that global storage has been drawn-down by record-breaking amounts (and they're bargaining on folk wanting to re-stock). Obviously they're not smart enough to realise that beyond their oil, their money won't be worth what it was...
DC only commented on a single news snippet, and wasn't an attempt to represent a big picture but rather a shift in a pixel of the picture. I think the US deliberately tried to avoid attacking Venezuela's oil infrastructure at the behest of the oil companies in the US. However I recall news reports that suggest it is pretty neglected.
Other reports I've read talk about the issues that arise when a well's production is shut down, due to damage or full storage, and the time taken to restart production is significant, sometimes months.
I meant the earthquakes - re physical damage.
I've seen nothing that suggests damage either. Mind you the civil infrastructure appears pretty stuffed. The oil infrastructure will be down the list of priorities.
Trump movement is clearly dying
somewhere around minute 12
Edit - this is more important:
"What Trump Said at Mount Rushmore Should Worry Every American!" | Bill Clinton - YouTube
Inflation was already above its upper limit before Trump started his war. The conflict only increased it further. So the external members are correct: a raise of 25 bps is warranted and the bond market has it already priced in since the bottom of last November. The latter also means a 25 bps raise won't have any effect apart from on the New Zealand ponzi psyche.
Murray. Iranian ability to remotely activate/deactivate any mines it has sown in the Omani channel is unknown but will have been significantly degraded. Some possibly exists if the mines are up to date Chinese models but there will have also been continuous mine clearing by US sub surface semi autonomous vehicles. Demand destruction and Chinese buyer caution in respect of Iranian oil, at least until reserves are further run down, mean the current sitzkrieg can continue for some time.
I don't disagree MM. The reports on mine clearance have been sparse though. There were a few identifying US minesweepers in Malaysia. So the US are not doing it, not risking their ships, but they expect others to be doing it. Where that assurance is coming from though....?
Large minesweeping vessels have been largely rendered obsolete by small surface and submersible mine clearing vehicles. These can be deployed by helicopter. The US is the only power with the necessary resources and would be be motivated to keep their clearing activities secret. Iran is unlikely to blow up a transiting tanker knowing it would bring down hell on their heads and possibly scupper peace talks. Meanwhile they wait for orders for their oil from Beijing but the phone is not ringing.
"OPEC met over the weekend, and raised output by +188,000 barrels/day. They have Middle East members who need maximum revenues to recover from the conflict. So we may end up awash in oil and sharply lower prices."
I agree...
WHAT I SEE REPORTED AROUND THE WORLD - from a multitude of different sources over the weekend...
" - The 188,000 extra barrels per day (bpd) agreed upon by the seven OPEC+ countries represent only a tiny 0.18% of global oil demand, which currently hovers around 103 to 104 million bpd
- Will this keep prices low?
This is more of a psychological signal than a supply shock: On its own, 188,000 bpd is not enough to dramatically move the market. However, this is the fifth consecutive month that OPEC+ has raised its production caps, adding up to nearly 1 million bpd in cumulative increases.
- Prices are already sliding: Brent crude has already fallen drastically from early-year peaks of nearly $120/bbl down to the low $70s. This is primarily due to optimism surrounding a U.S.–Iran peace pact and the gradual reopening of the critical Strait of Hormuz.
- Undoing previous cuts: These small increments are designed to step-by-step reverse the steep voluntary production cuts implemented in 2023. This slow trickling of oil helps maintain the current lower price environment without causing a sudden crash.
- Could it lead to an oversupply?
Yes, a massive surplus is heavily projected: The International Energy Agency (IEA) has warned that the oil market is entering a state of severe glut and oversupply.
The "basin is overflowing": Even before this July 5th agreement, the IEA estimated a global surplus of roughly 3.8 million bpd. This is being driven by weaker Chinese imports, booming production from non-OPEC countries (like the U.S.), and a post-war normalization of Middle Eastern exports.
Potential for a price war: If Persian Gulf producers continue to ramp up production to maximum capacity to claw back lost market share, it could result in massive oversupply. However, OPEC+ has explicitly stated they review conditions monthly and can pause or reverse these increases if a massive supply glut threatens to tank the market entirely.
The growing oil surplus is the result of a high-stakes clash between booming, unchecked production in the Americas and an aggressive push by OPEC+ members to reclaim their market share.
1. How Non-OPEC Production is Driving the Surplus
While OPEC+ spent the last few years capping its production to support prices, non-OPEC countries did the exact opposite—pumping at record-breaking levels. The International Energy Agency (IEA) points to four key countries in the Americas driving this unstoppable supply wave:
The United States: The U.S. continues to dominate as the world's top producer. Massive shale extraction, aggressive releases from the U.S. Strategic Petroleum Reserve, and the current Trump administration’s pro-drilling policies have occurred.
Brazil: Acting as a massive engine for South American growth, Petrobras and other operators are pushing Brazil’s output toward a record 5.2 million barrels per day (bpd).
Guyana & Canada: Guyana’s offshore consortiums are scaling up so rapidly that the tiny nation is on track to surpass 1 million bpd. Simultaneously, Canada's oil sands are exporting at maximum capacity.
The Global Impact: This Western supply wave has redirected millions of barrels east of the Suez Canal, helping to offset the logistical shortages caused by the recent Middle East conflict.
2. How Individual OPEC+ Countries Are Reacting
The July 5th agreement to raise output caps marks the fifth consecutive month that core members have added oil back to the market. However, beneath the unified announcement on OPEC's official platform, individual member nations are experiencing severe internal friction:
Current Reaction & Strategy
Saudi Arabia & RussiaThe Enforcers: Leading the monthly rollbacks. They are eager to gradually undo their steep 2023 voluntary cuts before non-OPEC rivals permanently steal their global market share.
