1
00:00:02,520 --> 00:00:07,000
Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

2
00:00:07,760 --> 00:00:11,160
Speaker 2: Glad to welcome Ed Morris of Hartree Partners now on

3
00:00:11,240 --> 00:00:13,039
Speaker 2: set here at seven thirty one, lex Ed, great to

4
00:00:13,119 --> 00:00:17,080
Speaker 2: have you in the building today. How do you see

5
00:00:17,440 --> 00:00:22,280
Speaker 2: this war in Iran when you look at past incidents

6
00:00:22,360 --> 00:00:26,040
Speaker 2: of you know, war in the Gulf or the Arab

7
00:00:26,120 --> 00:00:28,800
Speaker 2: oil embargo. I mean, we've had a number of hot

8
00:00:28,840 --> 00:00:30,720
Speaker 2: points in the Middle East. Where does this rank?

9
00:00:31,160 --> 00:00:33,920
Speaker 1: So rank somewhere in between. Certainly, this is the third

10
00:00:33,960 --> 00:00:38,160
Speaker 1: Gulf war we've seen since nineteen ninety ninety one, straight

11
00:00:38,159 --> 00:00:39,960
Speaker 1: to hor moves. Wasn't closed in the first one or

12
00:00:39,960 --> 00:00:43,280
Speaker 1: the second one, and it wasn't even closed in the

13
00:00:43,760 --> 00:00:46,680
Speaker 1: events of the early period of time in the seventies

14
00:00:46,800 --> 00:00:49,960
Speaker 1: or even the Iranian Revolution. So this is pretty unique.

15
00:00:49,960 --> 00:00:53,080
Speaker 1: So I put it more serious than anything we've seen

16
00:00:53,159 --> 00:00:54,720
Speaker 1: since the early nineteen seventies.

17
00:00:54,880 --> 00:00:58,320
Speaker 3: Does that mean that, even let's say this somehow resolves

18
00:00:58,400 --> 00:01:01,200
Speaker 3: in a week time Trump or someone off, is it

19
00:01:01,240 --> 00:01:04,000
Speaker 3: serious enough that we're going to have a fundamental rethink

20
00:01:04,120 --> 00:01:06,520
Speaker 3: of the way energy flows and energy markets after this,

21
00:01:06,680 --> 00:01:08,959
Speaker 3: much like after the air of oil embargo when the

22
00:01:09,000 --> 00:01:13,080
Speaker 3: SBR came, like after COVID, after Ukraine when we rethoughted

23
00:01:13,160 --> 00:01:15,160
Speaker 3: just exactly how energy markets are structured.

24
00:01:15,480 --> 00:01:17,520
Speaker 1: So I think we should look and see what some

25
00:01:17,600 --> 00:01:20,800
Speaker 1: major countries are doing, and we're doing even beforehand. China

26
00:01:21,000 --> 00:01:24,040
Speaker 1: is energy dominant when you think of clean energy, and

27
00:01:24,080 --> 00:01:27,360
Speaker 1: they have certainly decided, as being very dependent on flows,

28
00:01:27,560 --> 00:01:30,120
Speaker 1: particularly from the Middle East, that they're going to double

29
00:01:30,160 --> 00:01:33,720
Speaker 1: down on the clean energy scenario. Europe is already talking

30
00:01:33,760 --> 00:01:37,800
Speaker 1: about going back to green energy targets. We'll see what

31
00:01:37,800 --> 00:01:41,040
Speaker 1: happens in the US, but certainly there's been a kind

32
00:01:41,080 --> 00:01:45,200
Speaker 1: of worldwide rethink about what to do in terms of dependence,

33
00:01:45,400 --> 00:01:48,520
Speaker 1: and that includes emerging markets as well. It includes India certainly,

34
00:01:48,520 --> 00:01:51,160
Speaker 1: as well as China and much of the Far East.

35
00:01:51,520 --> 00:01:54,800
Speaker 2: We were playing some sound from the US Energy Secretary

36
00:01:54,880 --> 00:01:58,160
Speaker 2: Chris Right on yesterday's Sunday Shows, and he was saying, look,

37
00:01:58,200 --> 00:02:00,640
Speaker 2: this is a fear premium, that it's going to last

38
00:02:00,680 --> 00:02:02,559
Speaker 2: a couple of weeks, but we're going to start getting

39
00:02:02,720 --> 00:02:05,920
Speaker 2: shifts through the streets of hormus soon. He seemed pretty sanguine.

