tv Erin Burnett Out Front Bloomberg June 22, 2019 2:30pm-3:01pm EDT
alix: middle east turmoil. the u.s. moved more troops into the region. oil prices care more about trade geopolitics. gold bugs rejoice. prices spike as jay powell delivers a flock full of doubts. you are hired. just maybe not if you are a woman. clean energy looks like big oil dominated by white men. ♪ i'm alix steel. welcome to "bloomberg commodities edge." 30 minutes focused on the companies, physical assets and the trading behind the hottest commodities with the smartest
voices in the business. we kick it off with spot on, our analysts take on. we start -- our analyst take on the big story. joining me is ceo and a middle east advisor. our spotlight is on the middle east. a lot has happened in the last week. it started thursday when two tankers were damaged in the gulf of oman. friday, president trump formally accused iran as the perpetrator and on monday, the u.s. ordered troops in the middle east. thursday morning, iran shut down -- shot down a u.s. drone and president trump addressed the situation while meeting with canadian prime minister justin trudeau. pres. trump: iran made a big mistake. this drone was in international waters. we have it all documented. it is documented scientifically, not just words. they made a very bad mistake. alix: what is the end goal here for the u.s.? >> ultimately, to reach some kind of diplomatic negotiation and agreement.
we are far away from that. at the moment, they are probably thinking about additional sanctions, possibly limited airstrikes, there is historical precedent for that. certainly not an all out war. alix: the response we have seen from iran and the turmoil of the last eight days, what is unusual and what is par for the course in the region? hagar: the fact that you have countries flying surveillance aircraft, not just the u.s., all in the region that fly these aircrafts that show that they go across borders occasionally, that is typical. it is how a lot of us do reconnaissance these days. a lot of them get shot down. it is very common. to say that something crossed into iranian airspace or international airspace, i cannot independently verify that. obviously i am more likely to believe my own leadership versus the iranian leadership. but that makes a difference in what we see today. normally it would be par for the course, if it were shot down over international airspace, it is a provocation. alix: what is the next up the
u.s. can take and where do they go from there? hagar: they will remain focused on sanctions. it has been their tool of choice because president trump is focused on undermining iran's nefarious behavior in the region and sanctions are working and -- working in that regard. i have heard talk that they will sanction the financial channel, that the iranian government established to do trade with europe. most likely the focus should be on the europeans, the u.k., and germany in particular, who have said if iran violates the deal, which they may be in violation of next week, that they would reimpose sanctions. they will focus on that. my guess is that they will be talking about limited airstrikes as well, in a a retaliatory but also showing they are exercising restraint. as a message but not to pursue war. alix: do the sanctions actually wind up working? i say that because there has been conflicting reports as to whether or not china is buying iranian oil. we have seen exports to asia actually fall out but there are conflicting reports.
what are you hearing? hagar: as with any sanction target, they find the loopholes, ways to work around it and find partners to help them evade those sanctions. can it help evade to the point where they really benefit? for example, the u.s. treasury last week sanctioned a financial conduit of the islamic revolutionary guard corps in iraq. it was important because they found a way to send money and because it generated profit. the treasury department is on top of it. this is also why china is also expressing interest in trying to mediate. it is for selfish reasons, they want to buy cheaper iranian oil. that being said, the sanctions work in the goal of undermining terrorism in the region. we know hezbollah and hamas are hurting financially, and those operating in syria are hurting financially because of iran and the decrease in financial allowance. that being said, are they achieving the goal of another
deal? it remains to be seen. alix: rounded up for europe. europe's way of potentially trading with iran without using the u.s. dollar, is not going to happen? hagar: it is not going to work. it hasn't shown it is going to work. the europeans cannot really deliver on the economic relief that the iranians want. it was set up for trade for humanitarian purposes between europe and iran. you are talking about trade that is legal with the u.s. when it comes to humanitarian medicine, food. these are things that are allowed. and that channel is not working. i do nothing it will go far. alix: thank you so much. i appreciate the insight. i want to bring in kevin o'brien, chief business officer at orbital insight. tensions flare, oil prices barely budge, moving more on dovish fed and u.s. trade hopes. i'm looking for insight as to why? kevin: we are seeing interesting trends happening over the short-term and long-term. in the last 30 days, we have seen a net build of 30 barrels. -- 30 million barrels.
