WEBVTT - Stanziale: no longer in the commodity supercycle

0:00:03.160 --> 0:00:07.080
<v Speaker 1>This is Bloomberg surveillance. I see economic data proving the

0:00:07.160 --> 0:00:10.080
<v Speaker 1>United States. I think that's becoming increasingly obvious, but I

0:00:10.119 --> 0:00:12.440
<v Speaker 1>still think we're gonna be growing into two somewhere. I

0:00:12.480 --> 0:00:18.480
<v Speaker 1>would recommend that investors, state defensively postured and cautious policymakers,

0:00:18.520 --> 0:00:22.400
<v Speaker 1>financial markets, and the economic and financial media looked to

0:00:22.480 --> 0:00:25.160
<v Speaker 1>the FED to solve all the problems, and they're not

0:00:25.239 --> 0:00:29.960
<v Speaker 1>able to Bloomberg surveillance. Your link to the world of economics, finance,

0:00:30.040 --> 0:00:34.680
<v Speaker 1>and investment on Bloomberg Radio. Kid Morning everyone, Bloomberg Surveigas,

0:00:34.680 --> 0:00:37.800
<v Speaker 1>who welcome all of you worldwide Bloomberg Radio plus Bloomberg

0:00:37.880 --> 0:00:41.040
<v Speaker 1>dot Com and Serious ex M Channel one nine, Team

0:00:41.080 --> 0:00:44.200
<v Speaker 1>Bloomberg nine six, the Bay Area, Good morning, Good early morning,

0:00:44.240 --> 0:00:48.280
<v Speaker 1>San Francisco, of course, Bloomberg twelve, Boston, Bloomberg eleven, Rio,

0:00:48.479 --> 0:00:52.160
<v Speaker 1>and absolutely gorgeous New York. And I guess a hot,

0:00:52.200 --> 0:00:55.680
<v Speaker 1>sultry good morning. I haven't said that it's like summer Washington.

0:00:55.800 --> 0:00:58.639
<v Speaker 1>I'm not going with hot and sultry. Yet it's at

0:00:58.720 --> 0:01:01.680
<v Speaker 1>least warm. It's on the edge of warr Bloomberg ninety

0:01:01.720 --> 0:01:05.759
<v Speaker 1>nine and one FM Washington and Baltimore. Good morning, as well.

0:01:05.800 --> 0:01:08.800
<v Speaker 1>Bloomberg Surveys this morning brought to by Cone Residec Accounting

0:01:09.319 --> 0:01:14.080
<v Speaker 1>Tax Advisory. To minimize risk. To capture value in private equity,

0:01:14.760 --> 0:01:18.880
<v Speaker 1>you need Cone residuc were forward thinking, creates results. Find

0:01:18.880 --> 0:01:21.240
<v Speaker 1>out how at Cone Residuct dot com, c O h

0:01:21.400 --> 0:01:24.520
<v Speaker 1>n R e z n I c K Cone Residuct

0:01:24.520 --> 0:01:27.960
<v Speaker 1>dot Com. And we thank them for considered support through

0:01:28.000 --> 0:01:31.960
<v Speaker 1>the year. They have been more than kind. So is

0:01:32.360 --> 0:01:37.120
<v Speaker 1>uh the bid two commodities. Bruno Stanza allis with your

0:01:37.160 --> 0:01:41.280
<v Speaker 1>Aisier Group Bremer's Eurisier Group. UM. He has worked with

0:01:41.959 --> 0:01:46.920
<v Speaker 1>various companies, including more Capital Management, and he just simply

0:01:47.319 --> 0:01:52.600
<v Speaker 1>looks at the energy business and the Nash natural resources business. Bruno,

0:01:52.680 --> 0:01:55.640
<v Speaker 1>wonderful to have you here. Is it for real? Goldman

0:01:55.720 --> 0:01:58.320
<v Speaker 1>says it's not there. It's all over the media to

0:01:58.560 --> 0:02:01.640
<v Speaker 1>business media. Uh. Jeff Curry and the team at Goldman

0:02:01.680 --> 0:02:06.880
<v Speaker 1>saying maybe not. You push against that idea. Yeah, And

0:02:06.920 --> 0:02:08.920
<v Speaker 1>you know what you have to start by asking yourself

0:02:09.040 --> 0:02:12.320
<v Speaker 1>define what's real? Right? You know that that's the big question.

