Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordernt. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
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Speaker 2: we're Stark's looking to add to record highs following Dow's
Speaker 2: blogbuster earnings report. Max Kettener of HSBC writing the close
Speaker 2: to one hundred percent EPs beat rate, coupled with strong
Speaker 2: forward guidance of the US tech sector in Q one,
Speaker 2: is cushioning the overall equity market.
Speaker 3: Max.
Speaker 2: Join just now for more. Max. We've talked about it repeatedly,
Speaker 2: Max Kenner, Max overweight and Max, we got into your
Speaker 2: danger zone at one point in this bond. Ok, this
Speaker 2: market didn't blink. What gives?
Speaker 4: Yeah? Look, thanks for having me, John. I think the
Speaker 4: danger zone for now at least we can ignore it.
Speaker 4: We can ignore these higher yields because there's a couple
Speaker 4: of things I think happening over the last two three months.
Speaker 4: We've obviously seen yields start to go up in treasuries
Speaker 4: in conjunction with that much much better earning season. You
Speaker 4: guys were just bringing up that tech head and almost
Speaker 4: one hundred percent beat rates are almost all of the
Speaker 4: companies in tach surprising to the upside. I would look
Speaker 4: also at the worst beat rate. If you look at
Speaker 4: Telcoast Telco's had an earning speed rate that was just
Speaker 4: the average beatrate of the S and P and the
Speaker 4: twenty tenths that at the moment is the worst beat
Speaker 4: rate across the sectors. That's how strong and how broad
Speaker 4: based of a reporting season and of upside surprises we had.
Speaker 4: And that of course was cushioning really the equity market
Speaker 4: and rescatsets overall, and that made us maybe little care
Speaker 4: a little less about higher yields. The other thing that
Speaker 4: I would say is if you look at yield increases
Speaker 4: in the last few years, where we went into that
Speaker 4: day zone where yields really were popping a little bit
Speaker 4: too quickly, where the velocity was much more vicious that
Speaker 4: actually was seeing volatility in rates way way higher. When
Speaker 4: you look at the move index, we've only spiked to
Speaker 4: around eighty. In the last couple of episodes. We spiked
Speaker 4: around one hundred thirty, one hundred and forty, even one
Speaker 4: hundred eighty. Now the high was only a about eighty
Speaker 4: and the move index So that lower equity volt also
Speaker 4: really led to a little bit of less of multiple compressions.
Speaker 4: So to me, that is perfectly rational what the equity
Speaker 4: market spreads and the broader risk acid complex have done
Speaker 4: in the last two week.
Speaker 2: Mass. Could you take it an additional step further? Do
Speaker 2: you think the forces driving equities right now are less
Speaker 2: right sensitive and will be even if this Feller reserve
Speaker 2: becomes more hawkish.
Speaker 4: Now I would take it one step further from your
Speaker 4: one step further. I think it's also the economy. Right
Speaker 4: Let's be honest. Let's say, for example, five years ago,
Speaker 4: I would have come on the show and would say, look,
Speaker 4: I think rates are going to go from zero to
Speaker 4: five and a half in record speed. And as a
Speaker 4: result of that, I think that nonfinancial corporate in the US,
Speaker 4: the net interest payments of those non financial corporates are
Speaker 4: now going to dive to a twenty year low. I
Speaker 4: don't think you guys would have invited me back, right,
Speaker 4: I think you guys would have been like, well, he's
Speaker 4: a funny German. But maybe he's going to have to
Speaker 4: go back to university and study econ one or one
Speaker 4: a little bit, and maybe we'll invite him back in
Speaker 4: a few years again. But that's what's happened. So I
Speaker 4: think we've, even in the economy overall, underestimated how less
Speaker 4: rate sensitive we are now, how companies have termed out maturities.
Speaker 4: Look at the SMP. Almost two thirds of debt in
Speaker 4: the SMP now it expires after twenty thirty. Look at
Speaker 4: high yields. The maturity wall that we've got in high
Speaker 4: yield is less than three percent of the index this year.
Speaker 4: In the US in particular, when you look at the
Speaker 4: amount of triple cs and you're a high yield, that's
Speaker 4: about six percent of triple c's. That used to be
Speaker 4: like ten to eleven percent. In you as high yields
Speaker 4: just ten years ago. That used to be eighteen percent.
