tv The David Rubenstein Show Peer to Peer Conversations Bloomberg September 9, 2018 5:30am-6:00am EDT
♪ alix: some of an emerging markets with fears of global commands. permian problems. oil services company's warn of slowdown in the basin. we speak to david hager about the development plan. argentina's president implements an export tax to fend off an economic crisis and the impact on farmers. ♪ alix: i'm alix steel, welcome to "commodities edge," 30 minutes focused on the companies, physical assets, and trading of the hottest commodities and smartest voices in the business.
we start with our investor take. our spotlight today is on the emerging markets selloff and impact on commodities. i spoke to ceo's to see how oil demand could be affected. >> so far, the demand growth on the oil side has been strong, despite some of that turmoil in china. >> if it falls back significantly, it would have an impact on global demand, no question about that. >> i think demand will maybe not be as strong as the past couple of years, but still solid. >> the trade tension is affecting the em component of demand. >> there is a lot of concern about emerging markets and what is happening there, but the main growth you are seeing, there is a very robust economy in the u.s., you are seeing china, india. we think demand will be there. we are watching it but not concerned.
alix: the ceo's, some positive. what do you think? phil: they are trying to sound positive, but we are about to replay the asian debt crisis, except the demand is twice as high. if you look at the key countries, argentina, brazil, turkey, india, that demand will go down. the argentina peso as down 50%. the lira will be under pressure. consumption will slow and it will drop. we could lose half a million barrels to one million barrels per day from these countries. if we repeat what happened in 1998. alix: do you agree? dan: i have seen this before, every five years, there is an emerging market crisis that is going to collapse commodities and most times it does not turn out. this time it may in fact turn out. most of the time it is not and i think the demand picture is strong.
alix: a potential difference is the oil price in local currencies, looking at levels we have not seen since 2008, whether you are looking at the argentine peso or the lira. how price-sensitive are these countries considering some of the subsidies have rolled off in the last couple of years? dan: obviously the strengthen the dollar will impact to demand to a degree, but these are inflexible demand numbers to me, and currencies play less of a role then people put into them. i think the emerging market contagion is not as bad in the commodities sense as a lot of the analysts are looking for. alix: why are you so pessimistic? phil: i understand what dan is saying, we have a market crisis maybe every two or three years. the difference this time as the trade war, what it is doing to inflation and what inflation will do to the fed. the last than we want is higher u.s. interest rates, with the
dollar-denominated debt in these countries. as their currencies go down and as u.s. interest rates go up, you create conditions for a crisis. we have not seen that in the last five years. this is the first time in my memory, and i've been doing economics 50 years. the trade war is a new wrinkle and it is scary. dan: she is right. but we've seen some movement from the trump administration, bilateral movement with the mexicans, they are trying to hammer out a deal with the canadians. there is a little bit of movement in the administration to move toward the eu and china. the trade war looks like it should be a temporary thing because it is really a disaster if it is not temporary. alix: when the ceo's were talking, it was all about china. that was not about argentine oil demand. when you look at china, oil demand has been voracious. it has been hampered because refiners were taking a break and
are going to come back on. dan: the real trouble with the trade war is that china will set up new infrastructure, new ways to get oil, and that will leave the united states behind. and once those new avenues of demand are set up for the chinese they might not be likely to come back to the united states. in terms of new producers, it might be a more lasting impact. alix: there is a story out there that it is a good thing there is a trade war in an emerging market selloff because if not, prices would be spiking higher. where do you sit on that? phil: you are right. with the iranian sanctions and the problems in venezuela, prices should be spiking, and the fact they are not, that you have a little contango in brent, it shows that it is softening. i think china will soften. growth in china is slowing and the chinese, we are networking
with on the trade war. it depends on what we do tomorrow. if we flag those next $200 billion worth of tariffs on the chinese, i think we have a real problem. the market, it is slowing down, yes. i agree. you are right. the emerging market crisis is actually keeping a cap on oil prices. alix: let's look at that. if you take a look at the curve on your terminal, you can see what the oil price curve is doing now versus even a month ago or two months ago. it is rated much higher. phil says it should be higher, but the trade war and china could be tampering that down. dan: the backs continue to rally. that is talking about a sustainable price over the long-haul. some of these are temporary. i think the trade war is more
temporary than permanent, but there are more permanent things. he talks about brazil with the pre-salt drilling, not getting the kind of activity it should. venezuela continues to struggle, iranian sanctions continue to come in, libya is on and then it is off and on and then it is off. the saudis have not pumped as much as they should, there are takeaway problems in the permian. this points to a systemic supply problem for oil going forward through 2021, and i would say oil prices are destined to see price issue higher in the next three years. -- several years. we can talk about what is holding it down now, a rumor i keep hearing, everyone keeps talking to me in my ear that the saudis have made a deal with washington on trying to get this ipo floated in new york, and they have given the agreement keep oil prices moderated through the midterms. that's what i keep hearing.