0:02:12.639 --> 0:02:17.880
<v Speaker 1>What are your expectations for prices? UM? Highly respect that

0:02:17.919 --> 0:02:19.760
<v Speaker 1>team over there. I've been I've been reading their stuff

0:02:19.800 --> 0:02:23.040
<v Speaker 1>for for almost twenty years now. Um I am. I

0:02:23.120 --> 0:02:26.440
<v Speaker 1>am theorizing that oil has seen the lows. You know,

0:02:26.480 --> 0:02:28.359
<v Speaker 1>a lot of people were calling for a twenty dollar

0:02:28.480 --> 0:02:31.760
<v Speaker 1>price deck because that was what was needed to get

0:02:31.840 --> 0:02:35.600
<v Speaker 1>US production offline. Um, I don't think so. I don't

0:02:35.639 --> 0:02:37.720
<v Speaker 1>think we need to go that low to see the

0:02:37.760 --> 0:02:41.200
<v Speaker 1>supply response that's needed to rebalance the market. So we're

0:02:41.240 --> 0:02:45.080
<v Speaker 1>looking for a slow, steady, gradual upward price movement from

0:02:45.120 --> 0:02:49.240
<v Speaker 1>here to around forty barrel for the balance of and

0:02:49.240 --> 0:02:52.040
<v Speaker 1>then slowly gravitating towards an average price of fifty dollars

0:02:52.040 --> 0:02:55.560
<v Speaker 1>a barrel in And at that point you're gonna start

0:02:55.560 --> 0:02:58.880
<v Speaker 1>to see the US producers come back into the market

0:02:58.960 --> 0:03:03.080
<v Speaker 1>with new supply supply that will take care of the

0:03:03.120 --> 0:03:07.600
<v Speaker 1>decline rates and incrementally add So I think the worst

0:03:07.639 --> 0:03:09.960
<v Speaker 1>is behind us. I think you're seeing a knee jerk

0:03:10.000 --> 0:03:12.880
<v Speaker 1>reaction to the market's expectation. The worst is behind us.

0:03:13.120 --> 0:03:16.720
<v Speaker 1>Will slowly gravitate into a range, volatility will dry up,

0:03:16.880 --> 0:03:19.240
<v Speaker 1>and we'll start to slowly ratchet up from there. But

0:03:19.320 --> 0:03:20.919
<v Speaker 1>I don't think you're going to see a twenty dollar

0:03:20.960 --> 0:03:25.239
<v Speaker 1>price deck if we get to that level. Um, you're

0:03:25.280 --> 0:03:28.839
<v Speaker 1>talking ballants We're not going to have people who need

0:03:29.000 --> 0:03:32.799
<v Speaker 1>cash pumping more oil just because the price is higher

0:03:32.840 --> 0:03:35.840
<v Speaker 1>and send us back into trouble. Yes, and that's a

0:03:35.880 --> 0:03:38.280
<v Speaker 1>great point, I think at the end of the end

0:03:38.320 --> 0:03:40.240
<v Speaker 1>of the day. And this is where where OPEC can't

0:03:40.280 --> 0:03:45.360
<v Speaker 1>get too cute. Right, Um, if you have a price

0:03:45.400 --> 0:03:48.800
<v Speaker 1>deck that balances the market, you're incrementally drawing down on

0:03:48.880 --> 0:03:51.920
<v Speaker 1>stocks anywhere between sort of forty five to fifty dollars.

0:03:51.960 --> 0:03:56.000
<v Speaker 1>The real risk is OPAC loses control again because now

0:03:56.080 --> 0:03:59.560
<v Speaker 1>you have US based oil and gas producers that have

0:03:59.680 --> 0:04:03.360
<v Speaker 1>all reconfigured their business models to be profitable at fifty dollars.