Speaker 4: Now it's only about nine percent triple cs. So even
Speaker 4: if yields go up you know, credit is better quality nowadays.
Speaker 4: We don't have the maturity walls as much as we
Speaker 4: had in the past. We have companies, even higher rated
Speaker 4: companies termed out maturity is locked in low coupons. You know,
Speaker 4: rates really aren't this big, big danger anymore, Max.
Speaker 5: Can companies continue to make earnings like what they've been
Speaker 5: doing without some sort of participation with the forum of
Speaker 5: wage gains or a much tighter labor market?
Speaker 4: Yeah, I think so because most I mean, obviously, most
Speaker 4: of the earnings increase that we've seen now has been very,
Speaker 4: very concentrated, and that I think is maybe going forward
Speaker 4: from a strategic from a structural perspective, a bit of
Speaker 4: an issue, a bit of a problem, right that when
Speaker 4: you look at the S and P five hundred, it's
Speaker 4: not really like we're investing in five hundred companies. We're
Speaker 4: really investing in sort of thirty forty companies. The first
Speaker 4: thirty companies is almost two thirds of market cap. So, Lisa,
Speaker 4: when you're asking, can all of the five hundred companies
Speaker 4: weather this, I'm not sure. Right. When you look, for example,
Speaker 4: at the lower one hundred companies within the S and
Speaker 4: P five hundre, I think we are starting to see
Speaker 4: management guidance, corporate guidance deterior rate a little bit. That's
Speaker 4: clearly what we've seen in our own analysis on company
Speaker 4: earnings call analysis. Absolutely. The problem there is it affects
Speaker 4: more the companies that have a very very low rating
Speaker 4: in the S and P five hundred. Let's give you
Speaker 4: one example. If you look at the lower one hundred
Speaker 4: or the last one hundred companies in the S and
Speaker 4: P five hundred or the last twenty percent, they account
Speaker 4: for a little more than one percent of market cap.
Speaker 4: So it's not all companies. Surely the smaller ones. They
Speaker 4: will probably struggle a little bit if let's say the
Speaker 4: tenure goes to five percent and stays there, But for
Speaker 4: the overall market direction, that just doesn't matter.
Speaker 5: If that's a case, max, what would it take for
Speaker 5: you to actually turn less positive less overweight.
Speaker 4: I like that you said, no, not bearish, because that
Speaker 4: will that will be a big hurdle to turn me
Speaker 4: verish myself. Your ahead, very exactly. No, I think the big,
Speaker 4: big issue is position. So positioning overall still is pretty subdued.
Speaker 4: You know, on our analysis, we don't really get a
Speaker 4: proper bias signal nor a proper cell signal positioning. Even
Speaker 4: from systematic strategies, it's not even at the fiftieth percentile. Yet,
Speaker 4: when you look at equity market participation, for example, it's
Speaker 4: not very broad. Right, we know that it's mostly been
Speaker 4: tech and AI. Contrast, last year liberation date the V
Speaker 4: shaped recovery, the amount of companies in the SMP that
Speaker 4: are above the fifty day moving average. They pop from
Speaker 4: five percent to eighty five, almost ninety percent. Now we've
Speaker 4: gone from twenty percent above the fifty day moving average
Speaker 4: to only fifty, so half of the index isn't really participating.
Speaker 4: I think if we were to get some more supportive
Speaker 4: news out of the Middle East and then we get
Speaker 4: another pop, we get really sort of the rate sensitive
Speaker 4: cyclical stuff participating, which I think is the next big trade.
Speaker 4: Your regional banks, retail, you know, things like home builders.
Speaker 4: If that starts to participate, I think there is a
Speaker 4: reason of bass to say that's probably the very last leg.
Speaker 4: Then then participation rises, positioning rises, and after that I
Speaker 4: think it's time to take a couple of chips off
Speaker 4: the table. Max.
Speaker 1: There is one line that stuck out to me in
Speaker 1: your note, and it was that you doubt investors will
Speaker 1: fully embrace progress in the US around talks, and said
Speaker 1: point to lack of detail to to keep positioning low.
Speaker 1: Are you basically saying until we get a proper deal,
Speaker 1: which max could take months, we're not going to see
Speaker 1: this rally broaden out.
