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Speaker 2: Taking a look at the oil market, cred prices down
Speaker 2: by about three point seven percent on the news from
Speaker 2: the Wall Street Journal that perhaps Aron is open to
Speaker 2: a de escalation with Israel. Let's get more on this
Speaker 2: with Ellen Wald, president of Transversal Consulting, joining us. Ellen
Speaker 2: what kind of risk premium should be in the market
Speaker 2: for at least the short term.
Speaker 3: Yeah, I think I wouldn't be surprised between like two
Speaker 3: and four dollars, kind of vacillating a bit. I mean,
Speaker 3: we're definitely in a situation of much higher risk than
Speaker 3: we were last month, but we have seen similar ish
Speaker 3: situations and that's kind of the risk premium we saw.
Speaker 4: I do think that.
Speaker 3: It does depend a lot on what happens in the
Speaker 3: Persian Gulf, other country's reactions to it, and also but
Speaker 3: it does seem that Iran is continues to have the
Speaker 3: ability to export oil and that's really what matters for
Speaker 3: oil prices, whether or not these supplies are disrupted.
Speaker 4: If they're not, then really it's just a risk premium.
Speaker 4: It's going to go up and down.
Speaker 3: I wouldn't be surprised if we see insurance rates for
Speaker 3: takers go up, and that can.
Speaker 4: Also impact prices as well.
Speaker 3: But at the same time, you know, it's just I
Speaker 3: think we're kind of in the in the range of
Speaker 3: you know, maybe three four dollars.
Speaker 5: The straits, the Straits of Hormuz that's never been closed
Speaker 5: down in the past. Is the market as far as
Speaker 5: you can tell when you talk to people in the industry,
Speaker 5: are they believe that is still going to be the case,
Speaker 5: that that's still going to be you're able to get
Speaker 5: your oil in and out of the straight Yeah.
Speaker 4: I think what's going on is people are.
Speaker 3: Very jittery, and you know, every time there's any kind
Speaker 3: of you know, military action in the Persian Gulf, that's
Speaker 3: kind of the worst case scenario that everyone jumps to.
Speaker 3: And I think a lot of that is a holdover
Speaker 3: from the seventy three oil shocks, where you know, oil
Speaker 3: was embargoed, and also from the Iran Iraq War where
Speaker 3: there was this tanker war and essentially the US military
Speaker 3: had to escort oil tankers out of out of the
Speaker 3: Persian golf to ensure their safety. I don't think that
Speaker 3: we have the same dynamic now because, first of all,
Speaker 3: China is a really big player. China is basically the
Speaker 3: largest customer. Asia is now the largest customer for these
Speaker 3: Persian golf producers that includes Iran and Saudi Arabia and
Speaker 3: other ones. And you don't want to kick the nest
Speaker 3: when it comes to China. China is not going to
Speaker 3: like it if their ships are disrupted, if there are
Speaker 3: access to oil is disrupted, and so they will put
Speaker 3: economic pressure to cool things down and to make sure
Speaker 3: that their economic needs and desires are protected there. So
Speaker 3: I think that's that's a new factor now that we
Speaker 3: haven't seen that we didn't see in previous years.
Speaker 4: There's also a matter.
Speaker 3: Of can they physically actually close thee of wour moves.
Speaker 3: I would argue that it's not as easy as it
Speaker 3: seems or as they say.
Speaker 4: They can definitely.
Speaker 3: Threaten ships, which can also be pretty bad, but you
Speaker 3: can't actually close it.
Speaker 4: Eron's not the only country that has ownership over the waters.
Speaker 3: There and you can actually re route ships into waters
Speaker 3: into Emirati and Amani waters. It would take some time,
Speaker 3: and during that logistical you know, inter inter period, it
Speaker 3: would be we'd see higher oil prices.
Speaker 4: But I do believe it would work itself out in
Speaker 4: the end.
Speaker 2: And there are some spare pipeline capacity through Saudi Arabia
Speaker 2: and the UAE to bypass the straight but it is
Speaker 2: still relatively limited. Do we have good sense as to
Speaker 2: whether Israel truly wants to strike oil and gas facilities.
Speaker 2: I mean, I know over the weekend we did see
Speaker 2: some of that, but nothing that truly disrupted production.