0:04:03.640 --> 0:04:06.880
<v Speaker 1>So you'll start to see increases in global production at

0:04:06.880 --> 0:04:09.720
<v Speaker 1>that price level. And look, this is what this phenomenon

0:04:09.800 --> 0:04:12.400
<v Speaker 1>is all about, right, This was a supply driven price

0:04:12.520 --> 0:04:17.480
<v Speaker 1>route based upon something secular. Something changed. We can access

0:04:17.640 --> 0:04:22.960
<v Speaker 1>more oil faster, cheaper, and more efficiently. That's not going away.

0:04:23.320 --> 0:04:26.880
<v Speaker 1>Why did we put a floor in here? Yes, the

0:04:27.000 --> 0:04:30.480
<v Speaker 1>Saudis and the Russians agreed to freeze production. Nobody believed

0:04:30.520 --> 0:04:33.560
<v Speaker 1>that they're actually doing it. They didn't set any targets

0:04:33.600 --> 0:04:38.720
<v Speaker 1>or any way to prove what's happening. So why did

0:04:38.760 --> 0:04:42.240
<v Speaker 1>this work. It worked because I think that you know,

0:04:42.480 --> 0:04:47.080
<v Speaker 1>low prices cure low prices generally, particularly in cyclical commodities.

0:04:47.279 --> 0:04:50.440
<v Speaker 1>Um At the end of the day, there is a

0:04:50.600 --> 0:04:54.120
<v Speaker 1>certain amounts or certain number of US based producers that

0:04:54.240 --> 0:04:57.960
<v Speaker 1>cannot operate under sort of you know, sub thirty five

0:04:58.000 --> 0:05:02.760
<v Speaker 1>dollar price environment. So the market was always expecting year

0:05:02.839 --> 0:05:06.840
<v Speaker 1>on your declines in production. The rate of those, of

0:05:06.920 --> 0:05:09.960
<v Speaker 1>the steepness of that decline curve was not as high

0:05:09.960 --> 0:05:12.480
<v Speaker 1>as people thought. We don't have as much production coming

0:05:12.520 --> 0:05:15.719
<v Speaker 1>off as anticipated, but it's coming off. Let's not forget.

0:05:15.920 --> 0:05:18.599
<v Speaker 1>You know, year on year US based oil production is

0:05:18.760 --> 0:05:22.799
<v Speaker 1>off probably around three barrels a day at this point,

0:05:22.839 --> 0:05:26.320
<v Speaker 1>and it will continue to come off unless prices go higher.

0:05:26.880 --> 0:05:30.280
<v Speaker 1>So we'll slowly balance the market as production comes off

0:05:30.320 --> 0:05:33.080
<v Speaker 1>in the States. As we do that, prices will go

0:05:33.200 --> 0:05:37.400
<v Speaker 1>higher only to be met by new production increases. And

0:05:37.440 --> 0:05:39.120
<v Speaker 1>that's what this is all about. Right at the end

0:05:39.120 --> 0:05:42.279
<v Speaker 1>of the day, we're no longer in this supercycle. We

0:05:42.320 --> 0:05:45.719
<v Speaker 1>are in a process where crude oil will reset into ranges,

0:05:46.440 --> 0:05:48.479
<v Speaker 1>and that's what we're looking. I'll go that you don't

0:05:48.480 --> 0:05:50.880
<v Speaker 1>have the maybe you don't have the China catalyst to

0:05:50.920 --> 0:05:53.920
<v Speaker 1>get us out to stupid pricing again. But did you

0:05:53.960 --> 0:05:56.600
<v Speaker 1>see the catharsist to clear markets, I mean the heart

0:05:56.680 --> 0:06:00.000
<v Speaker 1>of your theory versus the good work of Jeff Curry

0:06:00.000 --> 0:06:02.840
<v Speaker 1>and others who are more suspect about a bid being

0:06:03.240 --> 0:06:06.839
<v Speaker 1>set in the heart of the matter as you've got

0:06:06.839 --> 0:06:09.760
<v Speaker 1>to clear that supplied glot. Did we do that? Or

0:06:09.839 --> 0:06:12.440
<v Speaker 1>is Cushing still up to its eyeballs and oil? Well,

0:06:12.680 --> 0:06:15.160
<v Speaker 1>we are in the process of clearing that supply gut.

