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Oil's Whipsaw Ride, Oracle's Data Center Dilemma, and is Defense the New AI? 3/10/26
00:49:52
Oil prices post their biggest daily loss since March 2022 after hitting above $119 just two nights prior. Will Oracle's data centers be able to accommodate Nvidia's next-gen chip? Plus, defense stocks have been outperforming the tech trade this year, but is there more room to run?
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At Janice Henderson, we strive to deliver better outcomes through insight led investing innovation
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for clients and a partnership approach that's core to our identity.
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I'm Jessica Leoncini, Head of Fixed Income Client Portfolio Management.
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I'm passionate about my role in investments. It allows me to partner with our clients, simplify fixed income, and support them in achieving better outcomes for their clients. Janice Henderson, Investing in a Brighter future together not every sale happens at the register before AT&T business Wireless checking out customers on our mobile POS systems took too long.
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Basically a staring contest where everyone loses.
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It's crazy what people will say during an awkward silence. Now transactions are done before the silence takes hold. That means I can focus on the task at hand and make an extra sale or two. Sometimes I do miss the bonding time. Sometimes AT&T business Wireless connecting changes everything. You're listening to the Exchange. Here's today's show. Thank you very much Scott and welcome to the I got kind of the Miami look up here in New Jersey. I'm Kelly Evans. The story once again is in the energy markets today as crude WTI crude is down 13% to around 82 a barrel. We were at 119 yesterday. The IEA saying it will hold a quote extraordinary meeting later today about a possible oil reserve release. CEO of Saudi oil giant Aramco warning that the war threatens quote catastrophic consequences for the global oil market. Again all of this the drop in oil helping the stock market turn positive. Mid morning you can see green look at the NASDAQ up 3/2 of a percent. The Russell's are up 1% about a 29 point gain for the S&P were up to 77 on the Dow Communication services tech once again taking the lead. That's been a pattern. Energy and health care are lagging. The software trade also showing some signs of weakness after a nearly 8% gain last week. The IGV down today along with some key components like Workday, Unity, ServiceNow. Those declines of call it 2 or 3%. But let's begin with what's been the stock market driver, the whipsaw action in crude over the last several sessions. Take a look at just the last two days. Crude hit 119 a barrel again that was about 11:30pm on Sunday night. And then as we saw after hitting that super high level, as soon as we started moving throughout the overnight session and into the morning, it was a very different tone. In fact we started selling off all the way until about 3pm Then the President said the Iran war will end quote very soon and we took even another leg lower. Oil was steady overnight and throughout most of this morning before a drop around 10am when the IEA said it's planned to meet. Planning to meet today to decide on a potential release of barrels from reserves. So how could this all play out now? What are we to make of this action? Joining me now is Jeff Curry. He's the Chief Strategy Officer of Energy Pathways at the Carlyle Group here on set with me. I know you've been in tons of meetings, Jeff, about this, with everyone's kind of points of view on what may be going on with the Iran war, but how shocking is it to see oil at 82 today? And what does that tell you?
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C
It tells you that this market's entirely driven by sentiment right now. I think the bottom line is the market is not recognizing the severity of the situation. I like to make the following observation, Polymarket. After all, this is pricing above a 90% probability. This Straits remain closed till the end of March. That's 31 days. And you look at, let's say, you know, netting out Saudi redirection, you're around 18 million barrels per day, that's likely lost. Then you can add another, let's say 2 to 3 million barrels per day of hoarding. Odd. So that's get you 21, 22 million barrels per day over 31 days.
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Right.
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C
That's close to, you know, well over 600 million barrels.
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But if Poly market, if we take this as kind of, you know, you know, the odds like that, we're talking about a possible quote unquote closure for that long, the consequences would be catastrophic.
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C
Yeah, catastrophic.
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B
So I don't understand how we can have, you know, a polymarket pull completely to one side and the most liquid, most important, most affected, the price of oil itself is completely to the other side of the story. That just makes no sense to me, by the way.
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C
Same thing with the financial markets. I'd say it's not only being mispriced in oil, but the rest of the financial complex. And I think part of it, there's a level of complacency. They won't. Something's going to happen between now, in the end of March to actually open it because we know how catastrophic it is and I think that's the play that the financial markets are betting on. But every single expert out there is going to tell you two to four weeks and they're going to agree with polymarkets. So something's misaligned here.
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B
Is it possible, you know, there've been Some reports from Goldman and others basically indicating that there is ship traffic starting to move throughout the strait. So is a trickle and it is apparently profitable. You can get insurance coverage. The freight rates are so high that if you can get through, is it actually possible that there's enough of a trickle that people are saying even despite all the headlines, this activity is going to start to reemerge?
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C
Well, we don't know if those are, you know, ships carrying food or something of that nature. But I think when we look at the volume from our standing from insurance, the crews, the crews don't want to even want to get on the ships. You know, it's a very dangerous strait to go through right now. And if it's a trickle, it's not going, it's a drop in the bucket relative to, to how large of a disruption. And this whole, you know, IEA coordinated response, it's still, it's not going to be enough to actually dent anything here. I like to point out there is no policy response that can stop crude ascents until you open the straits.
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B
Exactly. And we know that people have to start shutting down production if you can't get shutdown.
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C
And they already are. You're at like 6.57 million barrels per day of production shut ins in the Gulf.
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B
Wow. And so yeah, so that I understood when we were at 120 on that. What I don't really understand is being at 82 now and is it perhaps because Russian supply is reentering the global markets? Could that be a piece of it?
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C
I think it was already being redirected into Asia and you look at India, it's already signed up for SIPs, which is that cross border interpayment system for China and India which is a ding to the Americans in their swift system. So they're actually pushing more people into the Petro one system, which is the SIP system. So you know, you're moving that direction really quick and there's a lot of supply for Russia that's being redirected. They took the LNG that was flowing into Europe redirected into the East.
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B
How much do you think the US is trying to do behind the scenes either explicitly or kind of tacitly allowing some of these things to happen. Basically with this idea of whatever it takes to lower the oil price right now is fine.
