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Perspective: Morning Commentary for August 31

By: Mike Castle, Market Intelligence - Fertilizer Analyst

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Guest Commentary by Mike Castle

Senior Commodities Economist

August 31 – Geopolitics are front and center to kick off trade on Monday after a weekend of escalations in both the Middle East and Black Sea region, with stock futures pointing to a quietly lower open and the VIX rising close to 7% on the day, albeit still relatively low historically as it hovers above the 15.4 mark. The dollar is taking back some of Friday’s sharp gains as it trades slightly lower to start the day, hovering around 99.55 at the time of writing. Treasuries look to hold some focus this week as well, with long-term yields moving higher overnight, as 30-year yields push back up to 5.25% and 10-year yields approach 4.75%, though short-term yields are more muted, with 2-years trading below 4.34%. Crude oil is starting the week off on a strong note after renewed fighting between the U.S. and Iran over the weekend, with nearby WTI and Brent both up 2.5% this morning to trade near $85.50 and $90.30, respectively. The ags are mostly lower to start the day despite the ongoing escalations between Russia and Ukraine, with a headline about Turkey reportedly pushing for a Black Sea shipping deal likely triggering some profit taking by funds holding hefty longs.

The U.S. and Iran exchanged direct fire on Sunday for the first time in more than a month, with the U.S. striking two Iranian launchers on Larak Island in the Strait of Hormuz, characterizing the action as protecting shipping in claiming the sites were prepping to launch rockets carrying sea mines. Iran subsequently retaliated by launching missiles toward U.S. military positions in Jordan, but they were reportedly intercepted with no significant damage. Additionally, UKMTO reported a tanker being struck with an unidentified projectile entering the Strait of Hormuz on Saturday, casting fresh doubts regarding a normalization of commodity flow, though traffic does appear to have recovered to a small extent. Apart from the brief military exchanges, the primary focus of the U.S. is on economic pressure for now, with several third-party financial entities being sanctioned for allegedly facilitating billions of dollars in obscured transactions with Iran. Somewhat surprisingly, Iranian President over the weekend acknowledged the toll that increased U.S. economic pressure was taking on the country. This could be a sign of the civilian government potentially becoming more open to negotiations, but the influence of the IRGC cannot be underestimated.

Russia carried out their deadliest attack on the Kyiv area of 2026 over the weekend, striking an ammunition depot in the village of Myla, just to the west of the city, which triggered secondary explosions that killed at least 38 people and injured dozens more. This was just one event in what has been a sustained uptick in Russian air strikes, with Ukrainian President Zelenskyy stating that Russia had launched nearly 2,000 drones, 1,600 glide bombs, and 31 missiles at Ukraine in the last week alone. Russia again targeted Ukraine's agricultural/logistics infrastructure over the weekend, striking port facilities at Mykolaiv and a nearby food-industry warehouse, though there were no confirmed strikes on major grain elevators, export terminals or grain vessels. On the other side, Ukraine this weekend continued their strikes on Russia’s energy sector, hitting Russia’s second-largest refinery in Kirishi, near St. Petersburg in the northwest of the country. While the extent of the damage is still unclear, Ukraine’s intense campaign targeting Russian refineries has taken significant portions of the country’s capacity offline, with Russia on Saturday announcing extended restrictions on exports of diesel, marine fuel, and gasoil through September 30th. 

This absence of Russian refined product exports, coupled with the ongoing disruption to the Strait of Hormuz, has increasingly shifted demand to the U.S. In 2026, we’ve seen new monthly export records set for a wide array of U.S. energy products, from jet fuel to naphtha to propane, but the renewed restriction on Russian diesel exports is likely to bring distillates front and center. Distillate stocks in the U.S. have recovered from their 23-year low seen in May but have been counter-seasonally tightening in recent weeks, falling to their lowest on record for the comparable week per last week’s DOE report. The graphic below shows a seasonal look at U.S. weekly distillate stocks for all available history since the series began in 1982, highlighting how anomalous the tightening seen this summer has been. Record refining margins are incentivizing maximum production, but this is also helping drive the rapid drawdown in U.S. strategic petroleum reserve (SPR) stocks, nearing their record low. President Trump over the weekend announced plans to refill the U.S. SPR with Venezuelan crude oil “very shortly,” but provided no volume or delivery schedule, leaving the scale and timing of the purchases unclear. These are the kinds of details that will be scrutinized more closely as the tightening of both crude and refined products becomes more acute.

The EPA is expected to announce another round of Small Refinery Exemptions (SRE’s) today, or possibly tomorrow, with most of the remaining backlog tied to 2025 compliance obligations. The timing is drawing understandable skepticism from the biofuels industry, as these exemptions are intended to address “disproportionate economic hardship.” As mentioned in the paragraph above, refining margins are currently at record highs… Personally, it’s difficult for me to view that as a hardship, but at the end of the day, this comes down to a fight over legal definitions, and it’s hard to bet against the U.S. energy lobby in that context. The planned additional waivers reportedly total more than 1.8 billion renewable fuel credits, significantly above previous expectations, but the EPA is reportedly also considering a plan to offset the impact by adding additional blending obligations in 2027 and potentially beyond. We won’t know the details until an official announcement is made, but the infighting between the U.S. energy and ag lobby has been very apparent, something that is likely to remain present in the year ahead.

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Mike Castle
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