year to date, it has been about 143 million barrels. year on year, 180 million. the interesting piece and tying into your past guest, is china. china has been about 13 million barrels of that buy. over the past time, 50% of the net buy going off to china. when you about the unrest going on, the people that can get hurt by that is china itself. alix: i like that you are mentioning asia. i'm wondering if the bills we have seen have been one off, maybe weather-related, built in the u.s. versus china. kevin: china, we begin to see in the third quarter last year, beginning to build. we saw acceleration in the fourth quarter and it has continued. we had said if china continues to see relatively inexpensive prices, they will continue to build and that is what we see in the data. alix: where is the surprise build? kevin: i think china is an interesting piece. as it continues to take more inventory, they need that.
they have a daily appetite of 12 million barrels a day. they are struggling to produce 4 million. if you think about flareups in the middle east in particular, the people who are going to get hurt is china and to a greater extent, asia. most of the oil going through the strait of hormuz is going to asia. less so based on the strong production out of the u.s. 1.7 8 million barrels per day. i think the u.s. is stable in that regard. alix: the story even three weeks ago was time spreads were really rising. supply was quite tight for the first month out of versus 12 months down the road. quickly it felt like that story reversed. is that the correct interpretation? you were talking about stock builds weeks ago and time spreads were not reflecting that. are we accurately reflecting the build? kevin: i think you are seeing more accurate reflection now because the markets have been looking at small areas and extrapolating for the rest of the global markets. the u.s. is well covered. we have come in and said what about the 80% of the rest of the market?
we believe the market is beginning to consume more of this information, reduce that volatility and actual supply in these regions. alix: backdrop is opec plus. they will meet, we think, july 1 and second. if they continue the cut of 1.2 million barrels per day, will that be enough to reduce the inventories you are seeing? kevin: we are continuing to see year on year builds of 36.5 million barrels. 17.7 million coming from iran. even though the cutbacks they announced, it is a good idea to do that, you are still seeing the buildup of inventory levels. specifically, the biggest builds out of iran. that was as of two days ago. alix: tie that in with the geopolitics in the region. there are questions as to whether insurance will be too expensive. if tankers will want to take on the risk of the strait of hormuz. if that happens, does that backlog oil and buildup storage regionally and highlight your data even more? kevin: it could potentially. i think this goes back to the story of china getting it right. saying oil is inexpensive, let's
continue to buy and i think you will continue to see that. they need that. they cannot necessarily have a drop in the continued buying in that area of the world. we have seen interesting data coming out. the asia story, ironically, is the key driver in the middle east story. alix: thank you so much. great to see you. kevin o'brien, chief business officer i global insights. as we had to break, score one for canada oil industry. justin trudeau's government decided to go with the construction of a major crude oil pipeline, saying the project met requirements on safety, and after consultation with indigenous groups. the pipeline will ship crude as early as 2022 and cost more than $5.6 billion. this is "bloomberg commodities edge." ♪
market trends. the first up, oil inventory numbers providing a sigh of relief for the oil market. you saw draws at 3.1 one million barrels. it was the gulf coast that delivered. inventories falling by 6 million barrels as exports rose. it was not only oil traders but farmers that debriefs -- that breathed the sigh of relief. the planting season is almost over and farmers planted 92% of their crop. this is the weakest for the time of year since 1980's. insurance claims for the states when it comes to on planted corn could find a record. gold m&a also continuing. im gold rallied the most in over four years. china national gold is studying a bid for the company. im gold is suffering from initiatives plus indecisive capital investments. sticking with the gold market, we want to get into the ring. this sound was magic to the gold bulls' ears. >> we will act as appropriate to sustain the expansion. we have been mindful of ongoing crosscurrents.