Speaker 4: Right, And I think that's interesting.
Speaker 3: I think they're really walking a very close line because
Speaker 3: all of the facilities that they hit they hit to
Speaker 3: gas processing plants in the South Pars gas field, they
Speaker 3: hit a fuel depot outside of Tehran, and they hit
Speaker 3: an oil refinery, and those all have domestic impacts because
Speaker 3: Iran doesn't export it's natural gas. It uses it only
Speaker 3: for you know, electricity, Domestically, Iran has to make all
Speaker 3: of its own gasoline, et cetera. So you can see
Speaker 3: that their strikes are designed for maximum domestic effect and
Speaker 3: that they have not touched carg Island, which is where
Speaker 3: the ninety percent of Iran's exports are loaded into tankers,
Speaker 3: and they haven't touched anything that would impact Iran's exports. Now,
Speaker 3: the question is how long can they not touch them,
Speaker 3: either by accident or because the exports are a primary
Speaker 3: source of Iran's funding and at a certain point you've
Speaker 3: got to go after their funding. And so I think
Speaker 3: that right now it's not on the table. But if
Speaker 3: there isn't any kind of resolution to this, I wouldn't
Speaker 3: be surprised to see them at least threaten it diplomatically
Speaker 3: or someone down the road.
Speaker 5: Ellen Aside from the geopolitical risk there, what is underlying demand?
Speaker 5: What are the assumptions for underlying demand for the rest
Speaker 5: of the year for oil and gas.
Speaker 4: It's a good question.
Speaker 3: I think we're in a pretty good demand situation. I
Speaker 3: do think, you know, everyone's a little bit nervous about
Speaker 3: whether or not there might be a recession or not.
Speaker 3: In that case, demand can go down, but otherwise demand
Speaker 3: seems pretty stable.
Speaker 4: I think, you know, there can be.
Speaker 3: Some variation depending on what happens in China or you know,
Speaker 3: or India, but in general.
Speaker 4: Demand's pretty stable. Supply looks good as well.
Speaker 3: I don't think we're We're not in an oversupplied situation
Speaker 3: at this point, or like not a massive oversupplied situation,
Speaker 3: but likewise we're not under supplied either, And so I
Speaker 3: think prices.
Speaker 4: Seem to be pretty good for where they are.
Speaker 3: And I don't think unless you know, I don't think
Speaker 3: that this issue in the Middle East, provided that it
Speaker 3: remains within kind of the confines where Iranian oil exports
Speaker 3: aren't hurt and Iran doesn't try to obstruct any other
Speaker 3: oil exports, that I don't see that we shouldn't really
Speaker 3: hit one hundred dollars a barrel, for example, because of this.
Speaker 4: I think that that's not realistic.
Speaker 2: So different than what we would have seen ten years ago,
Speaker 2: all fifteen years ago. Allen, before you let you go,
Speaker 2: what are the Saudi's doing right now? How are they
Speaker 2: involved or not in these discussions?
Speaker 4: The Saudis are probably involved.
Speaker 3: I wouldn't be surprised if they're talking to Russia because
Speaker 3: they're very keen. They'd love to be, you know, help
Speaker 3: broker some sort of a deal here. They are privately
Speaker 3: very happy that Israel attacked Iran's nuclear facilities. They don't
Speaker 3: want Iran having a nuclear weapon either, but they're not
Speaker 3: going to say that out loud in private. They you know,
Speaker 3: they in public they are condemning Israel's attacks, but basically
Speaker 3: there I'd say they're focused on keeping their oil supplies,
Speaker 3: you know, going, and kind of to have.
Speaker 4: A low profile.
Speaker 6: All Right, Allen, thank you so much. We appreciate it
Speaker 6: as always.
Speaker 5: Ellen Wall the president of Transversal Consulting and a senior
Speaker 5: fellow with the Atlantic Council.
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Speaker 2: Let's get to the markets here with the SMP up
Speaker 2: over one percent, Fill Orlando, chief equity market strategist and
Speaker 2: head of client portfolio Management in Federating Hermes joins us.
Speaker 7: So Phil I was out Friday.
Speaker 2: If I pretended Friday Day happened, the equity markets in
Speaker 2: the exact same place it was when it closed on Thursday,
Speaker 2: What do I make of that? When there is actual
Speaker 2: severe geopolitical risk out there?