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C
Yeah. And I think they're pulling every string they possibly can. You know, whether if it's allowing sanctioned barrels to flow. I think by releasing the spr, it's a signal to the market that they don't believe this thing's going to resolve itself in the next couple of days. And also, you got to ask that SPR in the US Is meant for US Refineries. There's not a problem in the US the problem is in Asia. It's in places like Singapore, where jet fuels at $281 or $231 a barrel. So how is releasing European G7 SPR resolve the situation halfway across the planet?
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Right. So do you think there's a risk that after this sigh of relief, we're going to see this incredible spring, this coiled spring back to the upside, back above 100, because that's what Peter Bockbar this morning said. The response from kind of the administration or the world seems to indicate $100 oil is the pain point. And so if that's true and we go back up in that direction again, do we just keep bouncing around?
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Yeah.
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I mean, when you get this size of the magnitude of this shock means you're going to see extreme volat, you know, like you've seen silver or copper, you know, a couple of months ago. You see it in power and gas markets. Gas in Europe in 2022, extremely volatile. And, you know, in terms of $100 a barrel you got there and the equity market didn't care.
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We are down 15% on that. You can see it on the screens we're watching in here, $80 and change. Could it be, you know, there were reports last week the administration might short if, you know, oil futures or something like that. But does this seem to you to be something where there's intervention to kind of push the oil price down? Or does this reflect to you the news flow that we've kind of had on the situation?
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C
I mean, there's been mysterious, you know, 11 million barrel shorts on ice. You know, that's a big short. So yes, there's potential for intervention here, but interventions like price caps, it doesn't solve the overall problem. You know, it takes the sentiment down for a little bit. But the bottom line is if this goes on for another week, you got a really serious problem. And if it goes as long as any exports or poly markets, you know, I'm not going to use the term that the, the CEO of Aramco used because I don't want to be quoted for it, but that's probably how severe the situation is.
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B
So just also to kind of talk about Iran, conflict aside, you are pretty bullish on the energy space right now. And in fact, you're. Even though we've seen tech outperforming in the early stages of this crisis. For you, this is a rotation that could potentially pull capital into energy and away from tech.
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Yeah.
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And so I just think it's important to kind of talk about that. A lot of people view this as, hey, this Iran war happened, it's going to go away, everything goes back to normal. But I think for you, there's a much bigger shift going on.
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C
By the way, every time you have one of these rotations, I called it originally from new economy to old economy, asset light to asset heavy. And I like the new term halo. Every time these happen with a geopolitical event. Cold War, September 11, GFC, Ukraine War. We rotated briefly before I took off and here we are and we were rotating before this happened. This seals the deal. We're not going back to the world that existed on the morning of February 28th. You're going to see sustainably higher oil prices. Whether it's from hoarding, you're going to lose production in the Middle east, whether if it's on the LNG side, oil side, you're not going to restart 7 million barrels per day without any hiccups. It's going to take months, insurance contracts, everything.
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Right. And we have yet to even see the full. What. Where do you think the oil price settles? Based on what we know as we know it's a hard question, but let's just say there's some kind of, you know, the conflict is calm within the next couple. I don't even know what that means, but where do you think the oil price kind of settles from here?
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I mean, it's going to be a lot higher. You know, I don't want to put a number because we don't know how high this is going to go. I think the thing here that's very different is before you go, oh, price goes up, create some demand destruction, you fall back to some new equilibrium value. What is really different this time? And I'd argue the US is more vulnerable to a supply shock and the world is more vulnerable because of the energy transition. We've taken all the oil out. The easy substitution.
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You said back in the 70s, you could take the train and ride the
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bike or do something.
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Ride a bike.
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Yeah, yeah. This time around, it's things like, you know, aircraft, marine bunkers, fertilizers, petrochemicals.
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And also importantly, because of the dynamics of the fiscal position, I think you're one of the few people who would go out and most people say, guys, this is nowhere near as bad as it was in the 70s. You're one of the only people saying that maybe it's worse also because of our debt dynamics where if CPI goes up and we all say, well, the Fed doesn't care about cpi, well, our spending is indexed to it, so the deficit goes up. When the deficit goes up, then you've got a deficit debt interest problem that also crowds out private credit. So I just thought that point was
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C
really, by the way, just to give you some numbers on it, if prices went up to 120 instead, it would increase the deficit by $150 billion. That's a lot of debt issuance. But let's put this in the context that, you know, oil has been trading really heavy for the last two years. I think that sparked that oil glut story because they couldn't figure out why it was so weak. And I think I finally put my finger on there's no more dollar recycling coming out of the Middle East. And you can see the numbers. It stopped when the US and Europe froze the central bank assets of Russia because at that point on they quit buying U.S. treasuries, bought gold, bought other assets, but nothing in the US and so what it did is before oil price would explode, you would get the recycled dollars come in. It was like a QE effect, right?
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B
Russia might, you know, have to pay the higher price, but then they'd buy
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C
our Treasuries and buy our Treasuries. That created a credit boom and you softened the blow. So it was a shock absorber. Now it's a shock amplifier because it's going the other direction. So then you, okay, so you don't have that recycled dollars coming in. You have the inflationary impact on the indexation to the transfer payments and you're going to balloon the deficit by $150 billion and you have no more your credit pool shrinking. So yeah, the credit shock is pretty, pretty, pretty real.
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Jeff. No few can talk us through it. I hope you're wrong in a way.
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By the way, there's one last number I want to throw out for you to think about. When you look at the share of the equity market, 3% is energy today in the 70s, 25%. And then we look at the oil shorts, it is 53%.
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B
But I take your point, which is when oil was 25% of the portfolio of a typical person's portfolio or when it rises, you get that natural cushion, that natural offset. Now that it's only 3%, there's few people sitting out there benefiting from the you know, the performance of energy stocks or the rise in oil prices.
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The paradox of energy dominance.
