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Bloomberg Audio Studios podcasts radio

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Welcome to the Daybreak Asia podcast.

I'm [music] Doug Krer. Crude oil prices

declined during New York trading after

President Trump said the straight of

Hormuz will fully reopen by Friday.

That's after the US and Iran finalize

their peace deal in Switzerland. We had

WTI dropping 4.9% to 8075. And right now

during Asian trading, we're seeing a

modest rise in West Texas Intermediate.

For a closer look at oil markets, let's

bring in Bloomberg Stevenchinsky. Steven

is team leader for the Asia Energy Unit

and he joins from our studio in

Singapore. I'm curious to get your take

on this because as far as I understand,

the US and Iran have yet to release the

text of this memorandum of

understanding. Do we really have a firm

grasp as to what we're going to be

grappling with in so far as the market

is concerned?

>> You know, I think that's a really big

unknown because when you look at how the

market is reacting, it does seem to be

that this is very sentiment driven,

which means that uh there isn't any

change to the physical oil supply right

now. Um you're not seeing more ships

going through Hormuz. In fact, it really

won't open up uh according to Trump

until at least Friday when they clear

mines and and and prepare safety

measures. But for the fact of the matter

is you've seen this big drop in prices

uh primarily because there is this

expectation that um we're not going to

see a wider conflict in the Middle East

that this is uh one step towards a

larger more concrete peace deal and

perhaps the resumption of flows. But

that being said, you're right. We we

haven't seen the text. Um we haven't

seen the mechanisms that are needed um

for ships to go through. Um while uh

Iran's new news agency says that there

will be a 60-day period during this uh

ceasefire and peace period where uh

essentially ships won't have to pay a

toll. You know, maybe in the future you

you will be required to pay and and that

creates a huge complication because the

Trump administration has pushed against

that idea for a long time. They want

free uh navigation and travel through

the straight. So, there are a lot of

unknowns, but at least the knee-jerk

reaction in the market is that this is a

step forward and it is it is certainly

uh representing itself in that in that

pretty big drop in in oil and gas

prices.

>> Do you have a sense of how elaborate

this demining operation needs to be in

the straight of form? I know the G7

summit is underway and the European

allies were expressing I don't want to

say pessimism outright but certainly

they were not as optimistic as President

Trump was in getting vessel traffic back

to a relatively kind of normal

situation. One of the things that is a

big concern here on the part of these

international shipping companies is the

situation with the mining and I know

that European countries have placed some

conditions on their willingness to

participate in the demining.

Talk to me a little bit about the how

extensive this operation may need to be.

>> Well, I mean according to Trump, he says

there, you know, just get rid of a

couple of mines, but it is it is more

complicated than that. Um you know there

it isn't immediately clear how many

mines there are where the mines are

laid. Um it will take time to clear the

mines. There are um of course safe

routes to go through um uh Hormuz but it

it's either through Iranian waters or

hugging the coast of Oman uh which at

some points can get quite shallow. So

the the removing the mines is a

technical process. It will take time. Um

but that being said there are you know

it isn't impossible and it is absolutely

you know there are routes that you can

take through the straight to to avoid um

the mined area. Uh so I I think you know

you you could see an increase in traffic

uh from Friday but again like you said

it is it it does go down to how how

comfortable are the ship owners, how

comfortable are the captains, how

comfortable are the crews, what's the

insurance situation. Um there are a lot

of questions and it's actually quite

complicated for a single ship to make

the decision to go through. So for

hundreds of ships to do it, it is not

something like opening a floodgate and

then they go. There are people all have

to make individual decisions to make

that happen.

>> So this conflict has been going on since

the end of February. And in that time

there have been a number of nations that

have had to tap into their strategic

petroleum reserves in order to meet

demand. And now we're getting

indications that crude stock piles are

at a new 5-year seasonal low. How

critical a point are we at right now in

terms of oil supply?

