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Speaker 1: Bloomberg Audio Studios, podcasts, radio news on.

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Speaker 2: Our radar this morning. Iran launching more missile attacks overnight,

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Speaker 2: targeting the UAE, Saudi arabi Q, Wait and Tel Aviv

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Speaker 2: Taran vowing revenge following the assassination of their security chief. Elsewhere,

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Speaker 2: the Pentagon planning to mass produce one Way Lucas attack drones.

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Speaker 2: The drones were created by reverse engineering Iran's cheap and

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Speaker 2: deadly Shahad system and are being used in the war

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Speaker 2: in the Middle East. And finally, Japanese Prime Minister Tanai

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Speaker 2: Takichi saying she's facing a quote extremely difficult somewhat with

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Speaker 2: President Trump tomorrow. These statement coming after Tokyo's refusal to

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Speaker 2: send warships to Homers, Takaichi citing Japan's pacifist constitution.

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Speaker 3: Yeah, and part of the issue that Takaichi is presenting

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Speaker 3: is the lack of capabilities that they have to really

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Speaker 3: support US troops. Is just something that NATO allies have

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Speaker 3: highlighted as well. She said, I'm trying to convey these

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Speaker 3: points clearly, and I'm sure the US side understands these

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Speaker 3: laws in terms of the pacifist laws given our history.

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Speaker 3: Either way, it highlights how difficult it is for international

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Speaker 3: leaders to come to the White House and have any

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Speaker 3: kind of discussion with President Trump given some of the

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Speaker 3: domestic pressure that they are all facing.

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Speaker 4: Two things I imagine the White House is going to

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Speaker 4: bring up after World War Two, and obviously Japan has

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Speaker 4: this pacifist regime in place. They did send mind sweepers

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Speaker 4: to the Middle East after Operation Dessert Storm and in

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Speaker 4: nineteen ninety one when the US wrapped up the Gulf War.

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Speaker 4: That's the first point I think the White House will say, well,

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Speaker 4: can't you just send a mind sweeper. The second point,

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Speaker 4: I imagine this president, because he's insinuated in the last

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Speaker 4: few days, is going to go through all the countries

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Speaker 4: that refuse to help the United States right now. How

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Speaker 4: many US men and women are stationed in those countries

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Speaker 4: right now as a force of deterrence. Japan has some

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Speaker 4: fifty five thousand and counting US service members, and I

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Speaker 4: imagine that's going to come up in the meeting.

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Speaker 2: And they are very exposed to what's happening in the

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Speaker 2: Middle East, given how exposed they are on the energy side.

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Speaker 2: Jeff carry of Karala writes in this the cost of

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Speaker 2: rebuilding and recovering from the homeless shock will be enormous

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Speaker 2: and underscores the regime change towards physical assets. Jeff joins

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Speaker 2: us now for more. Jeff, welcome to the program. It's

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Speaker 2: always good to catch up with you, sir. Fluid Environments.

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Speaker 2: So allow me to go through the headline of the

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Speaker 2: last five or ten minutes or so. One headline, one

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Speaker 2: report coming from Iran that their energy assets have been struck.

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Speaker 2: Now I have limited information beyond that, but Jeff, from

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Speaker 2: your standpoint, in the week since we last spoke, has

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Speaker 2: this got worse or better.

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Speaker 1: Worse? I'd like to call it molecular contagion. You know,

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Speaker 1: last week we were talking about shortages in Singapore. You know,

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Speaker 1: spices of jet fuel spike to two hundred and thirty

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Speaker 1: dollars a barrow. This week, you know it's in Rotterdam.

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Speaker 1: Rotterdam's two hundred and twenty dollars in barrow, Thailand, Philippines,

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Speaker 1: New Zealand, Australia. So this thing's going intercontinental. And then

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Speaker 1: you know, so you look at Singapore, Rotterdam, the spread,

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Speaker 1: there's no more price spread, there's no more spare beerels,

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Speaker 1: there's no policy fix and it's just physics. At this point,

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Speaker 1: I think I want to emphasize these are physical supply chains.

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Speaker 1: That idea of around financialization and the ability to print

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Speaker 1: money doesn't apply here. And I think the title of

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Speaker 1: that piece says it all. You can't print molecules, Jeff.