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B
Yeah, we'll leave it there. Jeff, thank you so much. Appreciate it for having Carlisle's Jeff Curry here on set with me today. Coming up, we're only a week away from the Fed's meeting. Good luck to them figuring out what to do amidst all of this. Should the committee look through the spike in oil prices and hold rates steady or should they hike to hopefully avoid a repeat of some of those pandemic mistakes? We'll debate that. Plus, former U.S. ambassador to China Nick Burns and RBC's Halima Croft will weigh in on the latest news flow on the Iran conflict. We'll look at how long the oil supply disruptions could last and the role that China could play. We're at session highs across the board as the oil price threatens to fall below 80. Right now, the Dow erasing a 300 point drop. It's up 325 while the small caps are up 1%. The exchange is back after this.
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The recent surge in oil prices forcing the Fed once again to decide whether they should look through the uptick. Senior economics reporter Steve Liesman is following this debate. Steve, Even though we're down 15% today. We've gone from 68 before the conflict to about 80 right now.
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F
Yeah, there's inflation going to come through. But first, Kelly, came the tariff price increases and the Fed largely look through it. Now comes an oil price increases that will surely show up in inflation. The question is if the Fed should close its eyes once again. It's a debate already dividing the committee. CNBC looked at Fed policy in all instances. Take a look at this chart here where crude prices jumped 25% compared with a year ago and stayed there at least six months. The Fed's reaction has changed. It once automatically tightened. But since 1980, it's been a more nuanced response depending upon what's happening economically at the time. For example, in 79, 80, well, there was that sharp tightening you remember in 0203 it eased. In 0405 it was a gradual tightening, more of an easing. In 0708 with the GFC in the background. Not in the background, actually the foreground 18 and 19 it tightened, then it eased off and of course it kind of missed the boat in the pandemic. Reasons for looking through the surge include the oil price surge is likely to be temporary, although not according to our last guest right here. There's concern that extreme tightening can actually worsen a downturn. Bernanke and co authors found that in a 1996 paper there's greater focus on inflation expectations rather than just inflation and changes to the economy, including oil being less important to growth and more flexible labor markets. But reasons for concern? Well, there are several. Inflation is already above target. The Fed is already looking through tariffs. Expectations are stable but on the high side. And there's concern about the commitment to the target if it looks through a second round of price increase. Now, several Fed officials have suggested easing into the price surge, but the center of the committee more supporting pausing with rates somewhat above neutral. Their hope is that the current level of rates could see the Fed and the economy through the price surge without a need to hike.
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B
Kelly, did you hear a little bit of what Jeff Curry was talking about a moment ago?
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F
Heard a lot a bit of what he said and I called under the
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desk but there was something very interesting in there and I'd love to watch a war someone try to try to explain this dynamic if he's right, that the concern now is that when oil prices rise, we don't get that treasury buying a little bit because we've imposed sanctions on the world. Maybe they're less interested in kind of they're being a little more balkanized and we just had that pretty bad three year auction. You know I just, I think through this and go okay so what does the Fed do here? Maybe the oil price shock is, is not so bad right now. Crude just fell below there it is 7873 on the session today. We're down 17%. That's a whole other story. But the extent to which when we spike we get these spikes in treasury yields, you know we don't get that slowing economy, that international bond buying, I don't know.
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Well so what will be is a different circulation of dollars compared to last time. The story had always been we would be shoveling money overseas when this happened and that gets recirculated back into bonds. This time what's going to happen is because we produce so much oil and by the way LNG is also moving. I don't know if you've listened to Pippa Stevens. That's also something that's been on the move. It's a recirculation within the country and it goes from the users of oil to the producers. What they do with it. That's really an important question Kelly in terms of growth because what we know is that since I believe it was the 2015 or downturn in oil prices, oil companies have been much more prudent with the use of funds they promised their shareholders. We're not going to go and wildcat like crazy anymore. We're going to be more careful with our money. So you would be unlikely to see a huge increase in drilling as a result of these higher oil prices. What you get I suppose is an increase of dividends, maybe one time shareholder but it doesn't. Turning that into GDP growth on a more sustained basis is a more difficult.
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B
Curry's in the camp. You know, you want to be an energy, you're going to do well. The sector is going to grow this whole decade. I think a lot of people are afraid of that. They're afraid to you know tech was such a high performing area for so long it feels wrong to pile into
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well you know Jeff's got the back end increase which is this, which is all the tech is requiring tons of energy.
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Exactly. Bingo.
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I think it's so ironic. Bingo. That's oldest industry in the world is that well at least in the modern industrial age is the one that's benefiting so incredibly from this incredible front end advancement.
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When it comes to his quote is we believe it will be enough to divert consumer spending from AI to gas and power. Petrol and power and enough to impact the economics of compute.
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Well, I will tell you personally, between filling up my car with gas and paying chat GPT, I'll fill up the car with gas.
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B
Well, yeah, if you could only do one, I might feel like that's really.
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If you stayed home.
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B
Yeah, exactly. If you could. Steve, thank you for now. Steve Liesman. So as we show you this oil price chart again, let's bring in KKM Financials, Jeff Kilberg because Jeff, who is also a CNBC contributor, I'd like you to just react and emote. I mean we're at 78 on WTI now. Just 77. 77. Can you talk a little bit about what you think is going on here?
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D
Well, what goes up must come down. But to kind of push back and refute your first guest who seemingly was sponsored by polymarket. I don't know if he has a name, image and likeness contract with polymarket. But put it in context, he was
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taking the other side, by the way. He was saying if they're, if they or Kelshi or whoever, the, if the markets are right, that the Strait of Hormuz is quote unquote closed for a few more weeks. He's like, why is the oil price at 78? It makes no sense.