You know, I think this is one of the

important aspects of the market because

uh oil prices uh the reason why we

haven't seen one of the reasons why we

haven't seen a giant uh surge in prices

like we saw in 2022 for example after

Russia's invasion of Ukraine has been

due in part to uh larger and and and and

higher exports of oil and products from

the United States. And that not only did

that come from, you know, the enormous

shale production that's happening in the

US, but also the US tapping their

strategic reserves. And you've seen uh

the US SPR, the strategic petroleum

reserve fall to the lowest level um in

in decades. And and now we're at a point

where if you continue to fall at the

current rate, you will get very close to

the uh the bare minimum operational

level. So, you need to have about 150

million to 200 million barrels of oil

within your tanks to keep them kind of

uh operating. You can't really go below

that point or or the the the facilities

begin to degrade. Um, and we're we're

below 400 now. And if the SPR releases

continue as as the US had planned, we're

going to get to about 250. So, we're

starting to get to that danger level

where you really don't want to go much

lower. Um, so I think that's that's

really key perhaps to to the decision-m

by the Trump administration. Um, they do

realize that the longer this goes on,

the more it drains reserves and it

becomes challenging to continue to

balance the market if demand doesn't

start to give up.

>> So today's price action notwithstanding,

there is a little bit of skepticism here

about the durability of any type of deal

between the US and Iran. We've got WTI

holding around $81. The Brent contract

is around 83 and you in particular,

Stephen, have witnessed firsthand a lot

of the volatility over the last two

months that we have seen these enormous

swings in prices. Is it fair to say that

we are still at risk for a return of the

same type of volatility that we have

seen recently?

Yeah, I mean I think this this

volatility is is certainly going to

continue um according to the traders and

analysts that that we've spoken to. I

think there is an expectation that um if

there is a flare up you know it it isn't

uh you know we've been here a few times

perhaps not you know there wasn't a a

deal kind of like this sign but there

have been several times where the US and

Iran were close to something and there

would be a flare up of of of attacks. um

there have been drone attacks within um

within the straight there there is that

risk going forward and I think the

market is trying to um deal with that

and also compensate uh how how they

manage that risk. Uh so there there is

also the matter of China uh in demand.

So it's not just a hormuz issue when it

comes to volatility. It's also Chinese

demand because one of the things that

was balancing the market beyond the SPR

releases was also an enormous drop in

[snorts] uh Chinese oil imports. And if

you start to see China kind of come back

and buy cargos and buy shipments and

their imports rise, that tightens the

market and then adds more volatility

potentially going forward. So instead of

a straight line down perhaps to the

prewar levels of maybe Brent in the $60

or $70 range, you're likely going to be

seeing spikes and valleys. That being

said, the the the analysts I I think

aren't really expecting a return to $120

Brent. Instead, you could see in this

range of the $80, maybe even touch a

hundred if if these peace talks were to

break down. Um, but but we are likely on

a downward trend.

>> So, what is the story with Russian crude

oil right now? For a while, it was

critical particularly for a country like

India that was very reliant on or still

is on uh crude imports.

>> I mean, Russian oil exports have been

still quite robust throughout this

entire time. Uh one interesting thing

that's happened, it's quite technical,

is there have been Ukrainian attacks on

their oil uh refining capacity. And so

because they weren't able to refine some

of that oil, they're actually exporting

it. Um and and oil exports out of Russia

had been very strong. Um you know, there

was a period where um the the oil on the

water uh which was sanctioned by the US

uh did get waiverss and and India was

able to take some of it. Um but but

India has found other workarounds either

through reducing demand either through

finding other suppliers um you know

you've you've seen actually despite

everything that's happening with with

the straight of Hormuz you've seen the

oil producers in the Gulf get a bit

creative with how they're getting that

oil out. Not only do you have the East

West pipeline for for Saudi Arabia that

reroutes their oil from from the Persian

Gulf into the Red Sea so they can get it

out through the Bab al-Mandab Straight

uh to Asian buyers. Uh you're also

seeing uh companies like ADNO uh which

have been fing oil out uh on ships that

have literally gone dark. They turn

their lights off um they turn off their

AIS ship tracking and they go through

the straight of Hormuz to ferry out some

oil. Um and this dark activity has also

um inc you know been about 2 or 3

million barrels per day. Um of course

that that's nothing compared to the 20

million barrels per day but some oil is

still finding their way out. The US has

also been exporting quite a bit. And an

interesting thing liqufied natural gas

qatar was a major supplier of LG to um

to India uh before the war. Uh but when

the war started Qatar had to essentially

halt their exports and India had to find

alternatives and the alternative that

they found was the United States. The US

became essentially the biggest LG

supplier last month to India. And you

know that that shows um that the not

only is the US you know able to provide

oil to the market but as the world's

biggest LG exporter they've been able to

balance it as well all thanks to the the

shell revolution. So for the sake of

argument, let's say that indeed we have

reached some sort of inflection point

and this peace deal between the US and

Iran. One is once it is finalized on

Friday will remain in place and the

market can begin to rebuild and recover.

