WEBVTT - AT Kearney's Heinroth: Supply Reserves Will Curtail OPEC(Audio)

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<v Speaker 1>Broadcasting live to New York Bloomberg eleven, Rio to Washington,

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<v Speaker 1>d C Bloomberg to Boston, Bloomberg Well under It to

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<v Speaker 1>San Francisco Bloomberg nine six to the country sis XM

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<v Speaker 1>Channel one nineteen, and around the globe the Bloomberg Radio

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<v Speaker 1>plus Appen Bloomberg dot Com. This is taking Stock. I'm

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<v Speaker 1>Kathleen Hayes, my co host Pim Fox on vacation. This week,

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<v Speaker 1>we're gonna be taking a look at oil. The prices

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<v Speaker 1>down about forty seven bucks of barrel after being firmly

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<v Speaker 1>above fifty bucks for just a few weeks. Will uh

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<v Speaker 1>kind of bottlenet caused by oil field services help boost

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<v Speaker 1>that oil price again? While our guests coming up on

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<v Speaker 1>the show now, Sean Heinrath from a t Kearney in

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<v Speaker 1>Houston says, don't count out. He's got a very fascinating explanation.

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<v Speaker 1>And we're gonna take a look at the breaking news

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<v Speaker 1>in the last half hour. Apple facing a potential tax

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<v Speaker 1>bill running into billions of euros as the EU poises

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<v Speaker 1>to release of finding into its dealings with Ireland as

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<v Speaker 1>soon as tomorrow. Well, we don't have to wait tomorrow

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<v Speaker 1>for this Charlie Pelletts in the news room, and he's

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<v Speaker 1>got a Bloomberg business flash, and I think of Kathleen Hayes.

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<v Speaker 1>Let's begin with Apple shares now trading unchanged one oh

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<v Speaker 1>six ninety six on shares of Apple. You were mentioning

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<v Speaker 1>crude oil West Texas Intermediate down one and a half percent,

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<v Speaker 1>falling seventy cents of barrel on w t I forty

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<v Speaker 1>ninety three. Right now, Brent crew down one point one percent,

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<v Speaker 1>down fifty six cents thirty seven. Natural gas heading the

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<v Speaker 1>other direction, off now by three tenths of one percent

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<v Speaker 1>to eighty eight per million bt us on natural gas.

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<v Speaker 1>Oil is declining them with doubts that producers will agree

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<v Speaker 1>on a deal to stabilize the market when global suppliers

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<v Speaker 1>meet next month for informal talks. Jason Schenker is chief

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<v Speaker 1>economists at Prestige Economics. He was interviewed this morning on

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<v Speaker 1>Bloomberg Television. A town of this is very different than

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<v Speaker 1>anything we've seen in a while from OPEC. Uh. You know,

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<v Speaker 1>they've had side meetings before, but they haven't been formally announced.

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<v Speaker 1>Uh of the press release directly from the OPEC secretariat,

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<v Speaker 1>and you've got different members saying they might do this,

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<v Speaker 1>they might do this. Uh, you know, and I don't

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<v Speaker 1>think personally that they're going to change their production levels,

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<v Speaker 1>but the fact that that could be on the table

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<v Speaker 1>if prices fall further is something that has stemmed prices.

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<v Speaker 1>Here man, we will have more on oil coming up

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<v Speaker 1>right here on taking stock. Herbal Life shares trading higher

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<v Speaker 1>after billionaire Carly Com bought more than two point three

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<v Speaker 1>million shares in the embattled nutrition company that has the

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<v Speaker 1>high profile that that is the high profile target of

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<v Speaker 1>fellow billionaire activist investor Bill Ackman. Herbal Life up now

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<v Speaker 1>by three point nine two thirty two on Wall Street. Now,

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<v Speaker 1>let's take a look at other news from around the world.

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<v Speaker 1>Thank you, Charlie from the Bloomberg Newsroom. I'm Matt Miller.

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<v Speaker 1>One of Hillary Clinton's closest aids, Huma abbot In, said

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<v Speaker 1>she's separating from her scandal plagued husband. Former Congressman Anthony

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<v Speaker 1>Weiner ween to resigned from Congress in two thousand eleven

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<v Speaker 1>after he was caught texting intimate pictures of himself to women.