0:06:15.279 --> 0:06:18.680
<v Speaker 1>And given the expectations idea, we're you know, we're betting

0:06:18.720 --> 0:06:21.600
<v Speaker 1>on where we are June, where we are September, and

0:06:21.760 --> 0:06:25.120
<v Speaker 1>that what gives you the confidence to believe that Cushing

0:06:25.240 --> 0:06:29.000
<v Speaker 1>is cleared. Well, it's not necessarily just about Cushing, and

0:06:29.080 --> 0:06:31.080
<v Speaker 1>you know, I mean Cushing is definitely it's the hub

0:06:31.120 --> 0:06:33.600
<v Speaker 1>that prices W T I, which is the benchmark, and

0:06:34.040 --> 0:06:37.279
<v Speaker 1>we all know that. But firstly, you know, define defined

0:06:37.360 --> 0:06:40.760
<v Speaker 1>Cushing being full in essence. That's that's very hard to

0:06:40.760 --> 0:06:43.000
<v Speaker 1>do because throughout my career doing this, you know, we've

0:06:43.040 --> 0:06:46.200
<v Speaker 1>had multiple instances where Cushing was quote unquote full and

0:06:46.240 --> 0:06:49.000
<v Speaker 1>it never quite gets full. So the reality is that's

0:06:49.000 --> 0:06:51.560
<v Speaker 1>a very difficult thing to determine. And at the end

0:06:51.640 --> 0:06:53.160
<v Speaker 1>of the day. You have to remember when when when

0:06:53.200 --> 0:06:57.120
<v Speaker 1>a certain UH storage basin gets full, you have other

0:06:57.240 --> 0:07:00.320
<v Speaker 1>areas that you start to fill out. So you know,

0:07:00.640 --> 0:07:02.360
<v Speaker 1>I think the basis has to be looking at year

0:07:02.400 --> 0:07:05.640
<v Speaker 1>on your production declines. We are in the process of

0:07:05.680 --> 0:07:08.960
<v Speaker 1>clearing up that glut via production declines. And what I

0:07:09.000 --> 0:07:12.280
<v Speaker 1>mean by that is U S producers are not given

0:07:12.280 --> 0:07:17.119
<v Speaker 1>a price signal to develop new reserves profitably in order

0:07:17.480 --> 0:07:21.960
<v Speaker 1>to negate production declines. So we needed to take price

0:07:22.040 --> 0:07:24.280
<v Speaker 1>down to that level, which I think we have because

0:07:24.280 --> 0:07:28.200
<v Speaker 1>you're seeing you're on your price production declines, so we're

0:07:28.280 --> 0:07:31.680
<v Speaker 1>slowly cleaning the market up. I think as that happens,

0:07:32.000 --> 0:07:34.800
<v Speaker 1>you'll see it in the numbers weekly and then again monthly.

0:07:35.480 --> 0:07:38.160
<v Speaker 1>The market is always forward looking, and that's what it's

0:07:38.160 --> 0:07:40.880
<v Speaker 1>pricing in. Now we reached the price where we're seeing

0:07:40.920 --> 0:07:43.600
<v Speaker 1>a significant amount of production to clients. That will continue,

0:07:44.040 --> 0:07:46.800
<v Speaker 1>stocks will begin to draw down, will raise to a

0:07:46.880 --> 0:07:51.040
<v Speaker 1>price level where producers can develop raw acreage at a

0:07:51.120 --> 0:07:54.920
<v Speaker 1>higher price. That price is probably around fifty bucks. Every

0:07:54.960 --> 0:07:57.840
<v Speaker 1>e MP company in their quarterly UH statements has been

0:07:57.880 --> 0:08:01.720
<v Speaker 1>saying we have learned will learn how to operate profitably.