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D
The markets dictate where everything is going. Not Polymarker. Polymarket last month had $7 billion in notional. The stock market is 70 trillion with a capital T. So I can debate him at a later date, hopefully over a beer at some point. But my point is that we are seeing the magnitude of this move. It was sensational. Just yesterday we had a 6% pullback in the S&P 500 now were 2 and a half percent away from new all time high. The VIX went up and kissed 35 Kelly. Now it's a 35% lower and going lower. So I think it's sensational to see this type of velocity magnitude. But this is, do you believe, let
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B
me, let me ask it differently, Jeff. Do you believe the market reaction? Do you think this is a little too good to be true or do you think this is perfectly logical, real time discounting? 1 second we have oil prices moving even lower. If you guys can scroll up for a minute please, because Energy Secretary Chris Wright is saying that the US Navy has successfully escorted an oil tanker through the Strait of Hormuz again, this leg lower in the US Oil price. Just the last couple of moments where we're down to 78 or 77 a barrel comes as the US Energy Secretary Chris Wright says the US Navy has successfully escorted an oil tanker through the Strait of Hormuz and that's got us to an 18% drop. And WTI as Jeff is hollering in the back there to below 77. We were just kissing 76. Jeff Kilberg so the exact question I was just asking you then, this news flow we're going to tinker through, it makes sense to you that we're at 76 on WTI.
- [22:51]
D
It does. But you have to realize did it make sense that we're at 119 yesterday? So you get these reactions, these overreactions, exaggerations, but we have to keep it in context that crude oil just a month or two ago was traded in the 60s. So when you see this type of historic move and yesterday, Kelly, it was a historic move. So it does make sense. You're seeing a lot of people being flushed out of their week long. So there is a lot of volume going in the CME futures right now on crude oil. But this is what makes a market move and this is what hedging is all about. But I think if we see a successful oil tanker, maybe business is back to usual in the straight of Hormuz.
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B
All I'm saying is we're at 68 before the Iran war. Well now we're talking about one tanker getting through and we're only up 10 bucks on WTI. It's look, it's fine if true, that's fine. But I, that's where I'm curious. So you, for you, the opportunity is, is where Jeff it's not, it's there. Some are going to lean against this and say it's too good to be true. And that's, I'm asking the question, but it sounds like you're saying no, take it at face value and it's time to look at where else there might be, you know, some value, some opportunity left. Is that right?
- [23:53]
D
Well, I think the great rotation kind of has fed into the Iranian conflict. And yes, this is the seven day trading session of this conflict, but I always thought it was about duration and when people could not find an off ramp. President Trump provided some form or fashion of an off ramp yesterday. So I think you have to continue to look at these blue chip tangible names. Look at Lockheed Martin, look at Marathon petroleum looks on FedEx. And we talk about some of these names that typically don't have a lot of love, but they are seeing great year to date performance because people are a little bit timid in some of the technology names. But Here we are seeing technology lead us out of this hole. And I'm telling you, Kelly, last week and I said we're going to have new all time highs, you kind of raised an eyebrow and a lot of people thought I was a little crazy or maybe I took too many hits to the head in my football days. But nonetheless we are working our way back up these new all time highs. And I wouldn't be surprised because remember, volatility takes markets down, but it also takes markets up.
- [24:47]
B
A Guiana flagged tanker we have confirmed has gotten through it as well. And folks, that's how you get a $17 drop in the price of oil from 94 to about 77 or 78. And Kilbrooke says it's fine, it's, it's over. Everything is that.
- [25:01]
D
I'm not saying we're in the clear. There's still going to be some tension. We're seeing escalation. We still have bombs flying in the air. So I don't have that type of confidence. But I think the overreaction in crude oil when you caught a lot of people open interest right now in the crude oil market, not polymarket crude oil open interest is over $200 billion. So that type of money being injected into the scene, Kelly, that has to re hedge and hedge again. So here we are. I think the S&P 500 goes higher as we are seeing some de escalation in the street.
- [25:28]
B
Here's the forward curve so people can just see May, June, July, concomitant drop 77, 75, 72. And I'm only teasing. I mean the real. Maybe you can also explain in these physical markets, it's not just like other trading markets. Right. When people literally need to get the product, they need to get the product. And that was part of what Jeff Curry was saying earlier on. You've got hoarding going on on top of just that. So yeah, WTI can go to 119 when people literally need barrels. Right. So just talk about the differences there versus like other typical markets.
- [25:58]
D
Yeah, there is a bit of latency there when you actually need it. But yesterday was a perfect example. I bought uso. USO is ETF that tracks the crude oil WTI futures market. I bought USO puts when we saw trading up. When the price of crude oil was up around 119. The puts, the 110 puts expired at the end of this month. I paid $9 for them when USO was trading about 119. It looked like a very not smart move buying that, but that was my downside hedge in the event. And here we are, we're seeing USO trade 96 probably right now. So those $9 puts are now $19 puts. So that is what I traded. That's what I played. Because sometimes when you can define your risk, like owning a put, buying a put, even if you saw crude oil go to 135, what I bought in those puts is the most I could lose. So defining your risk when you're seeing this type of volatility and velocity is so critical.
- [26:50]
B
It's been whipsaw. I mean, if there was ever a time to use that overused phrase, I think it would be right now. Jeff, so glad you were here. Thank you. Really appreciate it. Jeff Kilberg joining me there. We'll have more on the other side of the break. We also have Oracle reporting after the bell. With big questions swirling about whether it can deliver on its biggest promises. Investors are watching for any news on the $300 billion deal with OpenAI. We'll have more details on that after the break. Not every sale happens at the register. Before AT&T business Wireless checking out customers on our mobile POS systems took too long.
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A
Basically a staring contest where everyone loses.
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B
It's crazy what people say during an awkward silence. Now transactions are done before. Before the silence takes hold. That means I can focus on the task at hand and make an extra sail or two. Sometimes I do miss the bonding time. Sometimes. AT&T business Wireless connecting changes everything. Tyler redick here from 2311 Racing. You think racing's tough? Try getting your friends to agree on dinner plans.
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Breaking in just the last few moments, Energy Secretary Chris Wright saying the US Navy has successful, successfully escorted an oil tanker through the Strait of Hormuz. Let's bring in Pippa Stevens. Pipa. This has crude trading down. Oh cool, 16%. You can see this little kind of extra drop in the last couple of minutes here as people try to figure out the real significance of this.
