Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. Crude
Speaker 2: oil price has declined during New York trading after President
Speaker 2: Trump said the Straight of Horn moves will fully reopen
Speaker 2: by Friday. That's after the US in Iran finalize their
Speaker 2: piece deal. In Switzerland, we had WTI dropping four point
Speaker 2: nine percent to eighty seventy five, and right now during
Speaker 2: Asian trading, we're seeing a modest rise in West Texas Intermediate.
Speaker 2: For a closer look at oil markets, let's bring in
Speaker 2: Bloomberg Stephen Stepchinsky. Stephen is team leader for the Asia
Speaker 2: Energy Unit and he joins from Roth Studio in Singapore.
Speaker 2: I'm curious to get your take on this because, as
Speaker 2: far as I understand, the US and Iran have yet
Speaker 2: to release the text of this memorandum of understanding. Do
Speaker 2: we really have a firm as as to what we're
Speaker 2: going to be grappling with and so far as the
Speaker 2: market is concerned, you.
Speaker 3: Know, I think that's a really big unknown because when
Speaker 3: you look at how the market is reacting, it does
Speaker 3: seem to be that this is very sentiment driven, which
Speaker 3: means that there isn't any change to the physical oil
Speaker 3: supply right now. You're not seeing more ships going through
Speaker 3: horror moves. In fact, it really won't open up, according
Speaker 3: to Trump, until at least Friday, when they clear minds
Speaker 3: and prepare safety measures. But for the fact of the
Speaker 3: matter is, you've seen this big drop in prices primarily
Speaker 3: because there is this expectation that we're not going to
Speaker 3: see a wider conflict in the Middle East, that this
Speaker 3: is one step towards a larger, more concrete piece deal
Speaker 3: and perhaps the resumption of flows. But that being said,
Speaker 3: you're right, we haven't seen the text, we haven't seen
Speaker 3: the mechanisms that are needed for ships to go through.
Speaker 3: While Iran's news agency says that there will be a
Speaker 3: sixty day period during this ceasefire and peace period where
Speaker 3: essentially ships won't have to pay a toll, you know,
Speaker 3: maybe in the future you will be required to pay,
Speaker 3: and that creates a huge complication because the Trump administration
Speaker 3: has pushed against that idea for a long time. They
Speaker 3: want free navigation and travel through the Strait. So there
Speaker 3: are a lot of unknowns, but at least the knee
Speaker 3: jerk reaction in the market is that this is a
Speaker 3: step forward, and it is it is certainly representing itself
Speaker 3: in that pretty big drop in oil and gas prices.
Speaker 2: Do you have a sense of how elaborate this D
Speaker 2: mining operation needs to be in the strait of form moves?
Speaker 2: I know the G seven summit is underway and European
Speaker 2: allies were expressing I don't want to say pessimism outright,
Speaker 2: but certainly they were not as optimistic as President Trump
Speaker 2: was in getting vessel traffic back to a relatively kind
Speaker 2: of normal situation. One of the things that is a
Speaker 2: big concern here on the part of these international shipping
Speaker 2: companies is the situation with the mining. And I know
Speaker 2: that European countries have placed some conditions on their willingness
Speaker 2: to participate in the D mining. Talk to me a
Speaker 2: little bit about how extensive this operation may need to be.
Speaker 3: Well, I mean, according to Trump, he says, there, you know,
Speaker 3: just get rid of a couple of mines. But it
Speaker 3: is it is more complicated than that. You know, it
Speaker 3: isn't immediately clear how many mines there are. Where the
Speaker 3: mines are laid, it will take time to clear the mines.
Speaker 3: There are, of course safe routes to go through horror moves,
Speaker 3: but it's either through Iranian waters or hugging the coast
Speaker 3: of Oman, which at some points can get quite shallow.
Speaker 3: So the removing the mines is a technical process. It
Speaker 3: will take time. But that being said, there are you know,
Speaker 3: it isn't impossible and it is absolutely you know, there
Speaker 3: are routes that you can take through the strait to
Speaker 3: avoid the mining area. So I think, you know, you
Speaker 3: could see an increase in traffic from Friday. But again,
Speaker 3: like you said, is it does go down to how
Speaker 3: comfortable are the ship owners, how comfortable are the captains,
Speaker 3: how comfortable are the crews, what's the insurance situation. There
Speaker 3: are a lot of questions and it's actually quite complicated
Speaker 3: for a single ship to make the decision to go through,
Speaker 3: So for hundreds of ships to do it, it is
Speaker 3: not something like opening a floodgate and then they go.
Speaker 3: There are people all have to make individual decisions to
Speaker 3: make that happen.