0:08:01.720 --> 0:08:04.960
<v Speaker 1>A fifty dollars. That's the signal right from the horse's mouth. Well,

0:08:04.960 --> 0:08:06.520
<v Speaker 1>you got a lot of e MP companies who may

0:08:06.520 --> 0:08:09.040
<v Speaker 1>not be around in a month or two. What what's

0:08:09.040 --> 0:08:11.120
<v Speaker 1>that looking like now as we get into the bank

0:08:11.200 --> 0:08:14.640
<v Speaker 1>reset season. Yeah, No, that's the million dollar question. And

0:08:14.920 --> 0:08:17.520
<v Speaker 1>I think the saudis in particular, we're we're as gloomy

0:08:17.560 --> 0:08:21.320
<v Speaker 1>as it sounds, we're looking for more bankruptcies. The reality is,

0:08:21.320 --> 0:08:23.280
<v Speaker 1>when you start to really look at the detail behind

0:08:23.360 --> 0:08:26.080
<v Speaker 1>the bankruptcies that have been announced in the last eighteen

0:08:26.080 --> 0:08:28.840
<v Speaker 1>months to two years, there have been in North America

0:08:29.080 --> 0:08:34.079
<v Speaker 1>roughly forty or forty three bankruptcies. The issue is, the

0:08:34.720 --> 0:08:40.560
<v Speaker 1>companies that have been declaring bankruptcies are not volumetrically significant

0:08:40.840 --> 0:08:46.600
<v Speaker 1>enough to cause this sort of cataclysmic drop in US production. Clearly,

0:08:46.640 --> 0:08:49.439
<v Speaker 1>we haven't seen it. They tend to be the names,

0:08:49.520 --> 0:08:52.079
<v Speaker 1>quite frankly, you would have expected to declare bankruptcy, the

0:08:52.200 --> 0:08:55.920
<v Speaker 1>small to medium sized names that were highly leveled out

0:08:55.960 --> 0:08:58.839
<v Speaker 1>of the gate, and they're just not big enough. The

0:08:59.240 --> 0:09:02.439
<v Speaker 1>real and this is one of the reasons why production

0:09:02.480 --> 0:09:04.920
<v Speaker 1>has been so resilience in this in the States is

0:09:05.440 --> 0:09:10.280
<v Speaker 1>the larger, volumetrically significant producers have had no trouble accessing

0:09:10.320 --> 0:09:14.079
<v Speaker 1>the cheapest form of capital, and that's accessing the equity markets.

0:09:14.800 --> 0:09:16.720
<v Speaker 1>You know, take a look at the secondaries that we've

0:09:16.760 --> 0:09:20.720
<v Speaker 1>seen last year and into this year, big numbers generally

0:09:20.760 --> 0:09:24.560
<v Speaker 1>successful secondary offerings. Devon Energy is a notable one, most

0:09:24.600 --> 0:09:27.439
<v Speaker 1>recently raised one point three billion dollars. And the interesting

0:09:27.480 --> 0:09:30.200
<v Speaker 1>thing is when you look at what they all say

0:09:30.240 --> 0:09:33.160
<v Speaker 1>they're gonna do with that capital. Well, primarily they're gonna

0:09:33.160 --> 0:09:35.480
<v Speaker 1>pay down debt that preserve their credit rating, because again

0:09:35.520 --> 0:09:37.160
<v Speaker 1>a lot of this is orchestrated behind the scenes a

0:09:37.160 --> 0:09:40.120
<v Speaker 1>better credit rating agencies. You want to reintain your credit rating,

0:09:40.160 --> 0:09:42.439
<v Speaker 1>you want to maintain your current cross getting paid down

0:09:42.480 --> 0:09:44.440
<v Speaker 1>your debt and start to get discipline. So they're all

0:09:44.440 --> 0:09:47.960
<v Speaker 1>paying down debt, but almost all of them are saying

0:09:48.640 --> 0:09:51.280
<v Speaker 1>that they're also going to use a part of that

0:09:51.360 --> 0:09:54.600
<v Speaker 1>revenue to develop reserves because at the end of the day,

0:09:54.640 --> 0:09:57.960
<v Speaker 1>they're in the business of producing. Yeah, that's the DNA. Well,

0:09:58.000 --> 0:10:01.360
<v Speaker 1>let's come back one talk about net gas, which has

0:10:01.360 --> 0:10:04.520
<v Speaker 1>been a life of its own as well. Mike Urgent

0:10:04.640 --> 0:10:09.040
<v Speaker 1>message Leslie Patton reporting for Bloomberg News, shake Check drops,

0:10:10.320 --> 0:10:12.920
<v Speaker 1>shake Check fell in early trading after Tom Keene did

0:10:12.920 --> 0:10:16.320
<v Speaker 1>not buy the smoke Scheck double bar. It's our fault,

