tv The David Rubenstein Show Peer to Peer Conversations Bloomberg July 14, 2018 10:00am-10:30am EDT
♪ alix: metals meltdown. battles drug down commodities -- up battles drug down commodities. industrial metals in the eye of the storm. more oil supply from saudi arabia or confusion? "i care about soybeans." president trump's tweet as about helping soybean farmers as prices continue to fall. ♪ alix: i'm alix steel, and this is bloomberg "commodities edge," 30 minutes focused on companies, their physical assets, and trading behind the hottest commodities with the smartest voices in the business. i want to kick it off with spot
on, our analyst investors take on the big story. our spotlight is on oil. rob, if you look at brent, a brutal week. below is 100 day moving average. take a look at what happened. first, you have the new trade tariffs from the u.s. overnight on tuesday which started the slide down. then you have libya removing the force majeure come out another led lower. then you end up having iran waivers, we may see a bit of wavering coming from the u.s., not as harsh as we thought. then, even the bullish data that we got yesterday could not save the oil price. what do you make of what happened? know, the fundamental question for the second half of the year is, how is the global supply going to be met? we've had this global oil glut that is gone. we've had and undersupplied oil market for the last 18 months, so there is no more excess
inventory, let us say. so now, we move forward and say, demand is accelerating in the second half of the year globally for oil, and if supply stays the same, we will continue to be undersupplied. think, a bullish fine i dust a bullish sign, i think, for the prices here at tortoise. we see an increase of production and saudi arabia and the u.s. will play a big role as well in the global oil supply for a long time. alix: let's delve into that. because part of it is the micro, in terms of how much iranian oil is going to be taken off the market. that is the backdrop that will really matter whether you are a bull or a bear. what you think that result is going to be? rob: that is a difficult question to answer. if you look at last time when the sanctions were introduced, iranian oil production, or iranian exports were down about 1.2 million barrels a day. you can probably gauge that as your starting point. i think gets worse can america be as much as 2 million barrels per day.
in the short-term, that could be a real challenge for the global oil market. that is the biggest key. it is not that we are running out of oil, we are kind of in a new euro of oil, but we need time to produce more oil and have the infrastructure in place to transport the oil out of the places it is being produced to where it is being consumed. alix: fair enough. short-term, we are still struggling. we have an analyst joining us from london. richard, let us get your take on that. you can see the bullish medium-term outlook, the one to three months wti, versus the one to three month brent spread. and actually slipped. because future prices wind up -- spot prices slip ped below future prices. what do you make of the short-term weakness versus longer-term strength? richard: i think there are a few factors here. saudi arabia and other opec countries already started having production in anticipation of the losses -- increasing production in anticipation of
the losses from iran. also in the last couple of days, we've had a big announcement of a recovery in libyan production. i think that has sent some nervous shudders through the market. even though the outlook looking ahead is quite bullish, people are worried that it is not right too much oil,e is particularly in the european market. alix: if you are an investor, how you deal with that? it, and youhort cannot go along at the same time. richard: i think it puts people in every difficult situation. furthermore, when you look at the biggest factor is the iranian losses, so much here depends on what the white house does. exactly how hard is the u.s. push? we have had strong signals, but bywent down to zero november, that is what u.s. officials are telling asian buyers, but now we have had a few comments that people are interpreting as a slightly soft line. we don't think there is a change, but for anyone who is trying to take a position in anticipation of that tightness at the end of the year and into 2019, that leaves them nervous
about any position. alix: rob, you are the investor, what do you do with this? do you buy equities? what equities can you buy on that backdrop? rob: if you look at oil producers, we still think that you want the lowest cost producers and the lowest cost base. if you look at companies like occidental petroleum, a large producer, produces all around the world, but is increasing its investment in the u.s., they think that they have a great opportunity to grow their cash flow out of the permian basin. there are some things going on in the permian basin that they can take advantage of, and we think that will flow through their results. producers from the permian basin have attractive ways to go. continental resources doesn't have any hedges. if you think oil prices are going higher, it is a great stock to invest in. alix: richard, that is really key, because the iea warns that the saudis are not have enough spare capacity to make up for
