tv The David Rubenstein Show Peer to Peer Conversations Bloomberg November 18, 2018 11:00am-11:31am EST
>> the longest losing streak on record. one culprit appeared deteriorating margins. restoring soybeans rather than selling them after prices fall $.15 engine. pricing power. ceo jeff miller says it will return after producers can't live forever. >> i am alix steel. welcome to bloomberg commodities edge. the hottest commodities with the
smartest forces in the business. let's kick it off with spot on. our take on the big stories. joining me is liam denning. in denver, like her. also a former assistant at the u.s. treasury. our spotlight today is in the worst slide on oil on record. prices hit for this -- 12 straight down day. the worst day since 2015. liam, we talked a lot about supply and how supply cut everyone off guard. let's focus on the demand side. opec lowering its door -- demand for the fourth straight month. where is demand planning to selloff? >> it plays a bigger role than people give it credit for. the thing i have been focusing on is gasoline demand, particularly in the u.s.. what we have seen in the past couple of years is gasoline demand had a revival. as you might expect. prices came down. the economy was still going strong. what we have seen this year is with prices back above 250 a gallon, demand has flattened
out. negative and quite a lot of the country, apart from places like texas. you are starting to see that now worldwide. the report that cannot yesterday showed gasoline demand worldwide is barely growing. which is kind of striking when you consider the prices have come back up. they are not exactly back to the levels we had before the crash. you can see that demonstrated if you look at gasoline versus diesel. how much would refiners are going to be able to make for those products. they are diverting a lot. what does that tell you? bloomberg writers yesterday said gasoline is an unwanted product right now. what it is doing is driving crude differentials wider. the world needs more of the crude with heavy, with more desolate. liam is right. gasoline demand is down because, and primarily because housing construction is down.
today's news on housing firms was terrible. down itine demand is will be down for macro reasons and higher prices. >> makes sense. if you look at refining -- all rock -- all across the world, they are down so much, where are my run cuts? >> they are going to start coming. people have to shut down fcc's. .he crackers shutting one of those down is dangerous. up, it is a it back problem. if they shut that down that means they can make less gasoline. move some of the vacuum gas oil over to the desolate stream. they can bring things back into balance. again, they have to cut runs. i am not sure who cuts them. someone is going to cut them and it will test they will probably be cutting them in the next month or so. week is thatthis opec will come in and everything will wind up being ok. what will they actually cut? is that actually -- does that
actually solve the problem? >> in some ways it will exacerbate it. when ok -- opec takes barrels off the market they tend to be heavier. those are the barrels that are in demand. the problem is that we have a surge in u.s. lifetime oil production. and in some ways, this will become more of a problem next year because it looks to me that the u.s. refining complex ability to absorb the light barrels, we must be very close to maxing out on that. all the incremental production that is meant to come next year, which, in some ways, would be encouraged by opec taking barrels of the market. because that would tend to put a floor on the crude prices. that will have to go out onto the high seas. it is not clear to me, either, how much capacity there is for international refiners to absorb the international production from the u.s.. not worried totally
about that. they welcome the extra oil coming online. listen to what the director had to say. this is serious challenges coming in terms of oil markets. , global oil demands, still grows significantly. the supply, the supply come from is a key question. cannot expect this shade alone to fill the gaps between weekemand and the convention projects. >> when we are talking about weak demand, weaker margins, you wind up having -- say we have a supply gap coming filled. is that true? >> i don't see the supply gap at all. the head of the iea called for a double capital expenditures. right now, the firms are spending around $500 billion a year on production. and, if we keep it at 400 to $500 billion for the next 506 years we will be fine. there is no reason for people to
run out and spend more money. investors should be really cautious and demand for companies restrain their rush to spend more money and, if prices go back up again. when you have oil drop as much as it does, what does that do to producers in the u.s. and the big oil companies? how much does it decentralized production? >> it will some. one of the things we created was a futures market. many of these companies are hitched. they canprotected and keep going, at least for another year or so. with prices at around 50. especially since costs have come down. we will see reductions, i don't think we will see rapid reductions at all. >> really appreciate it. let's get your takeaways here. lee bening sees worries of a sign of slowdown in u.s. and says growth in u.s. gasoline supply in 2019 will need to be exported. will there be that demand? phil says that he is taking a
look at refinery run cuts not solving the issue in the opec contracts. it could is it -- exacerbate the problem. there is a product supply demand imbalance. so great to see you guys. thank you. coming up, the world of soybean shipping turned upside down, all thanks to the ongoing u.s. china trade war. we will have those details. as we had to break, a great moment for ge, terrible moment for bankers. chipping away at 62% stake in the oil companies to pay down debt. prices secondary offering veggie at $23. the stocks, it is -- it's lowest level since 2002. will ge actually have to sell down faster to accelerate its deleveraging plan? this is bloomberg commodities edge. ♪
isi'm alix steel and this bloomberg commodities edge. time for the data dig. we will delve deep into the market trend of the week. oil inventory numbers, big builder. stocks rising the most since february 2017. a 10.3 million barrel build. a whopper. especially in pet two. demands did it a record high. check out canadian oil. west union select trading in a $42 discount to oil. oil producers novus energy actually wants alberto to mandate reductions to help stem the decline in price. the soy trade getting turned on its head teared that is thanks to the ongoing trade war. biggest producer in the world. selling so much to china, it actually needs to buy beans from the u.s.. a weekly measure of shipments in argentina hit its highest level in at least 35 years.