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Speaker 2: With that in mind, where and how do you think

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Speaker 2: we're underpriced mis risks still in financial markets.

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Speaker 1: That's the peculiar thing about this is that you look

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Speaker 1: at the paper markets, they've entirely disconnected from the physical markets.

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Speaker 1: Crude oil on an omand basis, you know, on the

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Speaker 1: other side of the strait, the side that's free spiked

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Speaker 1: to one hundred and seventy three dollars in barrel yesterday.

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Speaker 1: Crude delivered in Asia is a blend of Dubai in Oman,

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Speaker 1: which is trading somewhere around one thirty and one seventy today.

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Speaker 1: This morning they're one call it one twenty to one fifty.

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Speaker 1: So you're delivering crude into Asia at somewhere around one

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Speaker 1: hundred and thirty dollars a barrow product. Prices are spiraling

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Speaker 1: above two hundred dollars in barrow. So the disconnect is

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Speaker 1: between the paper market, which is sitting around one hundred

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Speaker 1: and the physical market, which is showing a very different environment, Jeff.

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Speaker 3: Some people have speculated that's because of certain types of

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Speaker 3: manipulation in the futures market, and that's the reason why

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Speaker 3: you have seen this gap blow out. Do you think

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Speaker 3: there's credence to that.

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Speaker 1: You know, you could argue that Monday last week, you know,

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Speaker 1: there was a mysterious eleven million barrel seller. I don't

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Speaker 1: want to get into that. It's not enough to really

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Speaker 1: change the dynamic. I think that the bigger factor that

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Speaker 1: was likely driving WTI and Brent and staying lower is

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Speaker 1: the price of urals Russian crude oil. It's rallied sixty

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Speaker 1: five seventy dollars a barrow once they took off the sanction.

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Speaker 1: So WTI and Brent were the high cost barrels. Russian

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Speaker 1: was the cheap. What happened you close that gap. And

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Speaker 1: now that you've closed that gap, you don't have any

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Speaker 1: more spare barrels in the system, and this is the

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Speaker 1: rest of the complex likely to start to write rally.

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Speaker 1: You know, I go back to the point that you

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Speaker 1: know John started with, is you know, we're dealing with

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Speaker 1: an enormous supply shock By the way, the supply shock

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Speaker 1: is almost equal to the demand shock during COVID, and

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Speaker 1: we know what that did to global supply chains. So

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Speaker 1: I think, you know, one hundred dollars a barrow. This

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Speaker 1: thing's mispriced, this coming against the physical market.

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Speaker 3: There is a sense though, that this time is a

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Speaker 3: bit different than say the nineteen seventies in terms of

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Speaker 3: the world's reliance on oil, especially China, how much they

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Speaker 3: diversified to electric vehicles, to nuclear energy and other places

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Speaker 3: as well. How much do you think that that is

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Speaker 3: going to be the growing trend diversify the sources of

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Speaker 3: energy in myriad ways beyond what we were doing even

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Speaker 3: during the so called green revolution. As people try to

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Speaker 3: avoid these types of shocks.

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Speaker 1: Well, I absolutely argue that the renewables nuclear power born

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Speaker 1: out of the nineteen seventy three energy crisis, and this

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Speaker 1: is going to unleash enormous amount of investment into renewables,

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Speaker 1: nuclear power, and other localized energy sources. The problem, though,

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Speaker 1: is we call this the new jewel order. The problem

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Speaker 1: is that we haven't got to that transition where we

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Speaker 1: have electrified everything localized it in the type of oil

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Speaker 1: consumption that's left in the global economic me is critical,

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Speaker 1: and so if you pull those barrels out of the system,

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Speaker 1: the rippling effect or the cascading effect through global supply

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Speaker 1: change is going to be significant. You go from gas

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Speaker 1: to urea, urea to fertilizers, fertilizers to the dinner table,

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Speaker 1: or you go from LPGs a synthetic fibers synthetic fibers

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Speaker 1: a cotton. You switch out of soybeans and corn into cotton.

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Speaker 1: By the way, I think the best sector to try

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Speaker 1: to get value in right now would be agriculture because

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Speaker 1: it hasn't priced it in Jeff.