- [29:12]
A
Yeah. And it's hard to believe that now we're under 80 bucks on WTI when yesterday we got up to 1001984 on Sunday night, I should say. But this clearly is the market taking this as a de escalation and saying that the, you know, that the US Administration is proving true to its word and now escorting tankers. That, of course, they said was not their first option, but if necessary they were going to do that. But there are still so many questions here. The first of course being are there even enough ships in the region to escort all of these tankers through the Strait of Hormuz? So that's the big wild card. Okay, yes, we had one. We have also had reports that some tankers have been, have been moving through the Strait. It's really hard to tell though if that's just ships turning off their transponders or spoofing. Of course, is it Iranian crude that are the ones getting out of the Strait? So there's still clearly a lot of unknowns here. And it feels very much at this point that all these moves are knee jerk reactions. There was no reason for crude to go up to 120 on Sunday evening and then come all the way back down. And of course, the other thing is that just because we say the conflict is near an end, what does that mean from the Iranian side? There are still a lot of questions here and it's not going to be overnight. Also, when you put in, when you shut in all this production, you can't just bring it back with the flip of a switch. And so it's going to take a while for all of these ramifications to flow through the oil market markets.
- [30:26]
B
Absolutely. 79. We were, I think we were at 68 before the round company end of February 6th. We're up 10. I just want to say that. $110. Pippa, thank you for now. Appreciate it. Pippa Stevens, let's bring in Nick Burns now. He's the former US Ambassador to China and US Ambassador to NATO, as well as Halima Croft, who's the global head of commodity strategy at RBC Capital Markets and a CNBC contributor. Halima, obviously I just want to get your quick reaction to this drop in oil prices is here and what you've heard from the US Energy Secretary amid other news items of the morning.
- [30:57]
A
I mean Kelly, certainly we have heard
- [30:59]
B
from shippers, from national company heads that they were looking for some type of US Naval escort to move ships through the Strait of Hormuz.
- [31:07]
A
That said, this is one ship. We do not know the extent of
- [31:11]
B
the U.S. military commitment.
- [31:13]
A
We do not have any indication yet
- [31:15]
B
that this will normalize flows through the Strait of Hormuz.
- [31:18]
A
We continue to have infrastructure attacks across the region.
- [31:22]
B
The largest UAE refinery, Ruiz, has shut down. We don't know for how long.
- [31:27]
A
So the question is, is this a start of a robust US Effort to open the straits or is this kind
- [31:34]
B
of a symbolic one off to try to like convince the market that we are end gaming this situation? Ambassador Burns, the fact that this also who comes on a day when the US had said this was going to be the most intense day of strikes while the Israeli ambassador to France said we're ahead of schedule. So can you kind of explain this question that our reporter just raised? You know, how, how do we call progress or an end to this conflict? How would you be thinking through this?
- [32:02]
C
Well, first of all, it's good news obviously that an American naval vessel was able to escort one of the supplier vessels through the Strait of Hormuz back in 1987. Forty years ago, President Reagan had to engineer a very sophisticated and very intensive effort to do the same thing at a time of tension with the Iranians. Unfortunately, the Iranians are going to get a vote here and it's going to be consequential as to whether or not they make this with shahed drones, they make it impossible for us to achieve something like this. But on your larger question, it just seems to me that if regime change is now a low probability event and given the tens of thousands of people out in the streets yesterday supporting the new supreme leader, and if this very tough minded government and it's a bitter foe of our country is not going to surrender unconditionally, I think the United States and Israel would be well advised to begin to think about when to terminate the military operation. I hope they've done substantial damage to Iran's nuclear sites. But I think that now is the pertinent question.
- [33:12]
B
Yeah, Halima, jump in here because this, it's remarkable to see an oil price that was at 68 pre conflict and on word that maybe we're getting a ship through or maybe, you know, so that we're up $10 and that's it.
- [33:29]
A
I mean, Kelly, the interesting question is
- [33:31]
B
like, how many ships will go through this time next week?
- [33:34]
A
Again, we're used to having 80 ships go through. Is one escorted ship enough to restore confidence that that is a safe waterway to traverse? And as you know, we have around
- [33:46]
B
6.7 million barrels of Gulf oil production shot in. All of Qatari LNG production is shot in.
- [33:54]
A
There's no other diversionary route for those gas exports.
- [33:57]
B
So the question is, was this an important turning point?
- [34:01]
A
Was it something that's going to restore market confidence today?
- [34:04]
B
What does it look like a week from now in terms of flows through that critical waterway? Yeah. Do you leave this? You know, there's a Reuters report that Chinese oil is moving through the strait because they saw a Guyana flagged tanker that was heading to China and that. Actually, Ambassador, let me ask you, as someone who was our ambassador to China, what does that tell you? I mean, they have a deeper interest than us really in getting ships through that strait. And even Jeff Curry, who was on earlier, said, you know, the US has basically been the one to guarantee these open waterways for the last several decades, kind of, and it's in China, in Asia's interest that these, that these ships move through.
- [34:40]
C
Now we know from the very beginning of this conflict, 10 days ago, the Chinese have been clear, they have not done much to, to help Iran. They've made it clear they want the Strait of Hormuz to be reopened. And they've also made it clear they don't want the Iranians. They've said this, the Chinese have said this publicly to be firing missiles and shahed drones into the Gulf state, the oil and gas producers. So Iran has been importing about 1.3 million barrels a day at a steep discount from the Iranians. But the Chinese, China has been importing from the Iranians, but the Chinese have much greater capital investment and strategic focus on the Gulf states themselves. That's where their real economic interest is. So I do think this is a situation where the interests of China and the United States are quite integrated.
- [35:27]
B
Yeah. Halima, do you agree?
- [35:29]
A
Well, I think China also made some preemptive moves. I mean, they have been aggressively stockpiling
- [35:34]
B
commodities, oil in particular, throughout the year.