Speaker 4: No, that's not what I'm saying. I think progressively or
Speaker 4: incrementally better news that actually means that incrementally, I think
Speaker 4: people will give up on Oh yeah, I'm just long
Speaker 4: tech in AI and I actually cannot embrace that broad
Speaker 4: based earnings recovery that we've seen in the first quarter.
Speaker 4: I need to stick to that narrow set of stocks
Speaker 4: that have been working. Actually, I think over the next
Speaker 4: couple of weeks and months we will start to realize
Speaker 4: hold on, look at the last month and a half,
Speaker 4: for example, we've had activity data surprises in the US
Speaker 4: clearly have been going going up, so clearly improved. I
Speaker 4: think for now people are probably reluctant to put those
Speaker 4: kinds of trades on because we had that rate sell
Speaker 4: of right, we still have Hall Moves closed, so there
Speaker 4: are some sorts of warries in the background. But I
Speaker 4: think with time we'll start to realize that particularly sicklicality
Speaker 4: in the US is much much more insulated from what's
Speaker 4: happening in the Middle East than perhaps we thought three
Speaker 4: months ago.
Speaker 2: Stay with us more Bloomberg Surveillance coming up after this.
Speaker 2: You mentioned Dallat's talk about doubt soaring and pre market training.
Speaker 2: After raising its full yet guidance, the CEO David Kennedy,
Speaker 2: the CFO, telling Bloomberg the confidence and demand for its
Speaker 2: service continues to grow.
Speaker 6: It's a tremendous start to the quarter obviously in the
Speaker 6: year ahead, built on real, durable and accelerating globally the
Speaker 6: amount of infrastructure that's needed out there, so really more
Speaker 6: broad based, you know, AI demand if you like, beyond
Speaker 6: the GPU in terms of the opportunities ahead.
Speaker 2: Angelo Zeno of c FI A writing, we continue to
Speaker 2: have a positive fundamental outlook on semiconductors and hardware, driven
Speaker 2: by the AI infrastructure build out and massive earnings power.
Speaker 2: Angelo joined us now for more, Angelo, I just hear
Speaker 2: the same thing repeatedly, earnings, earnings, earnings is through a
Speaker 2: risk of normalizing the irrational, so to speak, given the
Speaker 2: moonshots we're seeing development across single names at the moment.
Speaker 3: Yeah, so, John and thanks for having me.
Speaker 7: So when we think about, I guess, you know, the
Speaker 7: earnings power in this market, I think it's you know,
Speaker 7: we're clearly seeing some sort of a reset higher right
Speaker 7: in terms of just the magnitude of the capex increases
Speaker 7: we're seeing from these hyperscalers. And I think right now
Speaker 7: the street's really trying to sliff out where the greatest
Speaker 7: earnings power is coming from. And I think we've got
Speaker 7: a pretty good sense here just going through Q one
Speaker 7: earning season of where that earning's power is coming from.
Speaker 7: And obviously you've seen, you know, the respect of move
Speaker 7: in those stock prices given the fact that you're seeing
Speaker 7: pricing increasing from increases from those companies, and that's also
Speaker 7: translating to that higher earnings power. I would say, you know,
Speaker 7: as you kind of look ahead, we think there is
Speaker 7: some sustainability, or we do think there is sustainability in
Speaker 7: terms of the reset higher from these hyper scalers, And
Speaker 7: as a result, you've got that sustainability. Once you kind
Speaker 7: of get this leg up in the earnings power maybe
Speaker 7: to your point in terms of the normalization or earnings
Speaker 7: growth normalization, that's going to start playing itself out probably
Speaker 7: as you go into twenty twenty seven, in twenty twenty eight,
Speaker 7: because you're not going to be able to have these
Speaker 7: hyperscalers continue to increase capex on one hundred percent basis year
Speaker 7: of a year, but you'll probably be able to continue
Speaker 7: at least in twenty seven and into twenty eight see
Speaker 7: increases of let's call it twenty five to thirty percent,
Speaker 7: as long as you get that cash flow from operations
Speaker 7: continue to grow, which at this point in time continues
Speaker 7: to be our base case.