crosscurrents have reemerged, raising concerns of the global commodity. uncertainty around the baseline outlook has risen, a case for more accommodative policy has strengthened. alix: joining me is suki cooper, analyst at standard chartered bank. great to see you. is this finally the break we will get for gold? will we get to 1400 on this? suki: it is a different market for gold. result almost a false break at the start of the year. but the macro factors were not quite right. now we have the culmination of systematic risk and trade concerns. on top of that, the fed easing potentially in july. this is creating a favorable cocktail for gold and it is more likely we will see that push beyond 1400. alix: what part of that has to do with the hunt for yield in that you have $12 trillion plus of negative yielding debt in the world and the numbers keep getting larger. if you compare that with gold, what is the ratio? how close do they move together? suki: gold has broken down its east track. much of last year was tracking
the dollar closely. this year, yields have come back into focus and the correlation between five-year real yields and gold has become stronger. most of this is driven because last year, there was not as much investor interest in gold and it is being driven by physical demand, and central by -- bank buying is helping to support the downside. this year, macro factors have come back into focus. if we see the fed cutting, that creates a favorable backdrop for gold where yields will start to matter again. alix: do you feel like investors are under own gold or how much more position squaring based on if traders were short? suki: absolutely. if we look at positioning coming into this potential rate cut, investors were a little underweight compared to previous cuts in 2007 or even below that. even though we saw this move on short positions in the middle of last year toward this year, investors are relatively underweight whether we look at positioning or etf woes.
having said that, we are seeing a huge move over the last two or three weeks with investors having long positions. that may mean we are little toppy at the moment but we are on the upside. alix: let's talk about the physical buying. that will not be sentiment driven. what have we seen in terms of that and how sustainable is it? suki: last year was the second strongest year on record in central bank buying. what was particularly impressive was the number of central banks reentering the market. over 27 central-bank buyers last year. this year, the momentum may have slowed a little bit but we are seeing new central banks coming into the space. those that have not been active a while. we still have our usual central banks such as russia, kazakhstan, turkey, and china. we are seeing good buying. our provisional data or q1 suggests although buying is not a strong as q4, it is stronger than it was q1 2018. the trend has continued despite prices moving higher.
alix: so great to see you. thank you for coming. suki cooper of standard chartered bank. time for our note of the week. it comes from the epa. the agency will replace the obama era clean power plan with a rule which allows states to require coal-fired utilities to reduce their carbon footprint by improving their efficiencies the -- efficiencies. the agency says this rule could result in 1400 more premature deaths by 2030 than the clean power plan. the epa head said this week, i don't know who will invest in a coal fire plant. but we are leaving the ash leveling the playing field. we continue our nations environmental progress and will do so legally and with proper respect for the states. this is "bloomberg commodities edge." ♪
♪ alix: i'm alix steel and this is "bloomberg commodities edge." it is time for the bnef brief, in-depth analysis on clean energy, advance transport, and emerging technologies. bloomberg released its new report on the outlook for global emissions and keeping temperature increases two degrees or less. it said the buildout of wind, solar, and batteries will put the world on a path of that is compatible with these objectives until 2030. but a lot more will need to be done beyond that date to keep
the world on that too degree -- two degree path. joining me with highlights from san francisco is logan goldie scott from bloomberg nef. first, the big sweeping conversation of how the power mix changes over the next 30 years? logan: by 2050, we expect wind and solar to make up 50% of the world's electricity, up from 10% of today's generation. if you add and supplement that with generation capacity from hydro from nuclear and other renewables, you end up with an additional 20%. a dramatic shift. alix: what does that mean in terms of cost? does that mean solar and wind have gotten cheaper or is there another thing that is leading this shift? logan: the outlook is really based on cost. what we see is renewables are already the cheapest form of electricity generation in the round -- and around two thirds of the world. what is exciting that by 2030, we expect wind and solar to be cheaper than existing coal and gas assets.