- [35:37]
A
They have significant storage. And so I think they actually have more bandwidth in the near term term to endure a supply outage through the Gulf. I mean, again, not an ideal situation for them, but I would just say they engaged in some risk management ahead of this.
- [35:52]
B
Yeah, it's a great point. And so the Russia question also I'm curious about, Ambassador to you, where they seem to have benefited a lot from this actually. They have higher oil prices. They're able, I believe, to sell those sanctions are off. They're selling crude to India. It's, they've Putin and Trump had this call. What do you think that was about?
- [36:13]
C
Well, it was the White House and the Kremlin said it was about two issues, one about Iran. You saw President Putin send a congratulatory message to the new supreme Leader, Mutab Shahini. And so the Russians very visibly still supporting this regime. They don't want to see the regime go down and, and, and bend to the United States and Israel. And at the same time, they're able to have the price of oil at a higher level, which helps them. So in the short term, this is benefiting Russia in the short term, but not forever.
- [36:43]
B
Okay, Pippa Stevens is getting back in front of a camera because this news, it just keeps changing.
- [36:49]
A
That's right, Kelly. So we've been talking about the post on X about the US Navy escorting a ship through the Strait of Hormuz and oil prices of course, move lower. But the post is no longer on the secretary's page and the link now says the post does not exist. We have reached out to Secretary of Energy for comment. Here you see WTI now back above that $80 level, Kelly.
- [37:12]
B
Pippa, the intraday low a moment ago when this he had appeared to originally post it at 1:03pm and we went below 77, is that right?
- [37:20]
A
That's correct. And now the post has disappeared. It's no longer on secretary's page and prices are back up. So awaiting more clarity from this, we will bring you any headlines from the Department of energy.
- [37:31]
B
All right, 76, 73 was low print. We are at 81 and that's putting pressure back on stocks. Pipa, thank you for now and Halima, give us a quick final comment here if you could.
- [37:42]
A
I mean, at the end of the
- [37:43]
B
day, Kelly, it's going to be ships, not sound bites that determine the trajectory of oil.
- [37:47]
A
So we really are going to need
- [37:48]
B
to see how we can get these ships going back through this critical waterway.
- [37:52]
A
I mean, again, even if it was
- [37:54]
B
one ship or no ships today, the
- [37:56]
A
question is what does this look like
- [37:57]
B
a week from now?
- [37:58]
F
Yeah.
- [37:59]
B
And the fact that we're counting ships itself, I mean, it's like counting ships, it almost feels, or it feels strange, I'll put it that way. Thank you both for being so generous with your time. This afternoon. Halima and Ambassador Burns hope to see you again soon and we really appreciate it. More on the exchange right after this break. Welcome back to the Exchange. I'm Julia Boorstin with your CNBC news update. Google is providing AI agents for unclassified work at the Department of Defense. It comes in the midst of a major feud between the Defense Department and Anthropic was challenging the DoD supply chain risk designation in court. Emil Michael, an undersecretary at the DoD says it is moving on from Anthropic and Google will be a quote, great partner on all networks. Alexander Butterfield, the former White House aide who revealed the Nixon tapes in the Watergate scandal has died at age 99 in his home in San Diego. Butterfield was the head of the FAA when he revealed the tapes before a Senate committee, eventually leading to the resignation of Nixon. A new bill in Idaho could let people swap jury duty for working the polls. The switch would only be available when the county clerk deems there aren't enough poll workers for an upcoming election. The bill passed the state's House in February, awaiting approval from Idaho's Senate. Back over to you, Kelly. All right, Julia, thank you very much. Let's get to the other big story of the day now. Oracle reporting after the bell. The shares are down 32% since its last report in December and riding a five month losing streak which is its longest in over a decade. Terms of expectations, about $70 a share, $17 billion of revenue. And this afternoon's results, a key test for the AI trade, Sima Modi has more for us seem up.
- [39:54]
A
Well, Kelly, as you know, what has put Oracle's AI bet on the map is this $300 billion deal with OpenAI. That's why the market is so focused on the status of this deal. First it was more about what type of funding does Oracle need in order to fund the data center commitments for OpenAI across the nation. And now the conversation has turned to what's the status of the relationship and is there an opportunity to expand it? There's been new reporting as to whether OpenAI is becoming more selective on the type of data center commitments that they're making. Because the bar is being set high, competition is quite fierce between OpenAI, Anthropic and Gemini. So then now the question is are the data centers they're looking at, do they have the infrastructure in place to be able to upgrade as needed? So for example, if Nvidia's next generation chip is announced next week, next week at GT see the data centers that Oracle is building and developing. Can they easily use and integrate the next generation chip? Now Oracle's whole standing is yes, we, they, they actually compare chips to refrigerators. The minute there's a new one, you can swap it out and everything will be okay. But tonight they're going to get a lot of questions on more transparency around the infrastructure they have inside. Not just the chips, but the cooling. Already the data center market has moved from air cooling to liquid cooling, even power. Less focus on on the grid and more on data centers that have the energy efficiency on site, specifically natural gas and generators. So, so there's going to happen.
- [41:14]
B
We spoke about this briefly with Georgia yesterday. I think it was a Bloomberg report that was saying that OpenAI was pulling out of its partnership with Oracle in this maybe this one data center. I'm not sure.
- [41:24]
A
Right.
- [41:25]
B
Because they weren't going to have the latest and greatest chips. And Oracle, I believe has denied that report port.
- [41:30]
A
Right. So the latest reporting we had that on that is, you know, a source familiar told me that Oracle's relationship with OpenAI remains on track and on schedule. That mega data center campus in Abilene, Texas, where eight sites are being built to already are active and trained. This is Stargate.
- [41:45]
B
Okay, Stargate. Thank you.