Speaker 5: The issue for a lot of people is that companies
Speaker 5: won't continue to pay these massive billion dollar costs for
Speaker 5: the AI tools that they're getting unless they can prove
Speaker 5: some productivity. And we're getting to that point increasingly where
Speaker 5: executives are pushing back and saying, please stop just experimenting
Speaker 5: with it, start actually using it to prove why it's
Speaker 5: worth its money. At what point do you have to
Speaker 5: see the real economy catch up a bit to some
Speaker 5: of these big tech behemoths in order to keep the
Speaker 5: street going.
Speaker 7: Yeah, I mean, listen, I think we've actually we're starting
Speaker 7: to see some of the AI monetization themes play itself out,
Speaker 7: which is really what's getting the market excited at this
Speaker 7: point in time, right, I think you look at an
Speaker 7: Anthropic and you know, potentially looking at a fifty billion
Speaker 7: dollar run rate by you know, in June on an
Speaker 7: ARR perspective, and continuing to go up. Really at this
Speaker 7: point in time, only limited by their compute. But we're
Speaker 7: seeing the use cases we're seeing greater.
Speaker 3: We're seeing a.
Speaker 7: Lot of these pilot use cases go into AI production mode.
Speaker 7: I mean you just sort of salesforce report this week
Speaker 7: and you kind of see the usage rates really go
Speaker 7: up significantly just on a quarter of a quarter basis.
Speaker 7: We think that continues into the second half of this year.
Speaker 7: So enterprises are adopting this stuff. You're seeing those use
Speaker 7: cases go up. And as a result, as long as
Speaker 7: you know, we continue to see what we're seeing from
Speaker 7: a company like Anthropic and only you know, continue to
Speaker 7: be limited by the compute availability, I think you know
Speaker 7: this AI infrastructure built them continues to work.
Speaker 5: Here is Anthropic gatting open ayes lunch.
Speaker 7: It looks like it, right, I mean you kind of
Speaker 7: look at the headlines at this point in time, you know,
Speaker 7: clearly it seems like Anthropic was right to focus almost
Speaker 7: exclusively on the enterprise side, and you kind of look
Speaker 7: at just the tools that they've come out with at
Speaker 7: this point in time, the focus more on security, I'd say.
Speaker 7: I'd say, you kind of look at where the enterprise
Speaker 7: space is really gravitating to and it looks like, Yeah,
Speaker 7: I mean, Anthropic is definitely winning here over the last
Speaker 7: kind of two to three quarters. And again, I mean
Speaker 7: it's still early days and I won't necessarily col open
Speaker 7: AI out, but at least at this point in time, yeah,
Speaker 7: I think I think anthrop has been the clear winner
Speaker 7: here over the last couple of quarters.
Speaker 2: Stay with us. More Bloomberg surveillance coming up after this.
Speaker 2: Let's talk about the reason for this conversation. Its central
Speaker 2: banks right now, at least one of them, crude on track,
Speaker 2: at least for now, for its steepest monthly decline since
Speaker 2: twenty twenty. Optimism building for a resumption of traffic through
Speaker 2: the straight upfor mers as energy producers are highlighting the
Speaker 2: risk of an extended closure. Chefron's been warning quote, we
Speaker 2: will start to see physical shortages. The CEO, mikel Worth,
Speaker 2: I'm very pleased to say, joints still the studio. Mike's
Speaker 2: going to see you good to see you. Welcome back
Speaker 2: to the program. Sir. I get this question a lot.
Speaker 2: You're the expert. Help me answer it. Why is crude
Speaker 2: at one hundred at ninety and not close to the
Speaker 2: two hundred given this straight's been shut for three months?
Speaker 3: You know, it's a little hard to explain.
Speaker 8: We really are seeing markets Titan inventories draw demand for
Speaker 8: products around the world still very strong.
Speaker 3: I think there's this belief and.
Speaker 8: You know, we're experiencing it again the last few days
Speaker 8: that the end is near, the conflict is nearly resolved,
Speaker 8: and flow through the strait will resume very quickly, and
Speaker 8: that has kept the back end of the curve lower
Speaker 8: than it might otherwise have been. And I think the
Speaker 8: psychology the market has been this is closer to the
Speaker 8: ends rather than the beginning.
Speaker 1: But what about the physical world? When will inventories be
Speaker 1: at the very bottom?
Speaker 3: Before long?