Speaker 8: Well as as your previous guests just talked about I
Speaker 8: guess there's an assumption that is dissettling, as the Israeli
Speaker 8: attack of Iran was. Maybe Iran this is going to
Speaker 8: force them to the bargaining table. Point number one, point
Speaker 8: number two. Look at what transpired in the energy market
Speaker 8: that in the first you know, four or five months
Speaker 8: of the year, crude oil went from eighty dollars a
Speaker 8: barrel down to fifty five. Then we spiked up to
Speaker 8: seventy seven dollars on Friday, and now we're back down
Speaker 8: to seventy two dollars. And if you think about what's
Speaker 8: gone on behind the scenes, we were talking about this
Speaker 8: at our morning meeting today. Over the last couple of months,
Speaker 8: the Saudis spurred OPEK to sort of oversupply the market
Speaker 8: with a lot of crude oil. In each the last
Speaker 8: two or three months. In the United States, very quietly,
Speaker 8: we have increased the size of our strategic petroleum reserve.
Speaker 8: From three hundred and fifty million barrels at the beginning
Speaker 8: of the year, we're now a little over four hundred
Speaker 8: million barrels. I think on our way back to peak
Speaker 8: capacity at about seven hundred and twenty million barrels. So
Speaker 8: you wonder whether or not the United States and the
Speaker 8: Saudis anticipated what transpired on Friday, or maybe had advanced
Speaker 8: noticed that something might happen, and it might not be
Speaker 8: a bad idea to, you know, make sure that there's
Speaker 8: some fruit on hand in case there is some problems
Speaker 8: with the Straits of Hormuz or the Uranians take their
Speaker 8: oil up the market or whatever. And it looks like
Speaker 8: things are reasonably stable. And so as a result of
Speaker 8: the markets sort of bouncing back today, you know, the
Speaker 8: benefit of having had the weekend to think through, you know,
Speaker 8: last Friday's developments.
Speaker 5: Phil, it's been if you look at the charter of
Speaker 5: the s and P five hundred year to date, talk
Speaker 5: about a v bottom and recovery here, like we should
Speaker 5: talk about for the economy.
Speaker 6: I don't know.
Speaker 5: I was kind of surprised that we went down as much,
Speaker 5: and now I'm equally surprised that we came back as
Speaker 5: much and how quickly it all happened.
Speaker 6: You're an old pro what do you make of what
Speaker 6: we've seen here? To date?
Speaker 8: Markets tend to overshoot on both sides, and we were
Speaker 8: disappointed with the market's response to the Liberation Day chaos.
Speaker 8: But look, frankly, the Trump administration did a poor job
Speaker 8: in orchestrating the implementation of that tariff announcement. So the market,
Speaker 8: in the absence of any knowledge, you know, responded appropriately
Speaker 8: down fifteen percent in the space of a week. And
Speaker 8: then once we had a better sense of how that
Speaker 8: was going to work, along with how is the economy doing,
Speaker 8: the market rebounded back to what, you know, we felt
Speaker 8: were more reasonable levels of valuation. Remember, Paul, we talked
Speaker 8: about this down in Washington a couple of weeks ago.
Speaker 8: Our full year forecast for the S and P this
Speaker 8: year is still sixty five hundred. We're sitting now a
Speaker 8: little bit over six thousand, So we've still got you know,
Speaker 8: five hundred points, you know, maybe eight or nine percent
Speaker 8: of potential appreciation over the course of the back half
Speaker 8: of the year. So there's more room for the market
Speaker 8: to continue to grind higher if the fundamentals continue to
Speaker 8: fall into place.
Speaker 2: What's the safety right now? Are bonds portraying the safe
Speaker 2: haven bid or does it have.
Speaker 7: To be gold?
Speaker 8: Well, Gold's been the safe haven play for a while,
Speaker 8: and given any concerns about geopolitical risk or inflation, gold
Speaker 8: is the play, and so having a little bit of
Speaker 8: gold in your portfolio. I can't. I can't. I don't
Speaker 8: have any problem with a client taking that position. But
Speaker 8: certainly if you think that there's going to be slower
Speaker 8: economic growth, certainly bond should rally. Treasuries historically are great
Speaker 8: safety play. You know, we think the treasury yields benchmark
Speaker 8: ten's are probably going to grind down towards four percent
Speaker 8: over the balance of the year. So I don't have
Speaker 8: a problem with investors holding both treasuries and gold as
Speaker 8: sort of safe havens, given you know, the complete uncertainty
Speaker 8: and volatility of what you know. We've we've watched over
Speaker 8: the last seventy two hours.