One senior US official was quoted in a

Bloomberg News story as saying it could

still take as many as 2 weeks for

shipping to significantly increase. Do

you think that's an accurate assessment

or maybe maybe a little understated?

>> You know, according to the analysts that

we spoke to, that could be a bit

understated. I think, you know, we're

hearing not so much weeks, we're hearing

more months. Um, and there are a few

reasons for that. Of course, you have to

get all the the the the crews and the

exporters, you have to get the

facilities up back to their normal

capacity. Some of them were damaged.

They have to get repaired. Um, but at

the same time, a lot of the ships have

been subleasased. Uh, they've been

subcharted. So these ships are there

many ships that are used in the Persian

Gulf. But when the war began and they

were stuck outside of the straight of

Hormuz, Adnock, Qatar Energy, Saudi

Aramco, they subleasased their ships to

be used elsewhere cuz they still wanted

to, you know, make some money on on

these vessels that were essentially not

servicing the Persian Gulf. And those

ships are all over the world um you know

being used for different purposes.

Getting all those vessels back to the

Persian Gulf will also take time. So

it's not just a matter of safety, it's a

logistical bottleneck uh problem that

needs to be solved as well.

>> Okay, Stephen, good stuff. We'll leave

it there. Thank you so very much.

Bloomberg Stevenchinsky, he is team

leader for the Asia Energy Unit joining

from Singapore here on the Daybreak Asia

podcast. [music]

Welcome back to the Daybreak [music]

Asia podcast. I'm Doug Krer. Markets

across Asia are reacting to what appears

to be a deal between the US and Iran to

fully open the straight of Hormuz on

Friday. And that's where we begin our

conversation with Tai Quay. Tai is APAC

chief strategist at JP Morgan asset

management. He spoke with Bloomberg TV

host David and Ivon Man.

>> We're just getting some lines coming

through here. Taiwe on this negotiations

going into Friday. Yep. Assuming things

do reopen on this trade of horm Friday,

what does that mean for market?

>> Well, I think obviously the natural

reaction you saw yesterday already is a

risk on sentiment uh because ultimately

we've just managed to avoid the worst

case scenario when it comes to the

macroeconomy on oil, gas and petroleum

or petrochemical disruptions. So I think

from that perspective it will still take

a number of weeks if not months for

normality to be fully restored in terms

of flows in terms of inventory going

back to a more comfortable level. Uh oil

price will probably stay at above 80

bucks for quite a long time. Um but

nonetheless I think the the shortages

that's been hitting a lot of economies

especially in Asia that is likely to be

averted and that's why you've seen a

strong positive reaction. For example,

in Indonesia, you saw the rupee rebound

quite a bit yesterday. Um, so I think

the the good news is from an investment

perspective, it's no longer just about

AI and tech. There could be a cyclical

factor now coming back into play to help

investors to generate returns.

>> Yeah. When now that you see the risk

receding a bit, how how do you bring

back those pre-war playbooks? Do you go

back to what worked in January, in

February, or or you know, as you

mentioned, there there's some really

unloved markets out there. Is that where

the value is now?

>> Well, I think for some of these markets,

for example, in Southeast Asia, we have

to be still reasonably selective because

it's not just oil prices. Domestic

policies also play a role as well. Uh

but at the same time, you know, we've

seen a lots of enthusiasm on tech, on

semiconductors. Look, the truth is for

markets like Taiwan and South Korea, the

shortages in memory chips and CPUs,

they're not going away anytime soon. But

um could we still see a sustained

earnings growth that we've seen in the

last couple of quarters that is a bit

more questionable. So I think that's is

this provide maybe similar paper in a

way that u you could be looking at banks

looking at uh industrials and the other

question is after this war hopefully

again uh we we keep this at bay for for

a sustained period. What does that mean

for global energy supply? Are companies

or or governments going to diversify

their energy sources both geographically

and by type? Uh what does that mean for

defense? Um we've seen in this war high

volume, low unit cost weapons like

drones really play a huge role. Does

that change how governments are going to

spend their defense spending? It's not

just about spending more, it's about

spending in the right places that will

be effective in both defense and also

know deterrence to potential attacks.

The last 18 months have been dominated

by either tariffs or the war. Assuming

the war is over, assuming that's a big

if. What's the is there anything on the

horizon that looms large over the macro

macro picture or does that seem clearest

in the last two two years?