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<v Speaker 1>There's now a report that he again exchanged sexually charged

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<v Speaker 1>messages with another woman the White House says the United

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<v Speaker 1>States today is meeting President Obama's goal of admitting ten

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<v Speaker 1>thousand Syrian refugees during the current fiscal year. After a

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<v Speaker 1>slow start, the administration was able to hit the goal

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<v Speaker 1>a month ahead of schedule. Brazil's suspended president has made

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<v Speaker 1>an emotional appeal to keep her job. Joe Marussa urged

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<v Speaker 1>senators today to vote against her impeachment. She said it

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<v Speaker 1>would amount to her death sentence and would put Brazil's

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<v Speaker 1>democracy at risk. Julia l Chi, Bloomberg's Salpoulo bureau chief,

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<v Speaker 1>spoke with Bloomberg Television. She mentioned that a few times

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<v Speaker 1>people people kept asking her, will your resign? Will you resign?

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<v Speaker 1>And she says, it's just not in me. I don't

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<v Speaker 1>give up, I don't fight, And she kept saying she's

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<v Speaker 1>not fighting for her terms, she's fighting for democracy and

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<v Speaker 1>justice and just reiterated that she is innocent of the

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<v Speaker 1>crime he's being accused of. Businesses on North Carolina's outer

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<v Speaker 1>banks are watching tropical weather systems that could rain out

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<v Speaker 1>one of the last busy weeks of the summer tourist season.

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<v Speaker 1>One tropical depression is about three hundred miles southeast of

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<v Speaker 1>the Cape Hatteras Beaches and is moving northeast. In the

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<v Speaker 1>Gulf of Mexico. Another tropical depression is churning west of

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<v Speaker 1>Key West Global News twenty four hours a day, powered

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<v Speaker 1>by over twenty hundred journalists and analysts and more than

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<v Speaker 1>one twenty countries. I'm Matt Miller. This is Bloomberg, and

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<v Speaker 1>we thank you what again recapping The stocks are rallying

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<v Speaker 1>with the SMP five hundred index up twelve, a gain

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<v Speaker 1>of six tenths of one percent of ten year up seconds,

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<v Speaker 1>the yield one point five six. I'm Charlie Platon. That's

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<v Speaker 1>a Bloomberg business flash. You're listening to taking stock with

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<v Speaker 1>bim box at Kathleen Hayes on Bloomberg Radio. Taking stock

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<v Speaker 1>of the energy market. We step back. Two big forces

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<v Speaker 1>at work of You say a global supply glut uh

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<v Speaker 1>that has not been sufficient and reduced. Others say, well,

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<v Speaker 1>global demand that keeps rising. Sooner or later that all

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<v Speaker 1>price will not on lea surpass fifty bucks of barrowbable

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<v Speaker 1>head to sixties seventy even higher. Our next guest is

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<v Speaker 1>looking at oil field services. This may be key this

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<v Speaker 1>part of the industry to how prices performed. Next, Sean

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<v Speaker 1>Heinroth is a principal oil and gas at the consulting

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<v Speaker 1>from A. T. Kearney and he's joining us from Houston, Texas,

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<v Speaker 1>the heart of US oil country. Shaun, welcome, Hey, thank

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<v Speaker 1>you very much. Kathleen, happy to be here. So, UH,

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<v Speaker 1>tell us broadly how the oil field services fits into

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<v Speaker 1>the industry right now and why it's so important to

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<v Speaker 1>your outlook for how quickly oil prices can rise and

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<v Speaker 1>how long they can stay at higher levels A couple

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<v Speaker 1>of things, Kathleen, I think that the oil field service

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<v Speaker 1>industry as a whole is a very complementary piece to

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<v Speaker 1>what determines ultimately what we're able to supply UH in

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<v Speaker 1>the energy side of the equation. So they work with

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<v Speaker 1>operators and provide a lot of the technology and and

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<v Speaker 1>frankly just the labor that goes into UH providing the

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<v Speaker 1>oil and gas that UH is ultimately consumed in the

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<v Speaker 1>petrochemical and refining industries. And so UH they are one

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<v Speaker 1>half of that equation in a sense. Okay, And so

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<v Speaker 1>what is the state of the oil field services, What's

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<v Speaker 1>what's the struggle? Why is this going to be so

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<v Speaker 1>important to the outlook for oil I think a couple

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<v Speaker 1>of things that have gone on here. As we entered

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<v Speaker 1>into late two thousand and fourteen, we had a very

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<v Speaker 1>typical oversupply in the industry that we see periodically on

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<v Speaker 1>the order of every five to ten years. A couple

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<v Speaker 1>of things that were different that happened back in two

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<v Speaker 1>thousand and fourteen and continue today. One is UH with

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<v Speaker 1>the oversupply, it came at a time when there were

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<v Speaker 1>a couple of sluggish economies both throughout Asia and Europe,

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<v Speaker 1>so we did and get that normal response to lower

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<v Speaker 1>fuel prices that come with an oversupply situation. The second

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<v Speaker 1>that's more interesting and more specific to oil field services

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<v Speaker 1>is this promise of unconventionals here in North America, and

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<v Speaker 1>we're beginning to see evidence of another regions of the

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<v Speaker 1>world has begun to take full effect. And with that,

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<v Speaker 1>the oil field service companies have been at the forefront

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<v Speaker 1>really of defining UH that promise through the technology and

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<v Speaker 1>through the capital investments that they've made on their half

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<v Speaker 1>UH that are really complementary to a lot of the

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<v Speaker 1>funds that the operators were pushing into the industry. UH.