The UAEThe Restless Producer: Capitalising heavily on newly built infrastructure that bypasses the Strait of Hormuz. The UAE has been aggressively pushing to operate more independently and raise its capacity, with its crude reportedly being heavily discounted to find buyers as far away as Hawaii.
Iraq & KazakhstanThe Over-Producers: Both nations have historically struggled to stick to their strict OPEC quotas. They are using these new, higher caps as a legal cushion to legitimize the extra oil they were already pumping behind the scenes.
IranThe Wildcard: Currently exempt from quotas due to sanctions. As U.S.–Iran peace talks progress, Iran is desperate to fully normalize its export channels and flood the market with its own idling crude, adding even further downward pressure on prices.
The Overriding Problem: Cracking Demand
The core anxiety for OPEC+ isn't just the extra supply—it's that demand is drying up too.
Refiners are facing a massive global bottleneck. China the world’s biggest crude importer, has slashed its imports by a staggering 5 million bpd compared to pre-war levels.
Because Chinese buyers aren't biting, physical crude grades like Oman and Republic of the Congo's Djeno are currently trading at historic discounts just to clear out filled-up tankers."
SUMMARY - with 11 OPEC, and 11 OPEC+ member countries, it was always logical that substantial redundancies existed that could be mobilised to drastically alter the supply demand equation - it appears that this is precisely what is happening.
You using AI?
The world has chewed through 12+ billion barrels, since Trump's move. Best first. The world has run down it's stored reserves down by probably half a billion, and production capability - despite the hype, is down in total (more destroyed than built). And any future 'glut' is just a faster drawing-down from a reducing total stock.
But look at all the myopia - 'prices' will be back to 'normal' and we'll party on. PS - and 'economic growth' is back in gear. Permanent economic growth, doncha know - despite the reality-check that a (very slight) constriction of the supply of a once-off essential, offered.
Gotta wonder...
Can there be an oversupply when so much of the res4erves held were drawn down. To build them back would keep supply to the masses just as short, and the production capacity of some ME countries have taken a hit literally which will take years to rebuild.
Either way, I'm waiting on when it will come to light about all of the water table contamination that has and is occurring in the USA due to fracking. Wouldn't want to be living anywhere near that personally, as try selling your home to move away when there is no save water to pull out of the ground.
I purposely didn't wade into the subject of whether or not any of these objective facts are good or bad for humanity, short term or long term. That was not the point of my comment - realities on the ground were.
The fact remains that the 21 countries in the Opec group's core purpose is to achieve price control of global oil prices through supply management.
By its very nature this charter involves considerable redundancy in these countries, and as such the reserve buffers and excess capacity that can be switched on.
The estimated collective spare capacity, defined as oil production that can be brought online within 90 days, and sustained long term, is estimated at between 5-6 million bpd.
The lion's share of this global redundancy is held by Saudi Arabia, meaning that the redundancy is highly centralised in the Gulf countries rather than evenly distributed around the world.
With relations between Saudi Arabia and Trump/War$hington being at an all time low and US being kicked out of their main air force bases, plus the use of their airspace being used to assist attacks on Iran being withdrawn, this demands that the KSA reconsider its relationship with Iran, Oman and Yemen, if they want to be able to turn on their oil spigots and avoid losing sales and cliental to other global producers.
The evidence is there - Saudi Arabia is actively forcing a shift toward pragmatic diplomacy with Iran, Oman, and Yemen. The kingdom's strategic reality has dramatically changed due to its physical vulnerabilities, the exposure of the limitations of the U.S. 'security umbrella' (sic), and a severe "double-chokepoint" crisis that threatens all of its oil exports.
Rather than escalating conflict, Riyadh is heavily adopting a policy of "strategic patience" and regional integration to safeguard its economic transformation and to keep its oil flowing.
Saudi Arabia previously relied on its East-West Pipeline (Petroline) to bypass the vulnerable Strait of Hormuz by pumping 3 to 5 million barrels per day (bpd) across the peninsula to the Red Sea port of Yanbu. However, recent security shifts have exposed a strategic flaw.
Up to 75% of the crude leaving Yanbu must sail south through the Bab el-Mandeb chokepoint to reach it's major customers in Asia (China, India, South Korea).
The Iran-backed Houthis control this strait. While they held back during parts of the broader conflict, the Houthis issued explicit ultimatums to Saudi Arabia, threatening an "unstoppable war" and a total blockade of Saudi shipping if the kingdom does not completely lift its remaining naval and air restrictions on Yemen.
With Hormuz highly contested and the Red Sea under immediate threat, Saudi Arabia has no Indian Ocean deepwater port or alternative pipeline. This creates an absolute economic necessity to keep the peace with Yemen.
While regional tensions have historically flared, Saudi Arabia's overarching strategy has pivoted from trying to isolate Tehran to integrating it economically.
Many analysts note that Riyadh is actively looking past recent regional skirmishes toward a long-term posture of engaging in Iran's economic reconstruction and reintegration.
Instead of doubling down on US-led "maximum pressure" or regional isolation, Gulf states have largely concluded that containment failed. They are actively building ties with Iran to insulate their domestic oil infrastructure (like the massive Ras Tanura, and Yanbu refineries) from catastrophic drone and missile strikes.
Blimey, a new alliance with not just Iran, but so too with Yemen - the poorest country in the ME - one that the KSA and its Western allies have spent years trying to eviscerate - they are now aligning with Iran - who would have thunk?
Chalk this development up as yet another monumental own-goal scored by the Tweeter-in-Chief.
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