losses, and you can see that in this chart. this chart shows saudi production versus losses from venezuela and angola. even when it comes to iran, what is your best case as to what countries will pare back how much of their imports? richard: we are thinking that if venezuela continues to decline, heads down toward a million barrels a day by the end of this year or into 2019. libya seems to be fluctuating. maybe it stays at one million barrels a day once it is recovered. we think angola is really struggling, heavy declines. the big one is iran, we are penciling in about 1.5 million barrels per day in losses in exports. will not translate into supply losses, but it will only become visible in q4. q3, it is hard to deal with oversupply, but you have a lot of very supportive factors towards the end of this year and into 2019. alix: guys, thank you so much. time for your take away. supplies gap emerging in the back half of this year, and
he likes oxime, eeoc and continental. richard says the u.s. market is tight but the global market is oversupplied. in the markets are still dependent and nervous on president trump. thank you so much. coming up, president trump may have been in brussels, what is about soybean farmers? what is next for soybean prices? that is next on bloomberg "commodities edge." ♪
september 2016. less imports from columbia as well as mexico. also taking a look at the big news out of brussels. that was president trump calling out europe for importing too much natural gas from russia. you get, the more dependent you are from russia. a lot of that coming from eastern europe. gasoline demands, it is said they will fall by 10,000 barrels a day this year, the first time that annual fuel demand will 12 when prices were four dollars a gallon. i want to dig even deeper into the report. it was bullish for corn, bearish for soybeans. treasury secretary mnuchin looked at soybean prices everyday and here is the why. in 2019, the u.s. soi so i reserve forecast will rise 51% on lower exports. joining me is our analyst from washington. this is a trait affect. allan collins the markets are watching this closely, because you saw the first report that
takes into account the trade action. continueshat this throughout the year, you will see a big drop in u.s. soybean exports. that means a jump in exports 30 the report did say there will be more use in the next few months of corn and wheat. you saw some bullish indications there. alix: did you see that brazil for example, that they could make up for the lack of soybeans to china? alan: part of it is more brazil and part of it is less consumption in china because soybeans are going to be more expensive there, and that will slow demand growth. alix: what i thought was interesting was president trump tweeting about soybeans. he said, i am in brussels but always thinking about our fell 50%.oybeans other country's trade barriers and tariffs have been destroying their businesses. i will open things up better than before but it can't go too quickly. i'm fighting for a level playing field for our farmers and will win. how does he win? allen: first of all, from as
have been struggling for the last 15 years. they had several years of record income. trade has been good for u.s. agriculture. how they win of course, is by steering down china and getting lower tariffs, but you have to get some of these sales going. a lot of u.s. farmers are concerned with lower prices, and the forecast said that they will be down $.75 a bushel next year. so, he better be thinking about them as as far as their contribution to the economy. alix: let's move to corn. the report was bullish for corn. global stockpiles are going to trail estimates. demand really picking up as well. how does that wrap into the crop conditions and trade environment we've seen? alan: you are seeing short-term , very good weather coming up for the next month. it's a key growing season for corn. there should be less rain and cooler temperatures in the u.s.. longer-term, there are concerns about el niño. the u.s. climate center forecast there's a higher chance of that happening this winter. corn is not that dependent on trade with china has other as other commodities. outside of canada and mexico, things are not looking so bad. alix: talking about the report report in general, we have a
change in how the government will release it to the press. what does that mean for traders? alan: we found out on tuesday the journalists are no longer going to have prerecorded access free report access where they could come up with data reports are accurate moments before the reports are released. the usda said that is in the interest of equal access, will the access really be equal? or is it simply not going to go with whatever trading firm can come up with the best data scraping software together headlines out before everyone else, and literally make millions of dollars over that worldwatch report? i have been covering this report for more than year and i feel like we have been doing a pretty good job. we will continue to do a good job, but, we're living in a different world. alix: fair point. thank you. let's get right to the ring. three trades of the week. industrial metals hit hard. goldman sachs lowering its price target for industrial metals and saying that fear trumps fundamentals. i am joined by andrew caused her, bloomberg intelligence