let's take you deeper into the risk u.s. farmers face in the u.s. china trade war. here's what a ceo had to say. >> the chinese have committed to not purchase u.s. soybeans either because of pride and because of the trade war that is going on. also because of price. sources like south america cheaper, but also an alternative source of supply. combat low soybean prices, farmers are choosing to store their crops rather than sell their crops. waiting for higher prices. joining me from chicago is mario parker of bloomberg news. we have a good map that shows which states have the most stockpiles and how that is relative. what are they storing it for? >> they are storing it for hopes of a better day, alex. they are storing it because prices right now are telling them to store it. they are pretty bad. given that china is absent the market. illinois, the largest soybean producer in the state -- in the
..s., is just a wash we have spoke with ceos, farmers, who are scrambling to find space to store their soybeans. >> how do they physically have enough space to store them? >> what they have resorted to is storing in being spirit which is not very desirable because if you store them in a bag, these bags aren't as good as some of the aluminum or steel silos. soybeans can go bad quicker than corn can. they essentially started storing them in bags the size of football fields. they look like sausage packaging. looking at pictures now. unbelievable. thanks very much, joining us from bloomberg. now, let's get into the ring. all you need to know about
natural gas. prices hopping four dollars this week. ining up some games later on the week, joining me is mike, commodities strategist at bloomberg intelligence. backwardation. talk to me about how just backward this curve got. think it got close to 30%. i like to use the one you're curve. it is this year versus net gear. it got close to 30%. a little bit above that. --s year's contract was 30's 30% above the one year. massive demand expected to go back anyway. the key thing is that has been the trend for about two years. finally, the market is breaking up higher trending toward backwardation is a struct -- a sign of strength. it is pretty high and pretty extreme here. four is probably going to be a good level for market consolidating for a while. key thing is market broke out last year. the narrowest range for natural gas ever. let's just break it out. >> the indistinct thing is for the rhetoric, for traders, they had to reverse that this week.
that added to the movement in both the commodities. you can see that in positioning. are you hearing that that is legit? >> yes. negative gamma. the market has been trained on its value and risk models for the last three or four years to resistance in natural gas and to buy support in crude oil. it blew those people up. when crude oil gotten your 60, good support. blew them up down the 65. good low, natural gas the same thing. we stopped and allow those people out yesterday. per thean see the total -- positions for crude and natural gas be how they totally reversed in the last week or so. fundamentally, what is going to be the price of supportive? >> what is unique is natural gas is way ahead in the game of technology revolution exports, it really, demand is catching them up to the massive supply. crude oil is a little further behind. a massive amount of liquid fuel production. we should meet the consumption
production in about a year. which means we have to export. natural gas is well ahead of that stage. pressure on crude -- crude oil for a while. natural gas is probably a massive bull market. >> thanks very much. great to have you. speaking of, it is time for the note of the week. goldman sachs blames the selloff on negative. negative gamma has become important in the current -- current price environment as producers have already sold a lot of slower production on the way up. or sing the dealer who sold to producers to start accelerating quantities of oil. negative gamma. steph miller, halliburton ceo talks about the company's performance and why he thinks rising power will return to the market next. this is bloomberg. ♪
>> this is bloomberg commodities edge. it is time for the brief where bloomberg and ef which gives in-depth analysis on clean energy, advanced transport commodities and emerging technology. joining me is colleen. joining from san francisco. the wildfires ravage california and the markets punished the utility company pg&e. 15 minutes before a fire was reported in sacramento, a power line when off-line potentially leading the company off the hook for billions in damages. who is going to pay for the
effects of climate change? just how bad can this be for pg&e? >> pretty bad. for are already on the hook the $15 billion, most likely from last year's fires. that number might rise. you have this year's fire, too. that number could double. you are looking to two to three times what today's market cap is. so, these liabilities are significant. it is not clear, especially for this year's fire, how they're going to be paid for. the question becomes, you know, how bad is it versus other utilities. you have a great bar chart that shows miles of electric saying that they basically have increased exposure to areas that could be effective. >> absolutely. so no matter how much -- i you cut it is one of the largest utilities in the country. that could become a lot hours of sales every year or the number of customers. here, where it really matters, a
lot of these wildfires are related to transmission mind. it is a number one single utility by miles and transmission. really dwarfing the size of the next several utilities. that means they are really exposed, just in terms of their territory. they have a lot of transmission miles. start to cross -- stretched across very dry areas. the broader question is who pays for climate change. if there is rebuilding, what do they have to do, what is the solution for these utility companies? >> that is a good question. there is a lot of debate over that in california. will the bondholders get it with these costs? will it be able to rate base these costs? rateser words increase for customers. nobody knows quite yet. it is quite clear that if somebody else came in, they would face very similar risks. thank you very much.