nothing has been -- i haven't been able to substantiate it, but it makes a lot of sense, particularly with the report coming out that the saudis are happy with oil between $65 and $70. believe me, they are not happy, they want $110. alix: the stocks you like? dan: i have to go with some of them that have optionality in the united states, those that have optionality elsewhere but are in the permian. anadarko, despite the fact that they are looking at a new lawsuit in the colorado fire, and marathon, a lot of optionality in the permian and elsewhere. alix: thank you very much. great to get your perspective, a big week for commodities. philip verleger and dan dicker. let's get your takeaways, phil is worried about an emerging market crisis that could spread, looking like the 1990's, similar to the asian crisis. dan dicker likes anadarko, marathon and exxon for the 4% dividend yield. coming up, argentina's placing a
new tax on crop exports, many wonder if farmers are the solution to a crisis marked by rampant inflation and a plunging currency. as we head to break, we look at the big commodity moves of the week, it was not just the trade em story, but also silver, the cheapest versus gold since 2007. this is bloomberg "commodities edge." ♪
♪ alix: i am alix steel and this is bloomberg, "commodities edge." time for the data dig. we are going to delve deep into the market trends of the week. first, oil inventory numbers. the good and the bad. for the good, you had a bigger than expected crude draw in the u.s. the bad was that hurting oil prices was rising gasoline and
diesel stockpiles were built. by 3.5 million barrels. the worry, is this the start of a trend or a blip? for me, the big eye popper at the barclays energy conference was halliburton. you can see crews in the permian have declined in the last few months. halliburton says this will hurt their shares by eight cents to $.10 a share. and buckle up, electric vehicle sales are shifting into high gear. global sales hit 4 million and could hit 5 million fairly quickly. sales were driven in large part by china, which was responsible for 37% of passenger ev's around the world. let's get into the ring, we have three charts of the week. argentina's president announced radical moves to fend off an economic crisis, including a new tax on exports. we know it's a bad tax that goes against what we want to spur, which is more exports, he says,
but i ask it to understand it's an emergency and we need your support. joining us now is bloomberg's agricultural strategist specialist sterling smith. sterling, what does this mean for farmers in argentina? how bad will the tax be? sterling: it will be an interference. it will hold back exports a little bit. keep in mind they had a terrible drought last year, it took 10 million metric tons of production out. and they have had repressive taxes in argentina before, so we are taking them back to a state of normal, as it were. it is unfortunate that it has to happen and brazil will be the benefactor again. alix: let's look at unusual crops. so with soybeans, the tax could be 9%, if you add an additional tax to what they have. how much does that affect the world market? sterling: it will not have a big effect immediately. we could see some soybean meal and soybean oil coming out of the united dates and going into
the e.u. because of this. however, given the structure and where the soybean market is with prices being depressed, i don't think it will have that big of an effect. they are at the end of the export cycle anyway. where it will really have an effect is next year when they plant, and the weather improves, you could see a big crop with a lot of beans coming into the market. where we stand with china is going to make things different for the soybean situation. we could see prices noticeably lower if we do see chinese imports dropped by 9%, which is where the current conversation is. alix: let's touch on corn and wheat, because arguably they had no export taxes and are looking at another at 10.5%. walk us through this in a global perspective. sterling: from a global perspective on wheat, i think the wheat story is probably about over. we have seen weaken and come down, they are beginning to get better risk moving into the commodities. for those of you following corn and beans, a risk off move would mean that prices can go up
temporarily. i think the wheat market is going to find a new supply coming in with weather improvements. the winter wheat crop in kansas is getting rain right now that will be very beneficial for next year. for wheat, i don't think it is as big of an issue. i think this could lead to more soybeans in argentina and that could tighten the balance sheet a little bit. alix: and you brought up before, the brazil effect. we have a chart that shows the premium soybean prices in a brazil versus argentina, and the move that was made was actually really good for soybean farmers in brazil. that is the white line. sterling: we saw that little spike after we saw the big rise from our situation with mr. trump, and we see things bounce again. they are at the end of the export cycle. any soybeans will be demanding a higher premium. if we begin to see this creep into the march situation, we will know if supplies remain tight coming out of brazil and we can expect to see some
support to the brazilian premium that may not affect the u.s. board because we are looking at a monster u.s. soybean crop. alix: thank you so much. coming up, dave hager will tell us about how his company is setting records in the delaware basin and what he is learning in oklahoma. we discuss next on bloomberg "commodities edge." ♪
♪ alix: i am alix steel. this is "bloomberg commodities edge." it is time for the be next brief, what you need to know in the world of alternative energy. the fukushima uranium disaster -- nuclear disaster spells disaster for uranium prices. but are they in a comeback? joining me is chris gadomski, who covers this for bloomberg. i thought we were in this bear market forever after the disaster in japan, what's going on? chris: there has been an oversupply situation, which is why we have had uranium prices decline. trading at about $20 for a very long time. some major producers are cutting back production, the state-owned company in kazakhstan is cutting back reduction and also the second largest producer is cutting back production. and so we are trying to get rid of the oversupply and balance
the demand for uranium with the supply. alix: this takes a look at trade, this is the leading exporters of uranium to the u.s., a large part of that is canada. how does that wrap into the trade war and doesn't have an impact on prices? chris: we always treat canada as a friend. they are nearby and they are the second largest producer, we have a lot of imports of uranium from canada for us. it seems to me that it would be something where we would try to accommodate our canadian friends and establish some sort of trade pattern which would allow them to continue to go ahead and export uranium to us. however, there is a movement, a petition with the department of congress called the 232 petition suggesting we establish quotas for u.s. uranium producers which could change the market significantly. alix: speaking of the administration, they want to in some ways save and subsidize coal and nuclear plants, is this playing into higher uranium prices?