0:10:17.760 --> 0:10:21.160
<v Speaker 1>galories nine. Do about the four cents? Okay, we could

0:10:21.160 --> 0:10:22.920
<v Speaker 1>do something about that today. I think we should do

0:10:22.960 --> 0:10:26.920
<v Speaker 1>that road trip today Madison Square Park. Help help them

0:10:26.920 --> 0:10:30.120
<v Speaker 1>out there, don eight percent. Seriously, they they've they've lightened

0:10:30.200 --> 0:10:32.520
<v Speaker 1>up a little bit this morning as they go in

0:10:32.600 --> 0:10:36.079
<v Speaker 1>search of growth. That's your Shakesheck report for those of

0:10:36.120 --> 0:10:40.439
<v Speaker 1>you worldwide Shake Shacks, the official lunch counter for Bloomberg surveillance,

0:10:40.960 --> 0:10:44.480
<v Speaker 1>where we look at the Schumberger seven ninety five calories

0:10:44.920 --> 0:10:52.360
<v Speaker 1>as well the Schumberger futures a negative eight I'm not

0:10:52.480 --> 0:10:54.079
<v Speaker 1>a chicken with like a bar and get the latest

0:10:54.120 --> 0:10:57.200
<v Speaker 1>world and national headlines. Mike, Tom, thank you very much.

0:10:57.200 --> 0:11:01.160
<v Speaker 1>Poles are opening today for presidential primaries. Democrats vote today

0:11:01.160 --> 0:11:05.640
<v Speaker 1>in Michigan and Mississippi. Republicans vote today in Michigan, Mississippi, Idaho,

0:11:05.720 --> 0:11:09.760
<v Speaker 1>and Hawaii, and appeal hearing will take place today from

0:11:09.760 --> 0:11:13.199
<v Speaker 1>the Utah branch of Planned Parenthood. They want to reverse

0:11:13.200 --> 0:11:15.720
<v Speaker 1>the judge's decision that allowed the state's governor to cut

0:11:15.760 --> 0:11:18.920
<v Speaker 1>off funding to the organization. South Korea says it will

0:11:18.920 --> 0:11:23.480
<v Speaker 1>sanction forty individuals and thirty organizations abroad, mostly in North Korea,

0:11:23.520 --> 0:11:25.800
<v Speaker 1>as part of its punitive measures on the North for

0:11:25.920 --> 0:11:30.280
<v Speaker 1>its recent nuclear test and rocket launch. Today's announcement comes

0:11:30.280 --> 0:11:33.439
<v Speaker 1>a day after North Korea warned of preemptive nuclear strikes

0:11:33.440 --> 0:11:37.360
<v Speaker 1>in response to the start of Seoul Washington military drills.

0:11:37.840 --> 0:11:42.000
<v Speaker 1>The North views those drills as an invasion rehearsal. Global

0:11:42.000 --> 0:11:44.520
<v Speaker 1>News twenty four hours a day, powered by our twenty

0:11:44.559 --> 0:11:47.439
<v Speaker 1>four hundred journalists more than a hundred fifty news bureaus

0:11:47.440 --> 0:11:49.840
<v Speaker 1>from around the world. I'm michaela bar Time and MACA.

0:11:49.960 --> 0:11:52.600
<v Speaker 1>Thanks so much. Coming up, Bruno Stanza, We're gonna talk

0:11:52.640 --> 0:11:55.000
<v Speaker 1>about net gas. We haven't done enough on that. It

0:11:55.240 --> 0:12:05.960
<v Speaker 1>is truly imploding NetCast. We'll do that next. Bloomberg's the

0:12:06.000 --> 0:12:08.040
<v Speaker 1>News Update, brought to you by Mercedes Benz. This month,

0:12:08.080 --> 0:12:10.760
<v Speaker 1>your Mercedes Ben's Tri state dealers welcome Spring with limited

0:12:10.800 --> 0:12:12.959
<v Speaker 1>time offers on select models like the sport E c

0:12:13.120 --> 0:12:15.120
<v Speaker 1>L A and the Versatile G l A, each engineered

0:12:15.120 --> 0:12:20.000
<v Speaker 1>at price to move. Visit NBA USA dot com today