Speaker 2: So this conflict has been going on since the end
Speaker 2: of February, and in that time there have been a
Speaker 2: number of nations that have had to tap into their
Speaker 2: strategic petroleum reserves in order to meet demand. And now
Speaker 2: we're getting indications that crewed stockpiles are at a new
Speaker 2: five year seasonal low. How critical a point are we
Speaker 2: at right now in terms of oil supply?
Speaker 3: You know, I think this is one of the important
Speaker 3: aspects of the market because oil prices. The reason why
Speaker 3: we haven't seen one of the reasons why we haven't
Speaker 3: seen a giant surge in prices like we saw in
Speaker 3: twenty twenty two, for example, after Russia's invasion of Ukraine
Speaker 3: has been due in Part two, larger and higher exports
Speaker 3: of oil and products from the United States. And that
Speaker 3: not only did that come from you know, the enormous
Speaker 3: shale production that's happening in the US, but also the
Speaker 3: US tapping their strategic reserves. And you've seen the US
Speaker 3: spr the strategic petrolum reserve fall to the lowest level
Speaker 3: in decades. And now we're at a point where if
Speaker 3: you continue to fall at the current rate, you will
Speaker 3: get very close to the bare minimum operational level. So
Speaker 3: you need to have about one hundred and fifty million
Speaker 3: to two hundred million barrels of oil within your tanks
Speaker 3: to keep them kind of operating. You can't really go
Speaker 3: below that point or the facilities begin to degrade, and
Speaker 3: we're below four hundred now, and if the SPR releases
Speaker 3: continue as the US had planned, we're going to get
Speaker 3: to about two fifty. So we're starting to get to
Speaker 3: that danger level where you really don't want to go
Speaker 3: much lower. So I think that's really key perhaps to
Speaker 3: the decision making by the Trump administration. They do realize
Speaker 3: that the longer this goes on, the mort drains reserves
Speaker 3: and it becomes challenging to continue to balance the market
Speaker 3: if demand doesn't start to give up.
Speaker 2: So today's price action notwithstanding, there is a little bit
Speaker 2: of skepticism here about the durability of any type of
Speaker 2: deal between the US and Iran. We've got WTI holding
Speaker 2: around eighty one dollars, the brand contract is around eighty three.
Speaker 2: And you, in particular, Stephen, have witnessed firsthand a lot
Speaker 2: of the volatility over the last two months that we
Speaker 2: have seen in these enormous swings in prices. Is it
Speaker 2: fair to say that we are still at risk for
Speaker 2: a return of the same type of volatility that we
Speaker 2: have seen recently.
Speaker 3: Yeah, I mean, I think this volatility is certainly going
Speaker 3: to continue, according to the traders and analysts that that
Speaker 3: we've spoken to. I think there is an expectation that
Speaker 3: if there is a flare up, you know it isn't
Speaker 3: you know, we've been here a few times, perhaps not
Speaker 3: you know, there wasn't a deal, kind of like this sign.
Speaker 3: But there have been several times where the US and
Speaker 3: Iran we're close to something and there will be a
Speaker 3: flare up of attacks. There have been drone attacks within
Speaker 3: within the straight There there is that risk going forward,
Speaker 3: and I think the market is trying to deal with
Speaker 3: that and also compensate how how they manage that risk.
Speaker 3: So there is also the matter of China in demand.
Speaker 3: So it's not just a horror moves issue when it
Speaker 3: comes to volatility, it's also Chinese demand because one of
Speaker 3: the things I was balancing the market beyond the spr
Speaker 3: releases was also an enormous drop in Chinese oil imports.
Speaker 3: And if you start to see China kind of come
Speaker 3: back and buy cargoes and buy shipments and their imports rise,
Speaker 3: that tightens the market and then add more volatility potentially
Speaker 3: going forward. So instead of a straight line down perhaps
Speaker 3: to the pre war levels of maybe Brent in the
Speaker 3: sixty or seventy dollars range, you're likely going to be
Speaker 3: seeing spikes and valleys. That being said that the endless
Speaker 3: I think, aren't really expecting a return to one hundred
Speaker 3: and twenty dollars brent. Instead, you could see in this
Speaker 3: range of the eighty dollars, maybe even touch one hundred
Speaker 3: if these peace talks were to break down. But we
Speaker 3: are likely on a downward trend.
Speaker 2: So what is the story with Russian crude oil right now?
Speaker 2: For a while it was critical, particularly for a country
Speaker 2: like India that was very reliant on or still is
Speaker 2: on crude imports.