Speaker 8: We are steadily drawing inventories down on products on crude
Speaker 8: in locations around the world. I think June and July
Speaker 8: are going to be critical months, and you can see
Speaker 8: the trajectory of these inventories in the data. And it's
Speaker 8: concerning do.
Speaker 1: You see any physical shortages right now around the world.
Speaker 8: We do see some in some Asian markets, and we've
Speaker 8: seen some rationing. We've seen work weeks adjusted other demand
Speaker 8: measures imposed in some of the countries in Asia. Markets
Speaker 8: are very efficient at moving products and barrels to where
Speaker 8: they're needed, and we haven't reached a crisis point yet,
Speaker 8: but the inertia in the system is very very strong,
Speaker 8: and turning that is not easy.
Speaker 1: One of the main sticking points the US has when
Speaker 1: it comes to negotiating with Ron is this idea of
Speaker 1: the tolling. Would Chevyn consider paying a toll?
Speaker 3: No, we wouldn't. Do you know how people are paying
Speaker 3: a toll.
Speaker 8: I've heard reports of people using cryptocurrency in various countries.
Speaker 3: I think the Treasury has come out this.
Speaker 8: Week and sanctioned the new authority that has been put
Speaker 8: in place to oversee transit through the Strait. It went
Speaker 8: from a toll to a navigation fee to something a
Speaker 8: navigation fee. I don't know enough about any of these
Speaker 8: things to say definitively, but look, freedom of navigation through
Speaker 8: international waterways is a very well established principle, and anything
Speaker 8: like this would begin to say that countries adjacent to
Speaker 8: an international waterway can charge some sort of a transit fee.
Speaker 8: There are many other places in the world where that
Speaker 8: principle could be applied, and not just to energy products,
Speaker 8: but to all freight moving through the Straits of Malacca,
Speaker 8: the Bosphorus. Pick your choke point, and so that's not
Speaker 8: a principle I think that most countries in the world
Speaker 8: would find acceptable.
Speaker 5: How far are we away from having pipelines that connects
Speaker 5: some of these countries to the mainland and their production
Speaker 5: without having to traverse the straight at all.
Speaker 8: Well, there's a couple that exists now that you've talked
Speaker 8: about in Saudi and the UAE. The UA sanctioned a
Speaker 8: project last year which is about fifty percent complete to
Speaker 8: get more of their production over to Fuji and outside
Speaker 8: of the Strait. So I think you will see more
Speaker 8: of that, Lisa. The one opportunity there is countries like
Speaker 8: Iraq and Kuwait that are deeper up in the Gulf
Speaker 8: don't have access to those pipelines, and for them the
Speaker 8: road could be through the North and ultimately then into
Speaker 8: the Mediterranean, maybe through Turkey, where we see a pipeline
Speaker 8: comes out of the Caspian Sea over into the Mediterranean
Speaker 8: in Turkey. And so I do think one of the
Speaker 8: responses to this will be infrastructure investments that will allow
Speaker 8: these energy flows.
Speaker 3: To avoid the strain and horror moves.
Speaker 8: And that's underway now and I think you'll see that
Speaker 8: in the years that follow.
Speaker 5: We started the conversation talking about why oil prices aren't higher,
Speaker 5: and you're saying that we're getting close to breaking the
Speaker 5: bottoms of some of the inventory bins. And we were
Speaker 5: speaking just a moment ago with Alex Saltman at Barclays
Speaker 5: who said we actually could see a glut of oil
Speaker 5: in six to twelve months time. If there is a
Speaker 5: resolution here based on the production levels of so many
Speaker 5: different oil companies and countries.
Speaker 2: What's your take on that.
Speaker 5: Do you think that that's a feasible interpretation.
Speaker 8: Well, history says that shortages tend to be followed by gluts,
Speaker 8: and high prices send a signal and markets work. Consumers
Speaker 8: consume less, producers produce more in response to a price signal,
Speaker 8: and there's a time lag in the way both of
Speaker 8: those manifest themselves in the market. And what has happened
Speaker 8: historically is about the time that the new supplies reach
Speaker 8: the market, demand may have turned down through conservation measures,
Speaker 8: economic slowdown, maybe a recession, and you can see those
Speaker 8: lines crossover and the price cycles down. It's why commodity
Speaker 8: markets are cyclical, is they tend to overshoot. And history
Speaker 8: says when we get into one of these situations that
Speaker 8: is somewhere out in the future.