Speaker 5: Phil, thanks so much. Always appreciate getting a few minutes
Speaker 5: of your time. Phil Orlando. He's a chief equity market
Speaker 5: strategist and had a client portfolio Management and Federated Hermes
Speaker 5: joining us there, and we spoke to Phil when we
Speaker 5: were down in Washington a few weeks ago.
Speaker 8: He was there as well.
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Speaker 7: We're also, of course paying attention was happening at the
Speaker 7: G seven.
Speaker 2: We're waiting for biladeral meeting to begin between President Trump
Speaker 2: and Canadian Prime Minister Mark Carney. Also reports indicate that
Speaker 2: President Trump and Germany's A Chancellor Frederick Mertz will be
Speaker 2: meeting this morning as well at the G seven. So
Speaker 2: we'll bring you all of those headlines of course as
Speaker 2: they cross.
Speaker 8: All right.
Speaker 2: Want to get to the news though, of the last
Speaker 2: few days, and that's what's happening with Iran and Israel.
Speaker 7: Lots of different reports coming out right now.
Speaker 2: Israel's continuing to strike despite reports that iron would like
Speaker 2: to de escalate. They've exchanged fire now for the fourth
Speaker 2: consecutive day. And this then raises the possibility and the
Speaker 2: risk of and all out war that could drag the
Speaker 2: rest of the Middle East as well as Western nations
Speaker 2: into it. Ned Lazarus is Associate Professor of International Affairs
Speaker 2: at George Washington University, joining US now, professor, what is
Speaker 2: your base case now, uh, and what is the biggest risk?
Speaker 9: Well, I think you brought in an important development, which
Speaker 9: is that there are reports that Iran, through other channels,
Speaker 9: through Arab Arab neighbors UH. And also I've heard through Cyprus,
Speaker 9: is attempting to send messages UH to to return to
Speaker 9: negotiations and to and to de escalate UH and to
Speaker 9: uh you know, according to some reports, is floating the
Speaker 9: idea that it will become more flexible in its stance
Speaker 9: on UH enriching uranium UH and UH nuclear development. So this,
Speaker 9: if correct, this is a signal that Israel's strikes are
Speaker 9: being felt acutely by the regime which previously had you know,
Speaker 9: really seem seemed to be dragging out its talks with
Speaker 9: the Trump administration, not in any way willing to uh
Speaker 9: uh compromise on its desire to enrich uranium to very
Speaker 9: high levels UH and to maintain the option to break
Speaker 9: out to you know, uh nuclear weaponization.
Speaker 4: UH.
Speaker 9: Whether this will actually lead to a cease fire, I
Speaker 9: think I would say that's unlikely for the moment. I
Speaker 9: think Israel initiated this uh uh this attack because of
Speaker 9: an opportunity that it was time limited and a threat
Speaker 9: that was time limited. So Israel sensed also from reports
Speaker 9: of the International Inspectors that Iran was moving towards uh
Speaker 9: you know, nuclear breakout or the ability to move quickly
Speaker 9: to nuclear breakout. And Israel also has an opportunity because
Speaker 9: Iran's entire strategy of maintaining these uh you know, this
Speaker 9: network of regional proxies that could inflict damage on Israel
Speaker 9: in this kind of conflict had been weakend. Israel had
Speaker 9: taken Hasbellah out of the out of the war, essentially
Speaker 9: out of commission. The Syrian regime of Asad collapsed because
Speaker 9: of what Israel did to Hasbelah in essence, and Iran
Speaker 9: lost its ability to effectively defend its airspace when Israel
Speaker 9: responded effectively, if more quietly, to previous rounds of Iranian
Speaker 9: missile barrages. So there's a time limited opportunity, and I
Speaker 9: think Israel is going to maximize the damage that it
Speaker 9: can inflict on Iran's nuclear program and its regime.
Speaker 6: Ned would they even take it even further?