Speaker 3: I mean, Russian oil exports have been still quite robust
Speaker 3: throughout this entire time. One interesting thing that's happened, it's
Speaker 3: quite technical, is there been Ukrainian attacks on their oil
Speaker 3: refining capacity, and so because they weren't able to refine
Speaker 3: some of that oil, they're actually exporting it. And oil
Speaker 3: exports out of Russia had been very strong. You know,
Speaker 3: there was a period where the oil on the water,
Speaker 3: which was sanctioned by the US, did get waivers and
Speaker 3: India was able to take some of it. But but
Speaker 3: at India's found other workarounds, either through reducing demand, either
Speaker 3: through finding other suppliers. You know, you've you've seen, actually,
Speaker 3: despite everything that's happening with the straight of horror moves,
Speaker 3: you've seen the oil producers in the Gulf get a
Speaker 3: bit creative with how they're getting that oil out. Not
Speaker 3: only do you have the East West Pipeline for Saudi
Speaker 3: Arabia that reroutes their oil from from the Persian Gulf
Speaker 3: into the Red Sea so they can get it out
Speaker 3: through the Bab al Mandab straight to Asian buyers. You're
Speaker 3: also seeing companies like Adnoc which have been ferrying oil
Speaker 3: out on ships that have literally gone dark. They turn
Speaker 3: their lights off, they turn off their ais ship tracking
Speaker 3: and they go through the Strait of Hormones to ferry
Speaker 3: out some oil. And this dark activity is also you know,
Speaker 3: been about two or three million barrels per day. Of
Speaker 3: course that's nothing compared to the twenty million barrels per day,
Speaker 3: but some oil is still finding their way out. The
Speaker 3: US has also been exporting quite a bit and an
Speaker 3: interesting thing liquefied natural gas. Qatar was a major supplier
Speaker 3: of energy to India before the war, but when the
Speaker 3: war started, Qatar had to essentially halt their exports in
Speaker 3: India had to find alternatives and the alternative that they
Speaker 3: found was the United States. The US became essentially the
Speaker 3: biggest LNG supplier last month to India, and that shows
Speaker 3: that the not only is the US, you know, able
Speaker 3: to provide oil to the market, but as the world's
Speaker 3: biggest LNG exporter, they've been able to balance it as well,
Speaker 3: all thanks to the shale revolution.
Speaker 2: So, for the sake of argument, let's say that indeed,
Speaker 2: we have reached some sort of inflection point and this
Speaker 2: piece deal between the US in Iran is once it
Speaker 2: is finalized on Friday, will remain in place and the
Speaker 2: market can begin to rebuild and recover. One senior US
Speaker 2: official was quoted in Bloomberg News story is saying it
Speaker 2: could still take as many as two weeks for shipping
Speaker 2: to significantly increase. Do you think that's an accurate assessment
Speaker 2: or maybe maybe a little understated.
Speaker 3: You know, according to the analysts that we spoke to,
Speaker 3: that could be a bit understated. I think, you know,
Speaker 3: we're hearing not so much weeks, we're hearing more months.
Speaker 3: And there are a few reasons for that. Of course,
Speaker 3: you have to get all the crews and the exporters,
Speaker 3: you have to get the facilities up back to their
Speaker 3: normal capacity. Some of them were damaged, they have to
Speaker 3: get repaired. But at the same time, a lot of
Speaker 3: the ships have been sub leased, They've been sub chartered.
Speaker 3: So these ships are there are many ships that are
Speaker 3: used in the Persian Gulf, but when the war began
Speaker 3: and they were stuck outside of the straight of horror
Speaker 3: moves add Knack, Qatar Energy, Saudi Aramco, they subleased their
Speaker 3: ships to be used elsewhere because I still want to,
Speaker 3: you know, make some money on these vessels that were
Speaker 3: essentially not servicing the Persian Gulf, and those ships are
Speaker 3: all over the world, you know, being used for different purposes.
Speaker 3: Getting all of those vessels back to the Persian Gulf
Speaker 3: also take time, So it's not just a matter of safety,
Speaker 3: it's a logistical bottlenecks problem that needs to be solved
Speaker 3: as well.
Speaker 2: Okay, Steven, good stuff. We'll leave it there. Thank you
Speaker 2: so very much, Bloomberg. Steven Stepchinski. He is team leader
Speaker 2: for the Asia Energy Unit, joining from Singapore. Here on
Speaker 2: the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast.
Speaker 2: I'm Doug Prisner. Markets across Asia are reacting to what
Speaker 2: appears to be a deal between the US and Iran
Speaker 2: to fully open the straight off moos on Friday. And
Speaker 2: that's where we begin our conversation with Tykwai. Ty is
Speaker 2: APAC chief strategist at JP Morgan Asset Management. He spoke
Speaker 2: with Bloomberg TV host David I. Glase and Ivon Mann.