Speaker 2: What signal do you take from the futures curve. I'd
Speaker 2: love your reaction to that, because so many people have
Speaker 2: pointed to the back end of the futures curve as
Speaker 2: a prediction of markets, of where they think crewed will be.
Speaker 2: How does an energy boss like yourself look at a
Speaker 2: futures curve?
Speaker 8: Not very frequently. It's not something we use for planning purposes.
Speaker 8: We do a certain amount of hedging in our business
Speaker 8: on commercial activity where you will use futures, but we
Speaker 8: don't look at future's curve as a prediction of future price.
Speaker 8: We do our own fundamental analysis on demand, supply, technology, policy,
Speaker 8: economic growth and arrive at our own scenarios, and we
Speaker 8: don't use a point forecast or a curve. We use
Speaker 8: a range of scenarios. Prices are hard to predict in
Speaker 8: these markets, and so we don't anchor on a single price.
Speaker 3: We use a range of prices.
Speaker 5: What's fascinating is you were talking about how typically commodity
Speaker 5: markets tend to overshoot and then you get the glut
Speaker 5: just as demand falls off. Are we overshooting because what
Speaker 5: I keep hearing is that we're not overshooting. Actually, oil
Speaker 5: prices and the future's curve is remarkably low, and that
Speaker 5: people keep consuming. And frankly, people like yourself are not
Speaker 5: investing in more production right now. You're not increasing production
Speaker 5: traumatically to offset some of what's going on. So is
Speaker 5: this time different in terms of the commodity cycle?
Speaker 8: Well, first of all, we are increasing production. Our production
Speaker 8: growth seven to ten percent this year, which is a
Speaker 8: lot in a world where demand is growing one percent
Speaker 8: on average, and so there is investment in growth. Is
Speaker 8: this time different? You know, people say that every time
Speaker 8: and often find themselves regretting having said that this time
Speaker 8: is this is the circumstances. Here are things we haven't
Speaker 8: seen before. The twenty percent of the world's energy production
Speaker 8: cut off for now nearly one hundred days. A billion
Speaker 8: barrels that is not in the market that otherwise would
Speaker 8: have been in the market is not something that we've
Speaker 8: seen before.
Speaker 3: So that part of it is different.
Speaker 8: How commodity markets respond have a pattern that has been
Speaker 8: proven through different types of shocks to the system that
Speaker 8: is remarkably repeatable. Maybe not perfectly predictable, but it is
Speaker 8: something that you have to bear in mind when you're
Speaker 8: in this business, as you allocate capital and as you
Speaker 8: plan for your business. Is you know these patterns exist
Speaker 8: for a reason when.
Speaker 3: You allocate capital.
Speaker 1: I want to ask you about Venezuela. When will you
Speaker 1: put fresh dollars into the country.
Speaker 8: Yeah, we're currently operating under a system that's been approved
Speaker 8: by the US treasure and the Venezuelan.
Speaker 3: Government to recover debt that we're owed.
Speaker 8: We made some loans to their state owned company many
Speaker 8: years ago and they weren't repaid, and so we set
Speaker 8: up a mechanism to ensure repayment. Oil flows to the US,
Speaker 8: which is important for US refiners. We're working our way
Speaker 8: through that and we'll recover the debt over the next
Speaker 8: year or so, the final portion of it, and then
Speaker 8: we need a new set of fiscal terms under which
Speaker 8: we would invest in the country. Right now, the amount
Speaker 8: of tax and royalty that's paid doesn't leave enough for
Speaker 8: an investor to get a return on their investments.
Speaker 3: The country has changed.
Speaker 8: It's a hydrocarbon law has indicated a new range of
Speaker 8: taxes and royalties that would be applied to the energy sector,
Speaker 8: but they've not been specific about wearing the range those
Speaker 8: would land. So there are negotiations underway, discussions. Even this week,
Speaker 8: we had a team in Venezuela that had some discussions
Speaker 8: on this issue. I expect over the next short period
Speaker 8: of time we may see some clarity from them on
Speaker 8: specific values on corporate income tax, on a range of
Speaker 8: things on royalties and how that might be applied. So
Speaker 8: there's progress being made to clarify the things that would
Speaker 8: be needed in order to make those investments.