40
00:02:06,200 --> 00:02:08,679
Speaker 2: Do you share his view that this could be relatively

41
00:02:08,720 --> 00:02:09,600
Speaker 2: short lived?

42
00:02:09,840 --> 00:02:12,040
Speaker 1: Well, I share his views that it could be relatively

43
00:02:12,040 --> 00:02:15,080
Speaker 1: shortly we lived, but I'd say I would turn his

44
00:02:15,200 --> 00:02:18,080
Speaker 1: remarks of a few weeks to a few months. And

45
00:02:18,120 --> 00:02:20,200
Speaker 1: that's certainly the case if we look at the nitty

46
00:02:20,200 --> 00:02:23,400
Speaker 1: gritty of the oil market and the gas market in particular.

47
00:02:23,440 --> 00:02:26,959
Speaker 1: So we shouldn't forget that gas prices of skyrocket around

48
00:02:26,960 --> 00:02:30,960
Speaker 1: the world because twenty percent of the world's available internationally

49
00:02:31,040 --> 00:02:35,200
Speaker 1: derived natural gas comes from the UAE a little bit

50
00:02:35,280 --> 00:02:37,960
Speaker 1: and Qatar an awful lot, and that's not going to

51
00:02:37,960 --> 00:02:39,480
Speaker 1: be turned on for at least a month.

52
00:02:39,639 --> 00:02:41,400
Speaker 2: And that's all priced in dollars, by the way, So

53
00:02:41,440 --> 00:02:43,200
Speaker 2: it hurts them even worse than it hurts us.

54
00:02:43,240 --> 00:02:46,520
Speaker 1: It absolutely is, yes, And on the dollar price, by

55
00:02:46,560 --> 00:02:49,240
Speaker 1: the way, given what you've just talked about, with the

56
00:02:49,280 --> 00:02:52,680
Speaker 1: increase in the value of the dollar globally, just adds

57
00:02:52,720 --> 00:02:55,400
Speaker 1: insult to injury. It just makes the inflation for the

58
00:02:55,400 --> 00:02:58,359
Speaker 1: rest of the world significantly higher than it otherwise might

59
00:02:58,400 --> 00:03:00,520
Speaker 1: have been. But even the oil, it's not come back

60
00:03:00,840 --> 00:03:04,480
Speaker 1: like overnight. They'll be testing, they'll see what happens, and

61
00:03:04,600 --> 00:03:08,639
Speaker 1: we still have a big risk. Latently in the western

62
00:03:08,720 --> 00:03:12,600
Speaker 1: side of the Arabian Peninsula, we have the Huthis and

63
00:03:12,639 --> 00:03:15,040
Speaker 1: they have not activated yet, and they are a proxy

64
00:03:15,160 --> 00:03:18,560
Speaker 1: still of Iran and we haven't seen a complete shutoff.

65
00:03:18,919 --> 00:03:20,799
Speaker 1: You know, we've seen a shutoff. If people are arguing,

66
00:03:20,960 --> 00:03:23,600
Speaker 1: is it ten million barrels a day or sixteen in

67
00:03:23,600 --> 00:03:25,760
Speaker 1: either case is pretty large, but it can go to

68
00:03:25,800 --> 00:03:27,960
Speaker 1: the full twenty coming out of the Middle East if

69
00:03:27,960 --> 00:03:29,760
Speaker 1: we have a closure on the other side of the

70
00:03:29,800 --> 00:03:31,280
Speaker 1: Arabian Peninsula.

71
00:03:30,840 --> 00:03:33,040
Speaker 3: And there just feels to be a disconnect. I'm listening

72
00:03:33,040 --> 00:03:35,120
Speaker 3: to you and other experts in this that are talking

73
00:03:35,160 --> 00:03:37,440
Speaker 3: about the potential for this to stretch on and have

74
00:03:37,680 --> 00:03:40,920
Speaker 3: very big implications. Then I look at what markets are doing.