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<v Speaker 1>And I'll say, for instance, if we look just at

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<v Speaker 1>the permium base in here out in West Texas and

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<v Speaker 1>New Mexico. Uh, compared to two years ago, well, activity

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<v Speaker 1>is determined by oil field services companies is down almost

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<v Speaker 1>seventy yet production is almost flat. It's it's roughly percent down.

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<v Speaker 1>And a lot of that, uh efficiency or productivity growth

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<v Speaker 1>has really been enabled through advancements at the oil field

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<v Speaker 1>service companies have been able to create through R and

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<v Speaker 1>D programs and through efficiency programs that really the operators

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<v Speaker 1>are standing to benefit from. So, in other words, people

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<v Speaker 1>have been kind of worried about the energy market being

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<v Speaker 1>you know, somebody layoffs under maintain ascids, that the oil

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<v Speaker 1>field services be this big bottleneck as demand for crude

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<v Speaker 1>begins to pick up and that could cause prices to

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<v Speaker 1>your rise. You're kind of letting us know maybe not,

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<v Speaker 1>maybe probably not. Uh. What about Also though the OPEC meeting,

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<v Speaker 1>you know, next month, informal talks for all these big

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<v Speaker 1>global suppliers are going to be taking place. How's that

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<v Speaker 1>going to enter into what's the key question to the

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<v Speaker 1>price of oil? Ahead of that? I think when I

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<v Speaker 1>think about what OPEC is able to do, certainly the

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<v Speaker 1>decisions that come out of those meetings have the potential

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<v Speaker 1>to create an uptick in the market. Uh maybe through

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<v Speaker 1>just the shifting of uh kind of the depression that's

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<v Speaker 1>taken place in the market. I think a lot of

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<v Speaker 1>people have, you know, thought a year ago this market

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<v Speaker 1>would already have begun its recovery, and here we are

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<v Speaker 1>a year later, effectively below or or at where we

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<v Speaker 1>were this time last summer. Um. But frankly, any decision

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<v Speaker 1>that's made by OPEC and in some of the other

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<v Speaker 1>large producing companies, I have a feeling will be more

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<v Speaker 1>temporary in nature and really delay the inevitable. Uh. When

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<v Speaker 1>I look at the numbers and and the reserve potentials. Uh,

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<v Speaker 1>you know, the the unconventional base that's here in North

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<v Speaker 1>America and other regions around the world has the potential

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<v Speaker 1>to really disrupt OPEC and other large producing nations ability

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<v Speaker 1>to really regulate and control the market. Maybe they can

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<v Speaker 1>do it in the next couple of years, but I

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<v Speaker 1>think they're reaching the end of their rope in terms

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<v Speaker 1>of overall demand and what percentage they control of that.

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<v Speaker 1>Where's the price of oil going next? Are you suggesting

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<v Speaker 1>maybe it's going down because there's not going to be

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<v Speaker 1>this bottleneck or where do you see what we're all

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<v Speaker 1>going from here? I think there'll be some short term

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<v Speaker 1>volatility of it, depending on what happens in next month's meetings,

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<v Speaker 1>But when I look at the fundamentals, it supports a

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<v Speaker 1>more moderate growth position UH in terms of pricing over

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<v Speaker 1>the next several years, and so we will get back

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<v Speaker 1>to those seventy and eighty dollar pricing levels, but that

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<v Speaker 1>will come partly through inflation and partly through increase demand

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<v Speaker 1>over an extended period of time. Sean Heyra, thank you

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<v Speaker 1>so very much for joining us principle for oil and

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<v Speaker 1>gas at a consulting company A T. Kearney in Houston, Texas.

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<v Speaker 1>So up next, we are going to be taking a

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<v Speaker 1>look at a couple of very big stories. In particular Apple,

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<v Speaker 1>it may be facing billions of euros in tax arreers

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<v Speaker 1>according to an EV decision pending that we don't know

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<v Speaker 1>for sure yet. This is Bloomberg Caesar's entertainment. Can it

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<v Speaker 1>remove one more log jam ahead of the road to

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<v Speaker 1>getting out of bankruptcy? Another big story today coming up

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<v Speaker 1>on taking stock Bloomberg Radio