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Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. Crude oil price has declined during New York trading after President Trump said the Straight of Horn moves will fully reopen by Friday. That's after the US in Iran finalize their piece deal. In Switzerland, we had WTI dropping four point nine percent to eighty seventy five, 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 Stephen Stepchinsky. Stephen is team leader for the Asia Energy Unit and he joins from Roth 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 as as to what we're going to be grappling with and 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 there isn't any change to the physical oil supply right now. You're not seeing more ships going through horror moves. In fact, it really won't open up, according to Trump, until at least Friday, when they clear minds
and prepare safety measures. But for the fact of the matter is, you've seen this big drop in prices primarily because there is this expectation that we're not going to see a wider conflict in the Middle East, that this is one step towards a larger, more concrete piece deal and perhaps the resumption of flows. But that being said, you're right, we haven't seen the text, we haven't seen the mechanisms that are needed for ships to go through.
While Iran's news agency says that there will be a sixty day period during this ceasefire and peace period where essentially ships won't have to pay a toll, you know, maybe in the future you will be required to pay, and that creates a huge complication because the Trump administration has pushed against that idea for a long time. They
want free navigation and travel through the Strait. 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 representing itself in that pretty big drop in oil and gas prices.
Do you have a sense of how elaborate this D mining operation needs to be in the strait of form moves? I know the G seven summit is underway and 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 D mining. Talk to me a little bit about 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. You know, it isn't immediately clear how many mines there are. Where the mines are laid, it will take time to clear the mines. There are, of course safe routes to go through horror moves, but it's either through Iranian waters or hugging the coast of Oman, which at some points can get quite shallow. So the removing the mines is a technical process. It
will take time. 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 strait to avoid the mining area. So I think, you know, you could see an increase in traffic from Friday. But again, like you said, is it does go down to how comfortable are the ship owners, how comfortable are the captains,
how comfortable are the crews, what's the insurance situation. 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 crewed stockpiles are at a new five 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 oil prices. The reason why we haven't seen one of the reasons why we haven't seen a giant surge in prices like we saw in twenty twenty two, for example, after Russia's invasion of Ukraine has been due in Part two, larger 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 the US spr the strategic petrolum reserve fall to the lowest level in decades. And now we're at a point where if you continue to fall at the current rate, you will get very close to the bare minimum operational level. So you need to have about one hundred and fifty million to two hundred million barrels of oil within your tanks
to keep them kind of operating. You can't really go below that point or the facilities begin to degrade, and we're below four hundred now, and if the SPR releases continue as the US had planned, we're going to get to about two fifty. So we're starting to get to that danger level where you really don't want to go much lower. So I think that's really key perhaps to
the decision making by the Trump administration. They do realize that the longer this goes on, the mort 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 eighty one dollars, the brand contract is around eighty three. And you, in particular, Stephen, have witnessed firsthand a lot of the volatility over the last two months that we
have seen in 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 volatility is certainly going to continue, according to the traders and analysts that that we've spoken to. I think there is an expectation that if there is a flare up, you know it isn't you know, we've been here a few times, perhaps not you know, there wasn't a deal, kind of like this sign. But there have been several times where the US and Iran we're close to something and there will be a
flare up of attacks. There have been drone attacks within within the straight There there is that risk going forward, and I think the market is trying to deal with that and also compensate how how they manage that risk. So there is also the matter of China in demand. So it's not just a horror moves issue when it comes to volatility, it's also Chinese demand because one of the things I was balancing the market beyond the spr releases was also an enormous drop in Chinese oil imports.
And if you start to see China kind of come back and buy cargoes and buy shipments and their imports rise, that tightens the market and then add more volatility potentially going forward. So instead of a straight line down perhaps to the pre war levels of maybe Brent in the sixty or seventy dollars range, you're likely going to be seeing spikes and valleys. That being said that the endless I think, aren't really expecting a return to one hundred
and twenty dollars brent. Instead, you could see in this range of the eighty dollars, maybe even touch one hundred if these peace talks were to break down. 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 crude imports.
I mean, Russian oil exports have been still quite robust throughout this entire time. One interesting thing that's happened, it's quite technical, is there been Ukrainian attacks on their oil refining capacity, and so because they weren't able to refine some of that oil, they're actually exporting it. And oil exports out of Russia had been very strong. You know, there was a period where the oil on the water, which was sanctioned by the US, did get waivers and
India was able to take some of it. But but at India's found other workarounds, either through reducing demand, either through finding other suppliers. You know, you've you've seen, actually, despite everything that's happening with the straight of horror moves, 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 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 to Asian buyers. You're also seeing companies like Adnoc which have been ferrying oil out on ships that have literally gone dark. They turn their lights off, they turn off their ais ship tracking and they go through the Strait of Hormones to ferry
out some oil. And this dark activity is also you know, been about two or three million barrels per day. Of course that's nothing compared to the twenty 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 liquefied natural gas. Qatar was a major supplier of energy to India before the war, but when the war started, Qatar had to essentially halt their exports in India had to find alternatives and the alternative that they
found was the United States. The US became essentially the biggest LNG supplier last month to India, and that shows that the not only is the US, you know, able to provide oil to the market, but as the world's biggest LNG exporter, they've been able to balance it as well, all thanks to the shale revolution.
So, for the sake of argument, let's say that indeed, we have reached some sort of inflection point and this piece deal between the US in Iran 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 Bloomberg News story is saying it could still take as many as two 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. And there are a few reasons for that. Of course, you have to get all 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. But at the same time, a lot of the ships have been sub leased, They've been sub chartered.