Speaker 5: I mean, if I'm Israel, I'm on a roll here,
Speaker 5: I mean everywhere. Look, I've been very aggressive, I've been
Speaker 5: very successful. You just mentioned some of the successes Israel's
Speaker 5: had against some of its enemies and the proxies and
Speaker 5: so on.
Speaker 6: So I press my bets here and look for.
Speaker 5: Something bigger and around, whether it's regime change or really
Speaker 5: really just decimating their military capabilities.
Speaker 9: I think the ladder. Yes, I think right now, uh,
Speaker 9: you know, the the Israeli Air Force is probably busy
Speaker 9: both with trying to do what it can to the
Speaker 9: you know, to the to to uh undermine the nuclear program,
Speaker 9: but also very much I think the Israeli Air Force
Speaker 9: is trying to take out the missile capacities because Iran
Speaker 9: is certainly able to you know, to damage Israel. They've
Speaker 9: killed twenty four Israelis in uh, you know, a series
Speaker 9: of late night missile barrages that you know, their their
Speaker 9: capacity to fire. They can fire enough huge just you know,
Speaker 9: massive missiles that all of the Israeli air defenses cannot
Speaker 9: hermetically prevent hits. And they've hit Tel Aviv, they've hit Haifa,
Speaker 9: they've hit an oil refinery. So Iran is capable of
Speaker 9: doing damage and is doing damage in a way that
Speaker 9: you know, is painful for Israelis. The Israel obviously has
Speaker 9: a tremendous military advantage and they are able to get
Speaker 9: strategic Iranian sites right. So yes, I think they will
Speaker 9: continue and I think what they are hoping to do
Speaker 9: is really reduces Iran's capacity. Yeah, get to strike back.
Speaker 7: Yeah, we gotta leave it there. Thanks very much.
Speaker 2: Nand Laser, Associate Professor of the National Affairs at George
Speaker 2: Washington University.
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Speaker 5: All right, this is the gig here for the airspace
Speaker 5: and airline industry. They get together every year and they
Speaker 5: alternate between London, outside of London and in Paris, always
Speaker 5: in June, plenty of rose flowing, and they never meet
Speaker 5: in like sheboygan in January.
Speaker 6: I know, right, So George Version is over there every year.
Speaker 5: I send them over there and he goes and I
Speaker 5: don't know. But this is where the big deals happen,
Speaker 5: I mean some big orders. And right now Airbus is
Speaker 5: dominating the story as it looks like Boeing is sitting
Speaker 5: out here as they deal with the crash of the
Speaker 5: Air India flight. Kate Duffy joins us Bloomberg Aviation reporter
Speaker 5: on this Paris air Show again, I'm looking at your reporting, Kate.
Speaker 5: Along with sid and Lean, Airbus dominates air shows. Boeing
Speaker 5: sits out the order Freenzing tell us about what Airbus
Speaker 5: is doing.
Speaker 10: Yeah, absolutely, I mean this has been a big win
Speaker 10: for air Bus currently in the show. So we've had
Speaker 10: order from Avilease which have signed for some A three
Speaker 10: fifty freighters and a three twenty family jets. Also Riad
Speaker 10: Air order for fifty Airbus wide body jets and a
Speaker 10: lot as well a Polish airline for forty eight twenties.
Speaker 10: And as you say, Boeing has really stepped back from
Speaker 10: the Paris Air Show this year following the seven eight
Speaker 10: seven eight seven crash last week, so no orders have
Speaker 10: been announced and executives are really slim in attendance or
Speaker 10: Berg obviously canceled and they've rolled back any sort of
Speaker 10: commercial announcements as they focus on really finding out what
Speaker 10: happened with their India crash.
Speaker 2: So how much of Airbus's triumph is Boeing issues like
Speaker 2: what we saw with the seven eighty seven and Air India,
Speaker 2: and how much of it is just like everything was
Speaker 2: kind of going in this direction anyway, and Boeing just
Speaker 2: has so much runway to make up.
Speaker 10: No, I think it was definitely a cause of what
Speaker 10: happened last week. There were potentially orders in the works,
Speaker 10: but this is all down to sort of what happened
Speaker 10: and executives taking the decision to not really take up
Speaker 10: the limelight this week just because of the crash and
Speaker 10: the consequent deaths that did happen. So yeah, there could
Speaker 10: be orders further down the line, but at the moment,
Speaker 10: their main focus is trying to sort of sort out
Speaker 10: the situation in India.