chris: certainly, it is. there's interest in the u.s. to go ahead and maintain a strong nuclear power industry. there is also interest to go ahead and make sure we have an amount of domestically produced uranium and that we have a viable domestic source. all of the defense-related uranium is required to be produced in the u.s. what they are trying to do, that with the petition, is to give a quota 25%. the fear is that if you have a quota for the 25% for u.s. uranium will raise prices, which could have an adverse effect on nuclear power plants, which are struggling financially these days. alix: chris, thank you. chris gadomski. let's turn to commodity in chief, where we focus on one executive in the commodity world. today it is dave hager, ceo of devon energy. first, let's take a closer look at the company. ♪
alix: devon energy is in all of the top u.s. plays, and it's going all in. devon will devote more than 60% of its 2018 capital spending on the delaware basin in new mexico and the stack play in oklahoma. devon has 50 new wells in the works in the delaware basin, also nine projects in the stack. the largest is showboat. the goal is to drill wells for the most oil for the least amount of money and time. last quarter, devon tested 12 wells in several formations in multiple landing zones of the merrimack formation and the results look promising but some of the wells saw higher decline rates. devon is also drilling in multiple layers and trying to figure out if they interfere with each other. the struggle is to find the right distance between wells. devon has some big plans. do showboat's growing pains change that? i recently caught up with dave hager and asked him, how many
wells he wanted in a pad? dave: i think we would say we are confident with six wells for drilling spacing, two sections, 10,000 foot wells, six wells per drilling space will absolutely work. 12, which we did at showboat, was too dense. somewhere in between we are learning about. alix: when you look at the growth profile of that particular area, if you are not doing 12 and you do less, does it change your outlook on your ability to recover the value of the asset at all? dave: it may have some impact on it, we need to work through that because we don't have the ultimate answer. the bottom line is that it will still be an important part of our portfolio. we will drill a lot of high return wells in a stack. if you couple that with what we are doing in the delaware basin and elsewhere in our portfolio, our plan for the company is intact. alix: talk about what you notice with the parent-child relationship.
dave: this is essentially acting as one big reservoir, so you are having horizontal and vertical communication, which is not bad thing to have good communication between wells. that means you can develop it with less wells, and is more capital efficient. it's not necessarily a bad thing to have good communication, just understand that you have that so you can optimize the number of wells. alix: let's go to new mexico. you very much outstrip your competitors in these particular wells. can you explain why? dave: i think you're talking about a couple wells we drilled earlier in the boundary rater area, the highest rated wells in the history of the delaware basin. certainly we have found a sweet spot there, and we think we have probably about 25 wells in that specific area. but that is just a small part of the overall story that we are doing in the delaware. we have a very deep inventory of opportunities, higher return opportunities.
our technical teams are learning quickly learning what are the right reservoirs to target in which parts of the delaware basin, and rapidly developed the right style of completion to take advantage of the right rocks. we're just maturing. alix: how do you look at the narrative that the more successful the wells are up front, the less they will give back later? dave: that is to some degree true. as you accelerate the initial rates on these wells, the total recovery is more fixed. then that's true, you will have a higher decline, but you get money back quicker. as long as you have a good inventory, which we have a good inventory, i would rather get my money back quicker than to wait years to get my money back. alix: when is the tipping point for devon when the replenishing rate does not matchup to what you need? dave: we have such a deep inventory in the delaware that
we will be drilling and growing production out there by many years. we will be developing an exit rate to exit rate by nearly 50% at the end of 2017 to the end of 2018. we are on a steep growth curve, and as we get larger, the actual growth rate could go down. but we continue to grow. but between the stack and the delaware, by the end of 2020, we anticipate producing 300,000 barrels of oil equivalent. alix: that was my interview with dave hager and his ambitious plans for growing the company. here's on my commodity radar, on wednesday, the monthly opec oil market report. all eyes on how much they are complying with supply cuts. also you get the report as well. world crop demand will be looked at. on thursday, the global climate action summit in san francisco with the headliner jerry brown
♪ emily: i am emily chang and this is the "best of bloomberg technology," where we bring you all of our top interviews from this week in technology. coming up, big tech takes on washington as jack dorsey and sheryl sandberg testified before the senate. how is this different from when mark zuckerberg was in the hot seat? plus, amazon joins the trillion dollar valuation club. the air is thin up there so how will the e-commerce giant amazon fare alongside apple. bumble puts women first in the dating game. now the company is turning that attitude towards invest
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