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Speaker 4: When it comes to barrels coming off the market, this

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Speaker 4: came from an industry consultant. In terms of China, they're

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Speaker 4: looking at potentially a draw down in commercial operational stockpiles

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Speaker 4: and mounting to as much as one million barrels a

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Speaker 4: day that can happen over the next four to six weeks.

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Speaker 4: What would that mean for the price of crude?

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Speaker 1: I think the key point is once you exhaust those inventories,

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Speaker 1: there's nothing left. Think about it this way. You have

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Speaker 1: demand up here, supply down here. Once those inventories are exhausted, boom.

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Speaker 1: You have to bring dem down in line with supply,

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Speaker 1: and to do that, you're going to need prices far

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Speaker 1: higher than where we are right now. I like to

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Speaker 1: do the mirror image of COVID. Let's go back to COVID.

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Speaker 1: It was the exact opposite. You had a situation which

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Speaker 1: you had demand up here and excuse the other way.

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Speaker 1: You had supply up here and demand down here. And

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Speaker 1: so what happened the demand collapse. Eventually you filled all

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Speaker 1: the inventory capacity in the world and you had to

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Speaker 1: bring supply down and demand immediately. What did that require

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Speaker 1: a minus thirty seven dollars a barrel price to create

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Speaker 1: that rebalancing a supply and demand. Now we have the

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Speaker 1: exact opposite environment. So just imagine what it's going to

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Speaker 1: do to require that reduction in demand to bring it

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Speaker 1: in line with supply. If it took a minus thirty

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Speaker 1: seven dollars price to create that rebalancing back in twenty twenty.

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Speaker 2: So, Jeff, I'm going to ask you a question, what

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Speaker 2: would it take? What's the opposite?

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Speaker 1: I mean going to stick to the same answer I

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Speaker 1: gave you last week. You get long, buckle your seat belt,

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Speaker 1: and hang on for the ride. We'll know when we

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Speaker 1: start to get to that point where the system starts

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Speaker 1: to rebalancing. But I want to emphasize don't underestimate the

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Speaker 1: type of volatility. If you take European gas in twenty

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Speaker 1: twenty two, we saw Russia cut it and by the way,

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Speaker 1: the market ignored it in June of twenty twenty two.

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Speaker 1: By August. In September you were at three four hundred

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Speaker 1: dollars a barrel. Do you know where prices were in

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Speaker 1: December of that year, after you've destroyed so much to end,

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Speaker 1: they went negative. So I'm not going to say oil

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Speaker 1: is going negative, but what I'm trying to tell you

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Speaker 1: is it's going to be a really bumpy ride. You've

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Speaker 1: seen no evidence of demand destruction that rebalance this market yet,

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Speaker 1: so we haven't even really started the rebalancing process yet.

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Speaker 1: So the upside here, I would argue, is substantial. Again,

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Speaker 1: we want to be long, and I look at the market,

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Speaker 1: it's shorting energy stocks and getting long everything else that

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Speaker 1: is short energy. I think you're picking up pennies in

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Speaker 1: front of the steamroller.

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Speaker 4: Right now, Jeff, we buckled up. That's why how we

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Speaker 4: have you on again this week. Can you give us

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Speaker 4: a range of how high though prices could go. I

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Speaker 4: know you don't want to give us an exact definition

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Speaker 4: of where you think Brent oil is going to tip,

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Speaker 4: but give us a range of When you say get long,

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Speaker 4: I mean how long are we talking?

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Speaker 1: Wait, but look at Oman's already traded at one hundred

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Speaker 1: and seventy three dollars a barrel jet fuel and Rotterdam

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Speaker 1: is two hundred and twenty dollars a barrel. In Singapore

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Speaker 1: it was two hundred and thirty dollars a barrel. And

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Speaker 1: we haven't started the rebalancing process. All we have seen

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Speaker 1: is what happened places like Thailand and China hit export

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Speaker 1: bands that then creates ripple on effects and shortages. Then

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Speaker 1: you have the hoarding that began to take place. You're

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Speaker 1: eight dollars a gallon gasoline in Los Angeles right now,

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Speaker 1: so you know the upside here. Again, I don't want

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Speaker 1: to speculate on how high, but you've already witnessed something

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Speaker 1: like one hundred and seventy three in the physical market.