So these ships are there are many ships that are used in the Persian Gulf, but when the war began and they were stuck outside of the straight of horror moves add Knack, Qatar Energy, Saudi Aramco, they subleased their ships to be used elsewhere because I still want to, you know, make some money on these vessels that were essentially not servicing the Persian Gulf, and those ships are all over the world, you know, being used for different purposes.
Getting all of those vessels back to the Persian Gulf also take time, So it's not just a matter of safety, it's a logistical bottlenecks problem that needs to be solved as well.
Okay, Steven, good stuff. We'll leave it there. Thank you so very much, Bloomberg. Steven Stepchinski. He is team leader for the Asia Energy Unit, joining from Singapore. Here on the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm Doug Prisner. Markets across Asia are reacting to what appears to be a deal between the US and Iran to fully open the straight off moos on Friday. And that's where we begin our conversation with Tykwai. Ty is
APAC chief strategist at JP Morgan Asset Management. He spoke with Bloomberg TV host David I. Glase and Ivon Mann.
We're just getting some lines coming through here, taiway on this negotiations going into Friday. YEP, assuming things do reopen on a straitor firm moves in Friday, what does it mean for marketing?
Well, I think obviously the natural reaction you saw yesterday already is a risk on sentiment 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 months, for normality to be fully restored in terms of flows, in terms of event
triggering back to a more comfortable level. Oil price will probably stay at above eighty bucks for quite a long time. But nonetheless, I think 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 repeat rebound quite a bit yesterday. So I think the good news is from an investment perspective, it's no longer just about AI
and tech. There could be a cycical factor now coming back into play to help investors to generate returns.
Yeah, now that you see the risk receding a bit, how do you bring back those pre war playbooks? Do you go back to what worked in January in February or you know, as you mentioned, there are 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 originally selective because it's not just oil prices. Domestic policies also play a role as well. 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 ships and CPUs, they're not going
over anytime soon. But 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 provide maybe similar paper in the way that you could look at banks, look at industrials. And the other question is after this war, hopefully again we keep this at bay for a form of sustain period, what does
that mean for global energy supply? Our companies or governments going to diversify the energy sources both geographically and by type. What does that mean for defense? We've seen in this war high volume logan that costs, weapons like drones really play a huge role. Does that change how governments are going to spend their defense spend It's not about spending more, It's about spending in the right places that will be effective in both defense and also deterrens to potential attacks.
The last eighteen months have been dominated by either terrists or the war. Assuming the war is over, assuming that's a big if. Is there anything on the horizon that looms large over the macro picture? Does that seem the clearest in the last 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 picked up in inflation expectation. So this week the Fed I think they rightfully stay put. 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 really there could still be quite a lot of political changes. We have
a local election in the UK this coming week. We could see more challenges for the Prime minister. And of course we've got the midterm elections coming up later in November in the US, and then again could change the calculus of the Trump administration. How they apply policies if they don't have the fulls upon the Congress anymore, how they execute their agenda, for example, do they rely still
more on executive decisions or executive orders. We've seen tariffs now coming back into play with the section three oh one, section two three two, the 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 these IPOs that are happening in the US when it comes to frontier tech or AI, and then there's a lot of in the bond markets as well. I mean, some would say this is the sagle of a peak 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 enthusiasm, there's a very high level of which and some of it's being reflected in valuations. But at the same time, are we irrational state in general? Probably not. If you look for example, Max seven year to date, three MAX seven stocks is down year to date, four is up, and the best performing one is only about fifteen percent. So I think what you've seen is a rotation of tech stocks from AI model generators or
AI model companies to this year more semiconductors. So I think investors are rotating. 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, in the midia of advocate less 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 most cyclically sensitive sectors like financials, in industrials, maybe even consumer discretionaries could come back into fashion.
How do you feel about Korea and Taiwan?
Now, I think the fundamental are still really robust. If you look at, for example, cost b priced earning ratio is still single digit at this point. So the fact that we've seen massive performance in the markets has been matched by massive performance in earnings growth. Now, I don't think anyone realistically expecting fifty hundred percent earnings growth in twenty twenty seven, but the shortage in manufacturing, the pricing power of a particular of companies, those are still likely
to be sustained. So you may not get one hundred percent earnings growth, but it's not going to collapse right away either, as long as companies are still investing in ai So I think, you know, again, I'm not expecting the same degree of performance in the second half, but I think the fundamental supports and what we've seen so far is still reasonably robust.
For China, though you're saying that sector level catalysts are are emerging, what are those catalysts now and.
What does that mean?
So look, I think the challenge here is the index performance 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 ar hyperscalors. So from that perspective, you know, those companies in China have actually done quite well both on shore in China and also in Hong Kong, but because they are only a very small part of the index, is 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's the clearly China as the policy to become more independent on semiconductors, on models, on inference, and you will see more public resources and business demand going into these areas. So you know, rather than just thinking about where the CSI three hundred is going to be or hang San Tech index is going to be, you really have to focus on space et sectors such as AI as well as semiconductors.
That's tiquay Apac, chief strategist at JP Morgan Asset Management, speaking with Bloomberg TV host David Inglase and Devon Mann, bringing you their conversation here on the Daybreak Asia Podcast. Thanks for listening to today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at the story shaping markets, finance, and geopolitics in the Asia Pacific. You can find us on Apple, Spotify, the Bloomberg Podcast 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 Prisner, and this is Bloomberg