75
00:03:41,080 --> 00:03:44,320
Speaker 3: I mean, the backwardation suggests that oil prices resume something

76
00:03:44,360 --> 00:03:47,800
Speaker 3: close to normal pretty relatively soon. Are we being sanguine

77
00:03:47,800 --> 00:03:50,320
Speaker 3: about the risk that this could stretch on and have

78
00:03:50,680 --> 00:03:52,160
Speaker 3: much higher oil prices to come?

79
00:03:52,640 --> 00:03:54,480
Speaker 1: I think we're being a little bit too sanguine. The

80
00:03:54,640 --> 00:03:57,440
Speaker 1: futures curve doesn't tell you very much. It tells you

81
00:03:57,520 --> 00:03:59,600
Speaker 1: that we've had a spike in the medium in the

82
00:03:59,720 --> 00:04:04,080
Speaker 1: inter it tells you that bagradation has increased, so there's

83
00:04:04,160 --> 00:04:06,760
Speaker 1: just not a lot of liquidity in the market, and

84
00:04:06,920 --> 00:04:09,640
Speaker 1: the fact that ten year prices have not changed very much.

85
00:04:10,760 --> 00:04:12,600
Speaker 1: It doesn't tell you what's really going to happen in

86
00:04:12,600 --> 00:04:14,640
Speaker 1: the next few years. So I wouldn't use that as

87
00:04:14,680 --> 00:04:18,560
Speaker 1: a predictor. I'd say that's a reflection of where macro

88
00:04:18,720 --> 00:04:21,000
Speaker 1: funds are placing their short term cash.

89
00:04:21,520 --> 00:04:24,680
Speaker 2: We have seen a big spike in prices at the pump,

90
00:04:25,080 --> 00:04:27,240
Speaker 2: and I thought it was interesting in reading your research

91
00:04:27,400 --> 00:04:33,280
Speaker 2: that the product prices rise faster than the underlying crude

92
00:04:33,320 --> 00:04:36,360
Speaker 2: for example, why is that and how do you expect

93
00:04:36,440 --> 00:04:39,800
Speaker 2: to see gas prices go because I mean, this chart

94
00:04:39,839 --> 00:04:43,080
Speaker 2: doesn't do justice to what we've seen on the price

95
00:04:43,120 --> 00:04:45,640
Speaker 2: at the pump. It's the highest in either Trump term.

96
00:04:46,160 --> 00:04:50,240
Speaker 1: Yeah, so I've seen prices coming from the lower three

97
00:04:50,279 --> 00:04:53,080
Speaker 1: dollars range to the mid three dollars range. There's been

98
00:04:53,080 --> 00:04:56,320
Speaker 1: a what fifteen sixteen percent increase in the price of gasoline.

99
00:04:56,920 --> 00:04:59,120
Speaker 1: If you look at crude oil, where was crude oil

100
00:04:59,160 --> 00:05:03,000
Speaker 1: trading two weeks go. Brent was trading at around seventy

101
00:05:03,040 --> 00:05:05,719
Speaker 1: it even fell below to sixty eight sixty nine and

102
00:05:05,760 --> 00:05:08,960
Speaker 1: it's now at one hundred and three. And WTI was

103
00:05:09,000 --> 00:05:11,960
Speaker 1: trading at sixty five, sixty four, sixty three and it's

104
00:05:12,000 --> 00:05:13,560
Speaker 1: now at one hundred and two, one hundred and three.

105
00:05:14,120 --> 00:05:17,560
Speaker 1: That's a double increase from what we've seen in gasoline.

106
00:05:17,920 --> 00:05:20,440
Speaker 1: So we've seen a very slow reaction, so to speak,

107
00:05:20,480 --> 00:05:23,719
Speaker 1: on the gasoline side. That's due to a whole bunch

108
00:05:23,760 --> 00:05:30,560
Speaker 1: of factors, including you deliver out of what you have

109
00:05:30,640 --> 00:05:34,280
Speaker 1: from storage in the light. But we're seeing a curtailment

110
00:05:34,440 --> 00:05:36,920
Speaker 1: on the product side. We've seen the big curtailment out

111
00:05:36,960 --> 00:05:39,400
Speaker 1: of the Middle East. The Middle East, while they're exporting

112
00:05:39,480 --> 00:05:42,599
Speaker 1: sixteen million barrels a day or so through the Strait

113
00:05:42,600 --> 00:05:45,440
Speaker 1: of Hormuz, two million of that is product, and we've

114
00:05:45,440 --> 00:05:49,080
Speaker 1: seen that product, which largely goes into Asia, having a

115
00:05:49,160 --> 00:05:52,760
Speaker 1: dramatic impact on jet fuel prices in Asia, on gasoline

116
00:05:52,800 --> 00:05:56,039
Speaker 1: prices in Asia, on diesel diesel diesel prices in Asia.