>> I think two things. One is obviously you

still have the lingering inflationary

impact. The good news is we have not yet

really seen a um a pickup in inflation

expectation. So this week the Fed I

think they rightfully stay put. Um the

question is do they expect inflation to

stay or do they see this as only a blip

or just a one-off event? I think that's

absolutely critical to observe this

week. The second thing is obviously

there could still be quite a lot of

political changes. We have a uh a local

election in the UK this coming week. Uh

we could see you know more challenges

for the prime minister. Um and of course

we've got the midterm elections coming

up later in November in the US and that

again could change the calculus of the

Trump administration how they apply

policies. If they don't have the full

support of the Congress anymore how will

they execute their agenda? for example,

do they rely still more on executive

decisions or executive orders? Uh we've

seen tariffs now coming back into play

with the section 301 section 232

investigations. So I think you know the

politics I think will come back into

play but maybe more domestic rather than

foreign policies.

>> We were talking about all this this

these IPOs that are happening in the US

when it comes to uh frontier tech or AI.

Um and then there's a lot of in the bond

markets as well. I mean some would say

this is a signal of of a peak in in this

whole sort of trade. I mean do you see

it that way?

>> Well there's no doubt that in terms of

momentum in terms of tech u enthusiasm

there's a very high level of which and

some of this being reflected in

valuations but at the same time um are

we in a sort of irrational state in

general? Probably not. If you look for

example Mac 7 year to date, three Mac 7

stocks is down year to date, four is up

and the best performing one is only

about 15%. So I think what you've seen

is a rotation of um tech stocks from AI

model generators or or or AI model

companies to this year more

semiconductors. So I think investors are

rotating. um it does not necessarily

mean there's a peak but I do have a

question of whether we can still see

that strong level of return generation

in the second half of the year and

that's why you know when outlet we sort

of advocate let's broaden our investment

horizon a little bit more both

geographically and also by sectors not

just relying on technology I think that

is still an attractive place but some of

the more cyclally sensitive sectors like

financials like industrials maybe even

consumer discretionaries could come back

into fashion um how do you feel about

Korea and Taiwan now

>> um I think the fundamental are still

pretty robust if you look at for example

um Cosby uh price to earning ratio is

still single digit at this point so the

fact that we've seen massive performance

in the markets it's been matched by

massive performance in earnings growth

now I don't think anyone realistically

expecting 50 100% earnings growth in

2027 but

>> the um the the the shortage in

manufacturing the pricing power of a

particular number companies, those are

still likely to be sustained. So, you

may not get the 100% earnings growth,

but it's not going to collapse right

away either as long as companies are

still investing in AI. So, um I think

you know, again, I'm not expecting the

same degree of performance in the second

half, but I think the fundamentals

supporting what we've seen so far is

still is still reasonably robust.

>> For China though, you you're saying that

sector level catalysts are are emerging.

What are those catalysts now?

>> What does that mean? So look, I think

the the challenge here is the um the the

the index performance has been quite

disappointing, especially relative to

the rest of the region. But if you think

back to the index, it does not have a

lot of the sexy stuff that's been

driving the US and the rest of Northeast

Asia. Semiconductors, um AI

hyperscalers. So from that perspective,

you know, those companies in China have

actually done quite well both on in

China and also in Hong Kong. But because

they are only a very small part of the

index, it's not big enough to drive the

index performance relative to Taiwan or

South Korea. So I think that's where we

need to focus more on and that is look

clearly China has a policy to become

more independent on semiconductors on

models on inference. Um and you will see

more public resources and uh business

demand going into these areas. So you

know rather than just thinking about

where uh the CSI 300 is going to be or

Hangen Tech Index going to be you really

have to focus on specific sectors such

as AI as well as semiconductors.

>> That's Tai Quay APAC chief strategist at

JP Morgan Asset Management speaking with

Bloomberg TV host David and Yvon man

bringing you their conversation here on

the Daybreak Asia podcast.

Thanks for listening to today's [music]

episode of the Bloomberg Daybreak Asia

Edition podcast. Each weekday, we look

at [music] the stories shaping markets,

finance, and geopolitics in the

Asia-Pacific. You can find us on Apple,

Spotify, the Bloomberg Podcast [music]

YouTube channel, or anywhere else you

listen. Join us again tomorrow for

insight on the market moves from Hong

Kong to Singapore and Australia. I'm

Doug Krer, and this is Bloomberg.

>> [music]