i want to turn to commodity in chief where we focus on one executive in the commodity world. it is jeff miller. first, a closer look at the company. halliburton calls the modern -- bottom and tough guidance. again, for the third time. it is the oil services company in north america. producers drill, complete, and frack oil. it has been a bad few years. since 2014. oil crash eroded their business and pricing power. when rent was at 70, things should have been better. permian bottlenecked's lead to slowing activity. operational stumbles rose as producers try to figure out just how fast they can drill and frack. there is pressure for companies to spend more on chaos, less on drilling. it isime, they say, different. usc mps will have new budget and higher oil prices. a large backlog of oil waiting to be frack.
new pipelines in the permian are less than 12 months away. another potential boost, the middle east. it's most active international market. it tried to grow market share and inch towards higher pricing power. is all of this enough for this time to really be different? i recently cut off with jeff miller, the ceo and asked him if investors will rebel, preventing oil companies from increasing, putting a dent in the oil services plan for recovery. we are in aally, depleting industry. a reading that gets used gets consumed. forevernot a sustainable situation for any business. i also think that a strong commodity price and the ability to earn returns at some point is awesome. >> is it a strong commodity price for you? >> i think the range is that $70 looks pretty strong to me. >> part of that is going to be
on you guys to try to make e&p a merit -- manufacturing company. it will not be about your base and our discovery. how do we do that? >> i think the tougher or the bigger opportunity is around how to make oils more productive -- more productive at the same time. wellbore to mobilization. near wellbore fracking as well as far field diversion and some of the things that we do that i think will make -- that makes the core good, but it also makes not record the core effective as well. i think that is really the long-term opportunity for how -- halliburton and for our customers. >> yes, and, does it also make more competition? a competitive market out there. it is always competitive. everywhere in the world is competitive. we see it a lot internationally as well. again, there is a lot of demand for our services because really,
two things. service quality and performance on location. and technology. >> in the wells that were drilled into as of 14, 2015, we are seeing an acceleration into klein rate. are you noticing that with the wells that were drilled last year? >> it has been a learning process for some time. base.esource and still a lot to learn. >> do you feel like we are seeing a spike in recoveries? or that we are actually getting better recoveries? >> it is hard. it is hard to say. it would be hard for me to call that at this point in time. i think broadly, the effect of technology, volumes, the different types of treatments, are all conjure meeting to better performance. >> international. where is your biggest opportunity? international middle east is going to be, it has been the most resilient it has remained an important opportunity.
we have also seen the north sea get more active is here. it might help to actually look at how we view the market as how it works. we tend to break it up and unconventional's. deep water and mature fields. fields the world over is where we will see the first leg of activity increase. when you think about more mature fields, a lot of them in the middle east, a lot of them in the north sea. quite a few in latin america. being the most expensive part of that supply chain or resource base. that is probably the last legs. >> have we seen, is there is different change between the trough and pricing, the trough an activity, which one have we seen? >> i think we have seen the trough an activity. >> went we see and pricing? >> it gets tighter. i wish i had a thursday afternoon on xyz day.
is we have good insight into what we need to do to be ready. the fact is it is very competitive internationally. we see capacity take up, it probably stays that way, at least on the big things. >> is there a reason you think will pick up first? >> it is hard to call. the north sea will see that earlier because it is a tighter market. a smaller market. >> that was my interview. since the taping, the company expect -- i expect to be announced a new cfo. no high or hidden drama in that development. here is what is on my commodity radar. wednesday is the big day. chp investor day. producer,nd lithium you definitely don't want to miss that. it is particularly in light of any trade issues and trade war coming from those players. it is thanksgiving. look out for your turkey there and turkey prices. that does it for commute -- bloomberg commute -- bloomberg
>> this is bloomberg etf iq. oil under pressure. how the record 12 day losing includes prices impact explodes for oil and energy stock etf. is the tail wagging the dog? we debate whether etf's are to blame for the volatility we see in equities. and honoring those who served. an etf that come -- better participation in the workforce.