117
00:05:56,560 --> 00:06:00,280
Speaker 1: And that's much more than the fifteen percent increase seen

118
00:06:00,279 --> 00:06:02,200
Speaker 1: in the US. So the US is a lagrate and

119
00:06:02,240 --> 00:06:04,000
Speaker 1: if we see what's happening in the rest of the world,

120
00:06:04,240 --> 00:06:06,600
Speaker 1: it tells you that we're going to see four dollars

121
00:06:06,640 --> 00:06:09,320
Speaker 1: at the pump more more sooner than we.

122
00:06:09,279 --> 00:06:13,200
Speaker 2: Otherwise well ed, what does it mean that IMAX catches

123
00:06:13,279 --> 00:06:15,440
Speaker 2: up to Brent? I thought it was interesting the other

124
00:06:15,480 --> 00:06:18,320
Speaker 2: day I looked at a WTI quote and I thought

125
00:06:18,320 --> 00:06:19,800
Speaker 2: it was a mistake in the graphics that it was

126
00:06:19,839 --> 00:06:22,799
Speaker 2: actually Brent, because usually there's a five dollars gap between

127
00:06:22,839 --> 00:06:26,440
Speaker 2: the two. I'm you know, rounding, But now we're at

128
00:06:26,480 --> 00:06:27,119
Speaker 2: the same level.

129
00:06:27,640 --> 00:06:29,840
Speaker 1: Well, don't forget that there's more crude coming out of

130
00:06:29,839 --> 00:06:32,880
Speaker 1: the United States than there is at a northwest Europe,

131
00:06:33,279 --> 00:06:37,839
Speaker 1: and the US has available incremental crew that can be

132
00:06:37,839 --> 00:06:41,800
Speaker 1: bid up. We don't have restrictions on exports. So we're

133
00:06:41,839 --> 00:06:46,560
Speaker 1: seeing the demand for WTI related crewde skyrocketing in a

134
00:06:46,560 --> 00:06:49,200
Speaker 1: way that makes it get closer to where Brent has

135
00:06:49,240 --> 00:06:53,000
Speaker 1: been trading. We're seeing more ban in Dubai at a

136
00:06:53,040 --> 00:06:56,279
Speaker 1: ten dollars increment even above where Brent is trading. So

137
00:06:56,680 --> 00:07:00,919
Speaker 1: that tells you that the world pricing is sorting itself out.

138
00:07:01,160 --> 00:07:03,320
Speaker 3: So for one O two on bront right now and

139
00:07:03,480 --> 00:07:05,520
Speaker 3: not sort of this out saying that your calls about

140
00:07:05,560 --> 00:07:08,160
Speaker 3: a fifty percent chance likelihood that we see a rise

141
00:07:08,160 --> 00:07:11,840
Speaker 3: of fifty percent in prices, What does that scenario look like,

142
00:07:12,000 --> 00:07:13,560
Speaker 3: how do we get there and how long does that

143
00:07:13,600 --> 00:07:15,520
Speaker 3: price elevated price? Last?

144
00:07:16,440 --> 00:07:19,080
Speaker 1: Well, one scenario is one I just mentioned. The houthis

145
00:07:19,120 --> 00:07:22,240
Speaker 1: get to work and we see the western part of

146
00:07:22,240 --> 00:07:25,880
Speaker 1: the middle in the Arabian Peninsula also shut off. That's

147
00:07:25,920 --> 00:07:28,720
Speaker 1: twenty million a day. We're not going to see the

148
00:07:28,720 --> 00:07:32,240
Speaker 1: battlefield ending pretty soon. We're going to see at least

149
00:07:32,280 --> 00:07:37,440
Speaker 1: two good weeks. I suspect of continued bombing of energy

150
00:07:37,480 --> 00:07:42,880
Speaker 1: infrastructure in Iran and in the western part of the Gulf.