Speaker 3: But we don't have enough clarity right now.
Speaker 8: We don't understand what the regime would look like, and
Speaker 8: so it's unlikely we would put capital to work until
Speaker 8: those things are clarified.
Speaker 2: Inquiring minds want to know. I'm getting the feedback right now.
Speaker 2: So December is trying to get eighty four. What is
Speaker 2: the micworth chef from price this year? What's the range
Speaker 2: in your scenario?
Speaker 8: Planet, Well, the range on the low end would probably
Speaker 8: get to that number, and on the high end, if
Speaker 8: we were to see an extended constraint on transit out
Speaker 8: of the straight to horn moves. The question is how
Speaker 8: high is high. You get to very high.
Speaker 2: Numbers, so your low is actually where December is priced
Speaker 2: right now.
Speaker 8: And some assumptions, right we don't tip into a recession,
Speaker 8: we don't have some other exogenous event. But yeah, it's
Speaker 8: going to take months john two to clear ships out
Speaker 8: of the strait, to make sure that the mines have
Speaker 8: been cleared, to establish to get two thousand ships out,
Speaker 8: they don't all go out at once. You need weeks
Speaker 8: and weeks. Somebody's got to prioritize to bulk freighters go
Speaker 8: out first, to container ships go out first, to US,
Speaker 8: allied ships go out first or last arranged two ships
Speaker 8: decisions unclear at this point.
Speaker 1: Wouldn't it be the fifth fleet.
Speaker 8: It's unclear at this point. So there needs to be
Speaker 8: as system to prioritized traffic. Shipowners have to be convinced
Speaker 8: that it's safe to transit through the strait. There need
Speaker 8: to be some sort of security measures. And then that's
Speaker 8: just to get ships out. You have to get ships
Speaker 8: in as well, and the tanks inside the gulf are full.
Speaker 8: That's why production is being slowed or stopped is because
Speaker 8: there's no place to put it. The ships are full,
Speaker 8: of the tanks are full, so you need new ships
Speaker 8: to come back in. Shipowners have to be comfortable sending
Speaker 8: ships back in after having ships trapped for months and
Speaker 8: crews trapped for months.
Speaker 3: They may or may not be willing.
Speaker 8: To move all of their vessels back in. There's other
Speaker 8: routes now that are trading us to Asia is a
Speaker 8: very heavily traded route. There's a lot of ships in
Speaker 8: that service, so it will take months and then you
Speaker 8: start to clear out the inventories that are in tanks,
Speaker 8: which allows fields to restart, damage to be repaired. This
Speaker 8: doesn't happen overnight, so this is going to be with
Speaker 8: us for some time.
Speaker 2: I got to wilsh you do you just sit here
Speaker 2: and say you first, how do you think about it?
Speaker 3: Well, we'd like to get our ships out. It's not
Speaker 3: a decision that ship.
Speaker 8: We have six ships inside the straight right now with
Speaker 8: our cargoes. All of them are chartered, so they're owned
Speaker 8: by a third party and we don't ultimately make the call.
Speaker 8: The shipbowner decides whether or not he wants to put
Speaker 8: his vessel and his crew through the strait.
Speaker 3: And so that's a decision.
Speaker 8: We provide advice on input to, but we can't make
Speaker 8: that decision. So it's a very complex set of decisions
Speaker 8: that need to be made to begin to get things
Speaker 8: moving again, and it will happen slowly. I would expect
Speaker 8: there will be some stop and start to it. There
Speaker 8: still has been kinetic activity this week someone which has
Speaker 8: been reported in the media summer which has.
Speaker 3: Not and so we see risks very real still.
Speaker 2: In that com a journalists, you can't say things like that,
Speaker 2: what's not been reported? What do you hear it?
Speaker 8: Well, there have been there have been vessels that have
Speaker 8: been in transit that have suffered attacks.
Speaker 2: That's more than what we've heard of in the press.
Speaker 3: Yes, from our reports would indicate that.
Speaker 2: What do they suggest how frequent of those attacks been there?
Speaker 8: Maybe not every day, but there have been multiple incidents
Speaker 8: that have occurred.
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Speaker 6: Mm hmm