senior energy and mining analyst. he joins me from princeton. picking up with copper, have we hit bottom? andrew: i don't think we have hit bottom just yet. we think some underlying trackers in the macro index, which included the dollar, the chinese yuan and capital flow e.m. capital flow proxies, could deteriorate a bit further. with that being said, the downside seems a bit limited here, maybe 5% or 6%. the level on the bottom would be about 5800 on copper. i know it seems draconian, but i think that is probably where the maximum pain lies. alix: did you blame the selloff on traders or is or something else you are noticing? do you think overhanging the market? andrew: obviously the recent re-acceleration has certainly been driven by trade, but we actually see a surplus and our supply and demand model this year of about 150,000 tons. that counters the consensus, but certainly next year, the markets rally titans up a bit.
-- titans -- the market will tighten up a bit. we have about a 50,000 or 80,000 ton deficit. there is certainly upside risk or downside risks that are upside for price and in fact the transition is going to be a big swing factor. alix: let's go to aluminum. same question. have we bottomed? andrew: aluminum is interesting because, it is the metals where you're already cutting into the cost curve, where as in copper, you are well above the marginal cost. in aluminum, 25% of the cost curve is underwater. one thing we are watching is the spread. 70% of aluminum volume is spread trading. so right now, we will see over the next couple of days, we are where we mayoment, seek shorts getting squeezed here. it could lead a fire in exports from july and heading into alix: august. it was great to catch up with you. a brutal week for commodities. andrew caused growth of bloomberg intelligence. coming up, natural gas export projects could be delayed by 18 months as they are overwhelmed by applications. we will talk to a former commissioner next.
solar investments actually fell 19%. now is ethan zimmer from d.c.. why the slowdown in solar investment? ethan: a big part of the story inevitably going to be china, which in the last couple of years, has a present of the majority of new investment and manufacturing. we are expecting a bit of a slowdown there this year. alix: how much of that has to do with china versus other areas of the globe? regionally, where do we see the most change? ethan: china is going to be again the biggest story. china accounts for over half of all solar that was installed last year. to take one example, the large majority of solar manufacturing is in china. so in china catches a cold, the rest of us certainly feel it. other countries may see increases, including the u.s., but china will be the biggest story, as i have been the last -- as it has been the last couple of years. alix: what is china's investment in clean energy? how much will they be spending , and what happens to subsidies?
ethan: the main change that is taking place in china is they put the brakes on solar industry subsidies at the start of june. this is one of the things that has made it very hard for us to predict the overall global solar market the last couple of years because china has so heavily subsidized the industry. but now, they are really putting a hard stop on it and that will affect the second half of the year. alix: what does that mean for the global solar market? ethan: the good news for the global solar market is that if you put the brakes on the world's largest demand market, create a good deal of overcapacity, which will accelerate the price downward. we thinkn example, that by the end of the year, we will probably be at about $.25 per module, down from four dollars a watt 10 years ago. the drop has been extraordinary. alix: thank you. good to see you. let's go to commodity in chief. we focus on one commodity executive. branell. is nor ara
pipeline capacities almost full. the wti spread for midland blowing out, the solution more , more pipelines. let's take a closer look at the big task ahead of ferc. it holds the magic key for pipeline. ferc, the federal energy regulatory commission approves natural gas pipelines, and the u.s. needs a lot of them. there's a shortage of pipelines in the northeast, where customers need power, and the permian basin in texas, where producers are desperate to get natural gas out to make room for the oil they are producing good . the problem? time. it can take years to build a pipeline. a big part of that is the permitting process. ferc has to get its blessing, but at the behest of environmentalists, state courts can shut down small portions of a pipeline like in an area where it might cut across a stream. this can delay development for years. also, money. a pipeline can cost billions.