151
00:07:43,880 --> 00:07:47,160
Speaker 1: The Ranians are not slowing down as far as I

152
00:07:47,160 --> 00:07:49,720
Speaker 1: can tell. We're going to see inevitably, if there are

153
00:07:49,720 --> 00:07:52,320
Speaker 1: some ships trying to get through to the Strait of Hormoves,

154
00:07:52,360 --> 00:07:55,480
Speaker 1: we'll see those being attacked, and we'll see tankers being attacked.

155
00:07:56,040 --> 00:07:59,480
Speaker 1: We have to remember that Iran has just reaffirmed the

156
00:07:59,480 --> 00:08:03,880
Speaker 1: hardline approach by putting in place the son of the

157
00:08:04,080 --> 00:08:06,840
Speaker 1: form of Supreme Leader. And they had a big debate

158
00:08:06,840 --> 00:08:08,680
Speaker 1: about that. It was a week long debate which way

159
00:08:08,720 --> 00:08:10,640
Speaker 1: are they going to go? And they chose the hard

160
00:08:10,680 --> 00:08:14,440
Speaker 1: line way. So they're there for an existential threat and

161
00:08:14,440 --> 00:08:17,960
Speaker 1: they're going to fight for the existential survival of the regime.

162
00:08:18,440 --> 00:08:20,960
Speaker 2: I want to actually zero in on that because you

163
00:08:21,000 --> 00:08:24,360
Speaker 2: talked about that in your notes. We could have seen

164
00:08:24,560 --> 00:08:28,240
Speaker 2: Iran after the Ayahtola if he had been let to

165
00:08:28,280 --> 00:08:31,800
Speaker 2: die of natural causes. Right, go with a more I guess,

166
00:08:31,960 --> 00:08:38,439
Speaker 2: reformist supreme leader. But it seems as if this attack

167
00:08:38,520 --> 00:08:42,440
Speaker 2: by Israel and the US has at least, you know,

168
00:08:42,720 --> 00:08:46,920
Speaker 2: helped to push them towards a more hard line leader.

169
00:08:47,200 --> 00:08:50,280
Speaker 2: So I wonder what do you think were the justifications

170
00:08:50,400 --> 00:08:52,559
Speaker 2: for this war. We haven't heard much from the administration

171
00:08:52,679 --> 00:08:57,040
Speaker 2: in the way of an official, you know, line of

172
00:08:57,080 --> 00:08:57,840
Speaker 2: why we did this.

173
00:08:58,679 --> 00:09:01,520
Speaker 1: Well, that's the the interesting question of why did we

174
00:09:01,559 --> 00:09:03,440
Speaker 1: do this? And we did it for all of the

175
00:09:03,480 --> 00:09:06,240
Speaker 1: reasons I suspect that we've heard from the White House.

176
00:09:06,600 --> 00:09:09,560
Speaker 1: We've done it because that regime has been a threat

177
00:09:09,800 --> 00:09:12,560
Speaker 1: and it's been a threat to the economies of the

178
00:09:12,720 --> 00:09:14,840
Speaker 1: part of the world for a while. It's been a

179
00:09:14,840 --> 00:09:18,640
Speaker 1: threat to Saudi Arabia, it's been a threat to the UAE.

180
00:09:19,320 --> 00:09:22,320
Speaker 1: The bombings that came in when ABCAK was hit in

181
00:09:22,360 --> 00:09:27,720
Speaker 1: twenty nineteen was not an accident. It came from Iran.

182
00:09:28,360 --> 00:09:32,440
Speaker 1: The proxy attacks come from Iran. So there's been that

183
00:09:32,520 --> 00:09:35,840
Speaker 1: threat for a long time. Yes, there was regime change

184
00:09:35,880 --> 00:09:38,559
Speaker 1: in the minds of some people, including the President. He

185
00:09:38,640 --> 00:09:41,160
Speaker 1: said it too often for you to not believe their

186
00:09:41,160 --> 00:09:42,920
Speaker 1: regime change was certainly there.

187
00:09:43,200 --> 00:09:46,480
Speaker 2: In this case, it's pretty much worse than what we had.

