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