Speaker 4: We're just getting some lines coming through here, taiway on
Speaker 4: this negotiations going into Friday. YEP, assuming things do reopen
Speaker 4: on a straitor firm moves in Friday, what does it
Speaker 4: mean for marketing?
Speaker 5: Well, I think obviously the natural reaction you saw yesterday
Speaker 5: already is a risk on sentiment because ultimately we've just
Speaker 5: managed to avoid the worst case scenario when it comes
Speaker 5: to the macroeconomy on oil, gas and petroleum or petrochemical disruptions.
Speaker 5: So I think from that perspective, it will still take
Speaker 5: a number of weeks, if months, for normality to be
Speaker 5: fully restored in terms of flows, in terms of event
Speaker 5: triggering back to a more comfortable level. Oil price will
Speaker 5: probably stay at above eighty bucks for quite a long time.
Speaker 5: But nonetheless, I think the shortages that's been hitting a
Speaker 5: lot of economies, especially in Asia, that is likely to
Speaker 5: be averted and that's why you've seen a strong positive reaction.
Speaker 5: For example, in Indonesia, you saw the repeat rebound quite
Speaker 5: a bit yesterday. So I think the good news is
Speaker 5: from an investment perspective, it's no longer just about AI
Speaker 5: and tech. There could be a cycical factor now coming
Speaker 5: back into play to help investors to generate returns.
Speaker 1: Yeah, now that you see the risk receding a bit,
Speaker 1: how do you bring back those pre war playbooks? Do
Speaker 1: you go back to what worked in January in February
Speaker 1: or you know, as you mentioned, there are some really
Speaker 1: unloved markets out there. Is that where the value is now?
Speaker 5: Well? I think for some of these markets, for example
Speaker 5: in Southeast Asia, we have to be still originally selective
Speaker 5: because it's not just oil prices. Domestic policies also play
Speaker 5: a role as well. But at the same time, you know,
Speaker 5: we've seen a lots of enthusiasm on tech, on semiconductors. Look,
Speaker 5: the truth is for markets like Taiwan and South Korea,
Speaker 5: the shortages in memory ships and CPUs, they're not going
Speaker 5: over anytime soon. But could we still see a sustained
Speaker 5: earnings growth that we've seen in the last couple of
Speaker 5: quarters that is a bit more questionable, So I think
Speaker 5: that provide maybe similar paper in the way that you
Speaker 5: could look at banks, look at industrials. And the other
Speaker 5: question is after this war, hopefully again we keep this
Speaker 5: at bay for a form of sustain period, what does
Speaker 5: that mean for global energy supply? Our companies or governments
Speaker 5: going to diversify the energy sources both geographically and by type.
Speaker 5: What does that mean for defense? We've seen in this
Speaker 5: war high volume logan that costs, weapons like drones really
Speaker 5: play a huge role. Does that change how governments are
Speaker 5: going to spend their defense spend It's not about spending more,
Speaker 5: It's about spending in the right places that will be
Speaker 5: effective in both defense and also deterrens to potential attacks.
Speaker 4: The last eighteen months have been dominated by either terrists
Speaker 4: or the war. Assuming the war is over, assuming that's
Speaker 4: a big if. Is there anything on the horizon that
Speaker 4: looms large over the macro picture? Does that seem the
Speaker 4: clearest in the last two years.
Speaker 5: I think two things. One is, obviously you still have
Speaker 5: the lingering inflationary impact. The good news is we have
Speaker 5: not yet really seen a picked up in inflation expectation.
Speaker 5: So this week the Fed I think they rightfully stay put.
Speaker 5: The question is do they expect inflation to stay or
Speaker 5: do they see this as only a blip or just
Speaker 5: a one off event. I think that's absolutely critical to
Speaker 5: observe this week. The second thing is really there could
Speaker 5: still be quite a lot of political changes. We have
Speaker 5: a local election in the UK this coming week. We
Speaker 5: could see more challenges for the Prime minister. And of
Speaker 5: course we've got the midterm elections coming up later in
Speaker 5: November in the US, and then again could change the
Speaker 5: calculus of the Trump administration. How they apply policies if
Speaker 5: they don't have the fulls upon the Congress anymore, how
Speaker 5: they execute their agenda, for example, do they rely still
Speaker 5: more on executive decisions or executive orders. We've seen tariffs
Speaker 5: now coming back into play with the section three oh one,
Speaker 5: section two three two, the investigations, So I think, you know,
Speaker 5: the politics I think will come back into play, but
Speaker 5: maybe more domestic rather than foreign policies.