188
00:09:46,920 --> 00:09:50,520
Speaker 1: Well original we expected, we expected, I suspect they expected.

189
00:09:50,600 --> 00:09:53,040
Speaker 1: I didn't expect it. They expected this to be over

190
00:09:53,040 --> 00:09:55,400
Speaker 1: in a couple of days, and that certainly didn't happen.

191
00:09:55,600 --> 00:09:57,400
Speaker 3: Well, so it's a president at the same time who's

192
00:09:57,440 --> 00:10:01,160
Speaker 3: been making this push for affordability at you advised presidents

193
00:10:01,200 --> 00:10:04,240
Speaker 3: before you'd advised government, you've advised governments. We have finance

194
00:10:04,320 --> 00:10:07,480
Speaker 3: leader ministers of the G seven meeting right now discussing

195
00:10:07,679 --> 00:10:10,840
Speaker 3: a possible release reserves of oil. The US is surely

196
00:10:10,840 --> 00:10:13,000
Speaker 3: trying to figure out how to stem some of the issues.

197
00:10:13,000 --> 00:10:15,079
Speaker 3: To what would you be advising governments at the moment

198
00:10:15,280 --> 00:10:17,400
Speaker 3: to try to mitigate some of the price rises.

199
00:10:18,720 --> 00:10:20,840
Speaker 1: Well, I think they're doing what they have to do.

200
00:10:21,840 --> 00:10:25,360
Speaker 1: The governments that have better control than the US government

201
00:10:25,360 --> 00:10:30,640
Speaker 1: does on local electricity prices, is, you know, is keeping

202
00:10:31,600 --> 00:10:35,400
Speaker 1: the weight of the increase in the hands of utilities,

203
00:10:35,400 --> 00:10:38,720
Speaker 1: many of which are public sector anyway, the US doesn't

204
00:10:38,760 --> 00:10:44,160
Speaker 1: have that privilege exactly. We have very independent regulatory agencies

205
00:10:44,200 --> 00:10:48,000
Speaker 1: for power generation, and power prices are certainly going to

206
00:10:48,040 --> 00:10:51,280
Speaker 1: go up. So the affordability issue can only be met

207
00:10:51,720 --> 00:10:55,000
Speaker 1: to a certain extent by the risk of releasing strategic stocks,

208
00:10:55,800 --> 00:10:57,880
Speaker 1: and we're seeing what's going to happen in the next hour.

209
00:10:57,960 --> 00:11:01,200
Speaker 1: I suspect on what the G seven are going to decide.

210
00:11:01,360 --> 00:11:04,360
Speaker 1: They're talking about big numbers, talking about three to four

211
00:11:04,440 --> 00:11:07,160
Speaker 1: hundred million barrels of a release, which is bigger than

212
00:11:07,160 --> 00:11:10,800
Speaker 1: the release after Russian invasion of Ukraine, which was a

213
00:11:10,920 --> 00:11:13,640
Speaker 1: very large release to say the lease, and that didn't

214
00:11:13,679 --> 00:11:16,120
Speaker 1: stop prices from going up because it takes a while

215
00:11:16,600 --> 00:11:20,040
Speaker 1: to redeploy oil when you have some of the you know,

216
00:11:20,160 --> 00:11:26,360
Speaker 1: the major oil pass sanctioned immediately after that Russian attack,

217
00:11:26,520 --> 00:11:29,760
Speaker 1: So it's going to be a while. I think it'll

218
00:11:29,800 --> 00:11:33,760
Speaker 1: be a good month or two before we see the

219
00:11:33,760 --> 00:11:36,720
Speaker 1: weight of strategic stocks coming in the market. The release

220
00:11:36,760 --> 00:11:40,800
Speaker 1: will obviously cause the market to fall, but how long

221
00:11:40,840 --> 00:11:42,240
Speaker 1: that will last is another matter.

222
00:11:42,080 --> 00:11:43,960
Speaker 3: And we should hear from them in about fifteen minutes

223
00:11:44,000 --> 00:11:46,520
Speaker 3: time after that readout ed. It's such an honor and

224
00:11:46,559 --> 00:11:48,520
Speaker 3: a joy to have you on. Ed Morris of Hard

225
00:11:48,559 --> 00:11:49,280
Speaker 3: Tree Partners