that is a big tipping point. alix: this chart shows that. currently, new wind and solar is cheaper than existing natural gas, but not yet existing coal. once against cheaper than existing coal, how quickly will the transformation take place? logan: it depends on the pace of retirement and it depends on policy and major policy shifts. what we are already beginning to see today is utilities and government and policymakers help support renewables in recognition of its economic competitiveness. alix: what does that mean for coal retirements then? logan: coal is the biggest loser in our outlook. we expect the total coal generation, the generation profile for coal to be around half between now and 2050. in the developed world, it is more extreme. alix: i love that perspective. thank you so much. now we turn to commodity and
chief, where we focus on one executive in the commodity world. first, a closer look at the company. this is how energy trading works. producers and traders go through thousands of transactions a year. banks tony of loans and there's lots of paperwork. blockchain wants to change that. enter fact, a digital platform that processes deals. think of it as a trade between two oil parties called shareholders. they have to sign onto the same terms and conditions, and share their market data which forms the backbone of the central ledger. now there is congo. a blockchain based platform that provides financing. 10 banks, three independent traders, and one oil major all signed up. the goal is to move financing onto the platform to avoid the inefficiencies of paper documents to limit operational risks and eliminate fraud. the buyer accesses financing on the platform or off-site.
they hope to ride liquidity to get the right kind of financing. the benefits of being the first mover is unclear. all of this is new and hopes are very high. i recently caught up with her and i asked her how it was going. >> so far, so good. it is a huge challenge to change the way an old-age industry operates. alix: exactly. what are the biggest challenges? the companies themselves or the mechanics? where has been the hardest part? >> our biggest competitor is email. it is a no-brainer for anyone. even if it creates risk and inefficiencies, leaving email aside is a big challenge for the basic user. the everyday user. then in terms of being on-boarded the company, you need to go through 10 to 15 stages, which is an everyday challenge to match the requirements of all
of those big companies. it is the user onboarding process that is our biggest challenge. alix: is it just oil that you will do? will there be other commodities? souleima: we are going to cover the full scope of the commodities. we started with oil because of the close relationship with vakt. we will push to production this year. it can be open to any other commodities. banks need to have the full scope to be able to finance. alix: what is the advantage to being the first mover? souleima: the first movers will be able to adapt so they can benefit from the added value of the system. they will be the first ones to be more efficient, lower their operational cost and their fraud risk. the second advantage is that we are close to our users, we are user centric focused and we invite them to workshops. we can do this today because we have quite small user base. moving forward, it will not be the case. the first users have a say on the design of the product and what the platform is doing
today. alix: have you had any word on what the cost savings are for companies? souleima: it depends on how the companies are organized. today, it is not material yet because it is only the first months of the platform. it will take time. you do not change an industry that has been operating the past decade in six months. it should help people focus on what they really like to do, which is mastering the risks of the transactions and not wasting time. this will be the first added value, and maybe it will allow and i hope it will allow people to do more business with less resources at the end of the day. alix: do you have the opinion that there will be some commodities that will be easier to do than others or is at the building blocks and there will be more challenges? souleima: it may be more from a flow perspective. the more the flows are complicated, the more you need to go inland, use trucks, pipelines, different ways of moving the commodity. i think this will be the more
complex flows to digitize. those are also the flows that will bring them more added value. today, when you finance a transaction, when you have trucking or rails, they are capable of that. that is crazy. those transactions can be very useful to digitize. alix: that was my interview with souleima baddi of komgo. in today's commodity kicker, we will explore clean energy's dirty secrets, the lack of women workers. the workforce is still dominated by white males. the lack of gender diversity is driven by manufacturing jobs in solar and wind technology, a round dominated by the old boys club culture. women make up 13% of that part of that part of the u.s. workforce, which is worse in the fossil fuel production industry. it is time for the renewable energy to come clean on its gender diversity problem and get its hands dirty in fixing it. that does it for "bloomberg commodities edge."
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