limitedy, a limite partnership allyl he, the pipeline guy, locks and contracts from buyer's best locks in contracts from buyers. now some producers are so desperate that they team up with private equity to secure funding. it doesn't matter what the problem is, companies want the pipelines and it is up to ferc to make it happen. alix: i recently caught up with nora and asked her what the hardest part was about building a pipeline. >> we need to deal with issues like the doubling of construction costs because labor, among other things, is so expensive. so, as we brag about having a very low unemployment rate, we have hundreds of thousands of jobs, in fact over all in the economy, 6 million jobs, that we haven't been able to sell. in theory,w quickly can you get a permit to build a pipeline now, versus when you were the head of ferc?
nora: >> i would say the timeline has probably doubled. as litigation costs have increased, as construction costs have increased, as you have multiple players intervening, it the process command has become more and more costly. ferc has opened up a docket on looking at the certification process, which could be good news. and we hope it is good news, because i think, the chairman come at mcintyre, is a great leader. but it also could be bad news because it throws uncertainty over the process. alix: if i am a pipeline company and i look at assets in the permian, and i said i need to be a pipeline there, this oil oil company really needs it, the export terminal ruminates the product -- how long does it take me from thinking that, to having world being piped down the pipeline? >> wow. that is a difficult question.
but assuming it gets through your internal process and that you can sign up the right number of people who are willing to contract, which is important, in order to get it financed, it will probably be about 2, 3, or four years. it is not easy. i think we have two pipelines coming on in the next 18 to 24 months in the permian basis, we should relieve the bottleneck come other basis differential between the wti and the permian, but we still need more. alix: when you are trying to finance your pipeline, the traditional model is that you amount of people or companies to sign up to move the oil in your pipeline. that is a traditional model. is it working, or is there another type of model evolving? >> i think the mlp model, which has been used in the gas industry has caused damage by the reform in the tax law and the ferc
of that.ation i am not disagreeing with him, but it is a reality. so that structure probably is not going to be utilized unless there is a dramatic change. ferc is looking at some of the ways they could determine need, it has typically been done by precedent agreement. people are self financing so they are doing internal financing a lot more. but the cost of capital is still pretty cheap, and the markets are definitely available to produce cash for the appropriate kind of pipeline. so, the model is emerging. there are shorter term contracts, which changes the financing model. there is internal financing, there are tax changes. but at this point in time, you still want to have a majority of customers who are willing to sign a contract. alix: is it harder or easier today? >> i think it's harder today. and i think again, the trend towards shorter-term contracts has caused some financing changes.
but, that is our reality, and markets under to reality. the issue is, you don't want to tamper too much in markets that are working. both in the marsalis and the permian, you've had economic signals that you need greater takeover capacity. the basis differential are clear. those signals you look or. alix: a very different world for four. nora than when she was at ferc back in 2006. 's hiringow, ferc private contractors for the first time, to try to speed up the process. all right. here is what is on my commodity radar. earnings, next week we will hear from alcoa and tender morgan. -- tender morgan. used to pick up earnings, but not anymore. it will all be about trade and what is happening with pricing. they had their plans up in canada. and, new reporting on thursday, trade on steel and aluminum. and on oil services start to friday, come out. baker hughes and others.
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♪ julie: i am julie hyman, in for scarlet fu. this is "bloomberg etf iq," where we focus on the assets, risks, and rewards offered by exchanged rate funds. ♪ julie: flurry of fixed income. we will talk to a family office manager about how he is navigating bond etf's as the fed raise rates. bringing smart data to bonds. wisdom tree has been a pioneer in factor-based investing. now it is applying those skills to fixed income. we will talk to one of their