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Speaker 1: So that's my point here. There is a massive disconnect

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Speaker 1: between the physical world in the paper world, and the

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Speaker 1: paper world includes the financial world. You know, I like

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Speaker 1: to point out it was in January of twenty twenty

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Speaker 1: when COVID hit. I remember I was looking at at

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Speaker 1: the what was going on in China. It was the

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Speaker 1: second largest economy in the world, just shut down, stock

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Speaker 1: market rallies, Oil is hanging in there, not selling off,

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Speaker 1: and I'm going, guys, we got to get short this thing.

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Speaker 1: You can't hit the global economy with a shock of

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Speaker 1: that magnitude and not expect bad things to happen. And

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Speaker 1: we have the exact mirror image of the same, similar

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Speaker 1: size shock hitting the world right now, and the market

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Speaker 1: on the paper and financial side is not keen off

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Speaker 1: the signals that it's providing at this point in time.

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Speaker 2: So, Jeff, at some point it gets real for the market,

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Speaker 2: and with COVID it was when the northern Italian city

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Speaker 2: started to shut down. There was a sense that this

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Speaker 2: was getting real. It was spreading beyond China. I was

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Speaker 2: hitting Europe and could hit the US as well. What

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Speaker 2: makes this get real? What closes the gap between physical

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Speaker 2: and paper markets.

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Speaker 1: I think it has to be visual images of real

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Speaker 1: shortages in the United States and in Europe. Now, the

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Speaker 1: US will be hard, particularly if they do export controls

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Speaker 1: on that. Europe will likely be the first one they get.

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Speaker 1: And I think the implication here is the US believes

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Speaker 1: it's safe because of energy dominance. And this is the

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Speaker 1: point I made it last week from an equity mark perspective,

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Speaker 1: that equity market in the United States is a global market.

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Speaker 1: All of those mag seven companies earn their earnings in Europe,

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Speaker 1: in Asian, all over the world. So when this energy

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Speaker 1: crisis begins to hit places like Europe, it's going to

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Speaker 1: impact the earnings of those companies that sit inside the US.

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Speaker 1: Because the US equity market is not a US domestic market,

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Speaker 1: it's global, so it will feel the impact. And I

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Speaker 1: think that if the Americans are going to feel it

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Speaker 1: first on the wealth impact before they'll ever feel it

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Speaker 1: in the at the income cash flow level. The Europeans, unfortunately,

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Speaker 1: they're likely to feel it at both sides relatively soon.

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Speaker 2: Jeff is going to say you thanks for making sign

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Speaker 2: for us again. We'll catch up soon. Noe down. Jeff

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Speaker 2: carry there of karalas. A few headlines there, of course,

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Speaker 2: one you cannot print barrels and two even at one hundred,

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Speaker 2: this is not price in the shock that he sees

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Speaker 2: plan out.

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Speaker 3: Yeah, he sees it in the physical market, and he

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Speaker 3: says that it's only going to get worse until you

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Speaker 3: get lines lining up to get energy. That's going to

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Speaker 3: be a problem. He also said something about agriculture, and

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Speaker 3: I think that this we cannot overlook this idea that

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Speaker 3: forty to fifty percent of the world's urea, which is

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Speaker 3: a key ingredient and fertilizer, is being withdrawn from the

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Speaker 3: market right at the same time that you would have

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Speaker 3: a planting season. Is a reason why I think a

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Speaker 3: lot of people are watching with concern the world's food supplies.

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Speaker 4: Jeff Curry is a breath of fresh air for the

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Speaker 4: people who continuously message me, and that is why I

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Speaker 4: bring up Oman and to buy grades because they are

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Speaker 4: fifty sixty seventy dollars north of where the financial markets

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Speaker 4: is pricing in Brench crude. That is this massive gap.

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Speaker 4: Second point he mentioned unless the US does export controls,

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Speaker 4: that is something and I don't know what level it

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Speaker 4: is on the ES. I don't know what level it

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Speaker 4: is right now on the menu for this White House,

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Speaker 4: but it's certainly on the menu