Speaker 5: So announcing big orders at these air shows is one thing.
Speaker 5: Actually delivering the planes is another. And it's not just
Speaker 5: bowing that Scott problems. Airbus has some production issues as well.
Speaker 5: Can you highlight kind of where Airbus is today in
Speaker 5: terms of their deliverables.
Speaker 10: Yeah, absolutely, I mean Airbus is also struggling just as
Speaker 10: much as Boeing is with the supply chain at the moment.
Speaker 10: Is something that's happening across all airlines. You know, they
Speaker 10: are struggling to get in these deliveries and whether it
Speaker 10: be sort of wide bodies or narrow bodies, that is
Speaker 10: the real pinch point at the moment.
Speaker 7: What do you think is well in general?
Speaker 2: I know this is the place where they unveil everything
Speaker 2: that's cool, and it's always good, happy talk and all that.
Speaker 2: But how is the aviation industry doing?
Speaker 7: Abe engine is doing well at the moment.
Speaker 10: I mean, what we're seeing here is a lot of
Speaker 10: EVETEL companies, that's the electric vertical takeoff and landing firms,
Speaker 10: displaying and flying their aircraft around and having lots of
Speaker 10: interviews with the press, and that includes vertical aerospace and archer.
Speaker 7: What we've seen is.
Speaker 10: That they are particularly interested in sort of pointing their
Speaker 10: aircraft towards the defense sector and selling that to defense
Speaker 10: as they see sort of the growth in Europe that
Speaker 10: is coming from the defense industry. We're also seeing, as
Speaker 10: you say, lots of defense companies present. So it's doing well.
Speaker 6: So how has the town changed?
Speaker 5: Because now I might take a meeting if I'm an
Speaker 5: aerospace company with I don't know Italy, because now it
Speaker 5: looks like they're going to have to spend more on defense, Germany.
Speaker 6: And all the others.
Speaker 5: Is there are different meetings taking place between I don't know,
Speaker 5: the contractors themselves in various countries.
Speaker 10: Yeah, there's lots of meetings taking place. I mean, we've
Speaker 10: seen executives on the ground, such as air Burski and FOURY,
Speaker 10: also Talz and Leonardo as well. What we're watching there,
Speaker 10: for example, is the possible space merger between those three
Speaker 10: and what could come of that. There's a huge space
Speaker 10: hub just further down the air show at the moment,
Speaker 10: so that's interesting. That's the first time they've done it.
Speaker 10: We've also got the Ariane five on site, lots of
Speaker 10: planes on display, people walking around, private jets, people walking
Speaker 10: onto helicopters and also sitting in the fighter jets too.
Speaker 10: But yeah, there are lots of business meetings happening. We're
Speaker 10: speaking to defense executives, they're meeting with other defense companies.
Speaker 10: So there's lots of collaboration in Europe. There's lots of
Speaker 10: cooperation and partnerships happening and possibly you know, chances of
Speaker 10: M and A happening in the near future too.
Speaker 7: Really, that's quite interesting.
Speaker 2: What about US defense companies, Like, if Europe wants to
Speaker 2: ram up its defense budget, do they really want to
Speaker 2: do that with US companies when there's still terriff issues.
Speaker 10: I think that is a struggle at the moment, you know,
Speaker 10: we're sort of hearing that the potentially there is more,
Speaker 10: there is more growth in Europe, and I think European
Speaker 10: companies want to find out more, you know what are
Speaker 10: the companies are out there to beef up their portfolios.
Speaker 10: For example, we spoke with Honeywell yesterday and they have
Speaker 10: a lot of components on fighter jets and they were
Speaker 10: saying that they are looking at sort of M and
Speaker 10: A in and across Europe and also expanding their own
Speaker 10: existing capabilities as well, so factories in the UK, Germany
Speaker 10: and Poland.
Speaker 5: Oh well there, okay, all right, very good. We'll make
Speaker 5: that a nice easy spot to get out. Kate Duffy
Speaker 5: Bloomberg Aviation Report on the Paris Air Show in Paris.
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