Speaker 1: We were talking about all these IPOs that are happening
Speaker 1: in the US when it comes to frontier tech or AI,
Speaker 1: and then there's a lot of in the bond markets
Speaker 1: as well. I mean, some would say this is the
Speaker 1: sagle of a peak in this whole sort of trade.
Speaker 1: I mean, do you see it that way?
Speaker 5: Well, there's no doubt that in terms of momentum, in
Speaker 5: terms of tech enthusiasm, there's a very high level of
Speaker 5: which and some of it's being reflected in valuations. But
Speaker 5: at the same time, are we irrational state in general?
Speaker 5: Probably not. If you look for example, Max seven year
Speaker 5: to date, three MAX seven stocks is down year to date,
Speaker 5: four is up, and the best performing one is only
Speaker 5: about fifteen percent. So I think what you've seen is
Speaker 5: a rotation of tech stocks from AI model generators or
Speaker 5: AI model companies to this year more semiconductors. So I
Speaker 5: think investors are rotating. It does not necessarily mean there's
Speaker 5: a peak, but I do have a question of whether
Speaker 5: we can still see that strong level of return generation
Speaker 5: in the second half of the year. And that's why
Speaker 5: you know, in the midia of advocate less broaden our
Speaker 5: investment horizon a little bit more, both geographically and also
Speaker 5: by sectors not just relying on technology. I think that
Speaker 5: is still an attractive place, but some of the most
Speaker 5: cyclically sensitive sectors like financials, in industrials, maybe even consumer
Speaker 5: discretionaries could come back into fashion.
Speaker 4: How do you feel about Korea and Taiwan?
Speaker 5: Now, I think the fundamental are still really robust. If
Speaker 5: you look at, for example, cost b priced earning ratio
Speaker 5: is still single digit at this point. So the fact
Speaker 5: that we've seen massive performance in the markets has been
Speaker 5: matched by massive performance in earnings growth. Now, I don't
Speaker 5: think anyone realistically expecting fifty hundred percent earnings growth in
Speaker 5: twenty twenty seven, but the shortage in manufacturing, the pricing
Speaker 5: power of a particular of companies, those are still likely
Speaker 5: to be sustained. So you may not get one hundred
Speaker 5: percent earnings growth, but it's not going to collapse right
Speaker 5: away either, as long as companies are still investing in
Speaker 5: ai So I think, you know, again, I'm not expecting
Speaker 5: the same degree of performance in the second half, but
Speaker 5: I think the fundamental supports and what we've seen so
Speaker 5: far is still reasonably robust.
Speaker 1: For China, though you're saying that sector level catalysts are
Speaker 1: are emerging, what are those catalysts now and.
Speaker 4: What does that mean?
Speaker 5: So look, I think the challenge here is the index
Speaker 5: performance been quite disappointing, especially relative to the rest of
Speaker 5: the region. But if you think back to the index,
Speaker 5: it does not have a lot of the sexy stuff
Speaker 5: that's been driving the US and the rest of Northeast Asia.
Speaker 5: Semiconductors ar hyperscalors. So from that perspective, you know, those
Speaker 5: companies in China have actually done quite well both on
Speaker 5: shore in China and also in Hong Kong, but because
Speaker 5: they are only a very small part of the index,
Speaker 5: is not big enough to drive the index performance relative
Speaker 5: to Taiwan or South Korea. So I think that's where
Speaker 5: we need to focus more on. And that's the clearly
Speaker 5: China as the policy to become more independent on semiconductors,
Speaker 5: on models, on inference, and you will see more public
Speaker 5: resources and business demand going into these areas. So you know,
Speaker 5: rather than just thinking about where the CSI three hundred
Speaker 5: is going to be or hang San Tech index is
Speaker 5: going to be, you really have to focus on space
Speaker 5: et sectors such as AI as well as semiconductors.
Speaker 2: That's tiquay Apac, chief strategist at JP Morgan Asset Management,
Speaker 2: speaking with Bloomberg TV host David Inglase and Devon Mann,
Speaker 2: bringing you their conversation here on the Daybreak Asia Podcast.
Speaker 2: Thanks for listening to today's episode of the Bloomberg Daybreak
Speaker 2: Asia Edition podcast. Each weekday, we look at the story
Speaker 2: shaping markets, finance, and geopolitics in the Asia Pacific. You
Speaker 2: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,
Speaker 2: or anywhere else you listen. Join us again tomorrow for
Speaker 2: insight on the market moves from Hong Kong to Singapore
Speaker 2: and Australia. I'm Doug Prisner, and this is Bloomberg