- [41:46]
A
Yeah, the other star. Yeah, that is in place. They also are working with OpenAI on a Wisconsin data center, Michigan as well. So what they're telling us, you know, is that this project is continuing, but because there's questions about whether this relationship can expand. I mean, Oracle makes up, excuse me, OpenAI makes up 60% of Oracle's backlog. So it matters if there's an opportunity to expand that partnership. And also questions around whether they can diversify their customer pipeline. They said on their earnings call last in December that they've brought on Medi and Nvidia as customers. But investors want to see more and understand when you look at the remaining performance obligations, that there's now more revenue tied to customers outside of Open Air. That's going to be huge for tonight.
- [42:27]
B
So Oracle maintains that it can upgrade the chip. Like the chips issue is not a problem.
- [42:32]
A
They're saying they can make the data center for the future. They're already doing so and that the data centers that they're standing up right now will run on Blackwell. The question is when the next generation GPU comes out that requires more power, do those assets also that they're currently being built can accommodate that specific gpu? They're saying yes. But I think the level of detail we get tonight will Provide more reassurance if. If they do right.
- [42:53]
B
Totally agree about that. I'm very much looking forward to more context there, Seema. Thanks. Sima Modi Nvidia meantime, is reportedly making its own version of that viral AI agent Open Claw and they're naming it Nemo Claw. Wired reports they've been pitching it to companies like Salesforce, Cisco and Google. Deirdre Bosa has more now in today's tech check. Hi Deirdre. Hey Kelly. So what's really interesting about this whole thing is that Nvidia has built the most profitable lock in strategy in semiconductor history. It all hinges on its ecosystem. It all hinges its ecosystem on a software platform, which is cuda, that forces developers to use Nvidia chips. But now, if the Wired reporting is correct, it's going to dismantle that on purpose and embrace open source. Now, Nemo Claw would be an open source chip agnostic platform for enterprise AI agents that builds on the viral success of OpenCloud. That's an agent that runs totally autonomously on your computer. The Nvidia platform would let companies deploy AI agents regardless of whether they run on Nvidia hardware. That is a key shift here. So no more lock in. But that may actually be the bullish case. Microsoft CEO Satya Nadella, he took a company built on Windows lock in, put Office on the iPad, he embraced Linux and went cross platform everywhere. The bet was that if you're the best, you don't need walls, you just need to be everywhere. And that took Microsoft from a few hundred billion dollars in market cap to over 3 trillion. Nvidia could be signaling here that it has outgrown the playbook that has brought it this far and is getting ahead of the next shift because lock in is already under pressure. Nvidia knows that you've got Google, Amazon, Broadcom, amd, they're all building custom AI chips ships to reduce their dependence on Nvidia. So instead of going on defense, Nvidia is actually racing to own the next layer up. And that could be a really smart move here. We'll of course be watching this closely at gtc. Kelly, GTC is, is what is again stand for global technology. I don't know, I have no GPUs, GTC are in, but I think they're just for me. So makes it so clear that these, these mag7 companies all seem to now be fighting against each other. If, if Gemini can run on Google's chips and Nvidia makes GPUs but can offer a software product, Allah Gemini that people will ultimately use. I'm like they are directly facing off against each other and I don't know how, as great as they all are, what they do individually, how do you, you know, where is this fight going? So what you're saying? Yes, so essentially they're all sort of fighting the market. Nvidia which has been so dominant for years, right since Chat GPT came out, its chips have been so dominant that is starting to erode with TPU's, with what Amazon's building with AMD. And it's getting harder and harder for Nvidia to sort of stay dominant, especially when you get to the inference there. So what Jensen Huang would be doing with Nemo Clock is basically like going above the fray and saying we're going to create the new ecosystem that agents are going to operate on. So we don't actually care what chips you use, but we're going to have the ecosystem just like Apple and Android have a smartphone ecosystem. And taxed everyone who wanted to go on top. They're all battling it out right now, it seems, for that supremacy. Deirdre, thanks, Appreciate it. Deirdre Bosa let's turn back to the oil price which has been dropping strongly, I guess I should say, throughout the day and then bouncing around a lot in the last few moments here. Denton single Grana is on the phone. He's the chief oil analyst at Opus Denton. Appreciate you stepping out to make the time because we saw WTI briefly go under 77 on these reports from the Energy Secretary that we were escorting a tanker through the Strait of Hormuz. He subsequently deleted that post and now crude is back at 81. What's your reaction?
- [46:42]
E
Yeah, no, it's been a one, a complete U turn from what we saw when we, what we talked about yesterday, quite frankly. But it's, it's the combination of that, it's also the coordinated talk of coordinated releases from the International Energy Agency. So I think that has some, some marketers, some market participants a little, little spooked right now. But one thing I'm keeping an eye on here is one thing that's happened is the spread between April, WTI and May, WTI is starting to come in some, it's still about A$50 but I think, you know, once we get to the May contract, which would be like by the end of next week, that's when you see kind of the real oil market players come back into the place.
- [47:21]
B
In other words, you think they're waiting this out for.
- [47:23]
E
So I think so I think so, yeah, you're starting to see some of the volume and open interest come out of that April contract because we're running long in the tooth. So the contract doesn't have much time left. So I think everyone's kind of waiting to see where the dust settles. Is it in the 70s? Is it in the low 80s? And that's when you'll start to see this market kind of. I don't think this is over by any stretch of the imagination. So it sounds like, you know, the market's kind of waiting a little bit for. For when the May contract could become prominent.
- [47:51]
B
What else can you tell us about the effect this is all having? You know, it's hard to. How does it work on the supply chain? If I run a gasoline station and on Sunday night the futures are at 119, and on Monday they're at 95, and on Tuesday we are at 77. How does that work from the purchasing agent's point of view? And how is that going to affect what consumers are paying at the pump?
- [48:12]
E
Yeah, they got to be pulling their hair out right now. I mean, the retail gasoline average right now is still around 354 on kind of a live basis that we see. So it really hasn't changed much. I would suspect that a lot of retailers have been filling tanks and that might even be buying half a truckload just to get ahead of these price changes. And they're probably pretty full right now. So they're probably not necessarily buying so much because the prices are dropping because they're still pretty full. So I don't think retail gasoline prices will react over the next, say, 24 hours. But what I do believe is that as those tanks kind of turn over, the wholesale price will be lower, and that should bring down retail. Should we stay in this area for at least, you know, more than an hour or two?
- [48:57]
B
Yeah, well, the fact that we're talking hour by hour, it just tells you how much uncertainty has been thrown into the space. Denton Banks will come back. As he's mentioned, about 354 is the current average. Now for the price of the gasoline pump. Slight increase. There's a grana over at Opus. Let's turn our attention now to the broader look here at what's happening with defense stocks amidst this Iran war. They are lower slightly today after the President suggested the war with Iran could wind down soon. They've been relatively muted since the conflict began, but defense has been one of the hottest trades over the past year. The ITF ITA is up more than 60%. It's done better than the tech trade. Let's bring in Gabelli funds Tony Bancroft for more on this. He's the portfolio manager of their commercial aerospace and defense ETF ticker GCAD, which is up 17% year to date. Tony, welcome to you. And in a very fast moving story, what are the surest bets you can think of in terms of, of the defense space?
- [49:49]
F
Yeah.
- [49:49]
E
Great to be back, Kelly. I think it's pretty simple. I think after the meeting on last Friday for the primes to, you know, quadruple missile production, anything that's related to, you know, anywhere from, from the thermal protection, which companies like Textron do, all the way down to the, the outer skins. Companies like Albany International, Hexcel, making weapons systems for hypersonic missiles, missile defense, these exquisite missiles. But pretty much everything, anything that's kinetic and going downrange and has some type of speaker head and able to hit a target at long range very accurately, you're going to see a lot of growth in production there.
- [50:31]
B
You know the space so well that you said that. I just want to go through this piece by piece. So to you, the most significant thing that's happened, Tony, is the US Announcing it's going to quadruple missile production. Production, sure.
- [50:43]
E
I mean, you know, we've got me wrong. This has been projected. We've all known this for quite a long time. I think what, you know, since February 28th, we realize is that you expend and we've known this as well. But I think it's been, it's been very explicit now showing the amount of, the amount of munitions that smart munitions that need to be launched in order to protect just a small area like the Gulf, which is not physically a big AOR versus the Pacific Ocean. So as we pivot to the Pacific and that's really where the next sort of pacing threat, China, you're going to need a lot more of these smart munitions, exquisite munitions, and they're not cheap. You're going to be high rates of production and they're going to need a lot of them.
- [51:29]
B
So you mentioned Textron, Albany, was it in xl?
- [51:32]
E
Yeah, Albany. And the company called Hexcel, they do compete composites. And you know, we, you know, we hold a aerospace and defense conference, be our 32nd one. This, this, this September 10th. And we've had smaller companies, a private company, you know, there's a lot of technologies that are going to be needed. A small company called Astronav, they, they do magnetic gps. Right. What's going on in the, in the, in Ukraine. It's been going on in Ukraine for a long time. What's going on in the Gulf is a GPS denied environment, essentially jamming communications and gps. You can't, you can't, you know, you can't target, you can't use GPS to target weapon systems or navigate or you know, for a lot, a lot of things. And you're going to need other forms of technology. A company like, like astronaut which uses the magnetic field or feel of the earth to, to update an ins and tighten up an ins. You're going to see a lot of technology like that.
- [52:21]
B
Fascinating. And Tony, quick final comment from you. I mean are you, do you game out when you think this is or how you think this is going to end as part of this or no? Tony, if you can hear me, go ahead. I was just asking if you have a sense of when this conflict might end.
- [52:39]
E
Yeah, I think, I think after last night we saw the somo, you know, so almost one. I think they're going to look for an off ramp in the relatively near future. And you know, they've done some great work. 5,000 strikes, I mean that's a huge number of strikes in this short amount of time. It's impressive. They've done great work and I think they're going to be looking for a win here probably in the next, you know, probably, you know, next month. You would think something like that. But there's going to be a lot of long term effects like you've talked
- [53:09]
B
about and as you mentioned, a lot of longer term ways to think about, you know, holding these defense names. Tony, thanks for your time. Appreciate it today.
- [53:16]
F
Great.
- [53:16]
B
Tony Bancroft with Gabelli Funds Power Lunch is up next. I'll join Brian Sullivan who will be live from the RBC Global Financial Institutions Conference in New York City. Good day to hear from their CEO. That's after the break. You've been listening to the Exchange. Make sure you're subscribed to get each episode every day, same time, same place. Snoring, gasping during sleep, feeling fatigued. Wake up to Zepbound Tirzepatide, the first and only FDA approved prescription medicine for moderate to severe obstructive sleep apnea and adults with obesity. Zeb Bound is an injectable prescription medicine that may help adults with moderate to severe obstructive sleep apnea and obesity to improve their osa. Zebbound should be used with a reduced calorie diet and increased physical activity. Zeb Bound is Approved as a 2.55, 7.5 10, 12.5 or 15mg injection. Zetbound contains tirzepatide and should not be used with other tirzepatide containing products or any GLP1 receptor agonist medicines. It is not known if Zepbound is safe and effective for use in children. Do not share needles or pins or reuse needles. Don't take zetbound if allergic to it or if you or someone in your family had medullary thyroid cancer or multiple endocrine neoplasia syndrome type 2. Tell your doctor if you get a lump or swelling in your neck. Stop Zepbound and call your doctor if you have severe stomach pain or a serious allergic reaction. Severe side effects may include inflamed pancreas or gallbladder problems. Tell your doctor if you experience vision changes, depression or suicidal thoughts before scheduled procedures with anesthesia. If you're nursing pregnant, plan to be or taking birth control pills. Taking Zepbound with a sulfonylurea or insulin may cause low blood sugar. Side effects include nausea, diarrhea and vomiting, which can cause dehydration and worsen kidney problems. Talk to your doctor. Call 1-800-545-5979 or visit zepbound.lilly.com Zepbound and its delivery device base and QuickPen are registered trademarks owned or licensed by Eli Lilly and company. Its subsidiaries or affiliates.