alex: a crude trade war. can exports save the day? some are calling for $1400 gold on a trade war. what will it take to see that a side? and big oil loves u.s. shale. the secret behind xto energy's success in the permian basin. the president, sara ortwin, talks about its capex plans and relationship with parent exxon. alix: i am alix steel and welcome to our brand-new show, bloomberg "commodities edge." i have finally found a home for my love of the asset class.

30 minutes focused on the companies, physical assets, and trading behind the highest commodities with the smartest voices in the business. let's kick it off with "spot on." it's the analyst and investor take on our big story of the day, and the spotlight is on energy. joining me now is analyst jeff curry, global head of commodities research at goldman sachs, and investor john goldberg of bdl commodities, one of the world's largest oil-focused hedge funds. they are friends, by the way. they live next to each other in tribeca at this point. i want to talk about how tight the market is. take a look at this chart. saudi aramco surprising the market today, raising its crude pricing to market for asia to may. that is what they do in the market is tight. jeff, how tight are we? jeff: demand. when you look at demand globally right now, it is tracking 1.9 million barrels per day. our expectations are 1.85 million. the consensus is still down in at 1.4 million to 1.5 million range. this is consistent with where we are in the economic cycle and you should be surprised by it. when we talk about commodities

as an asset class, it goes to the cyclicality of oil demand and where we are in the business cycle. alix: do you agree? john: i do. we are exiting a period that is normally one of the weakest for oil. first quarter normally sees inventories build. we have seen inventories declining for the first few months of the year, supported in part by what jeff mentioned, demand in the china, u.s. areas showing very, very strong demand. also some specific supply outages. venezuela is declining, iranian crude production dipped a bit in normally what is a decently weak -- seasonally weak period. we are hitting a point where the demand picks up, and we think that the market will look better. a bullishyou had forecast -- you are at $82.50 for each month? and john -- it has been a busy day. john: it has. [laughter] john: as an investor in this space, we are hesitant to assign a specific price target.

what we would say is we think the path of least resistance for the price of oil and for the shape of the curve -- so the front end of the curve relative to the back of the curve is very bullish. we think of the front of the curve will appreciate a lot. the backwardation in the curve is going to increase, which is good generally for long only investors in the front end of the curve. alix: i want to move on to another topic of the day -- trade. the difference oil could make to the trade deficit. wilbur ross, the commerce secretary, weighed in on that. >> china needs to import very, very large amounts of lng, and from their point of view, it would be very logical to import more of it from us then for no reason other than to diversified their sources of supply. but it would also have the side effect of reducing the deficit. alix: and if you take a look at where we are at, the u.s. is boosting its oil exports to china. we are now at about $1 billion. jeff, is this a realistic conversation to be having?

jeff: i mean, commodities represent a very small portion of the trade deficit with the united states, for the united states outside of petroleum. and petroleum is actually getting smaller. so let's look at it in terms of the u.s. -- right now, it is the second-largest oil exporter in the world when you think of product. i do not want to say we are not there, but you still have a very large deficit. in terms of thinking about china and the impact there, the growth rates on lng were 54% this winter. so we have seen a big increase in demand, but a lot of that was weather-driven because it was really cold in china. going forward, you will have to make the investment in lng terminals and so forth. so the type of growth rates going forward will be unlikely to be sustainable at those levels. do i agree it will help ease the trade deficit? absolutely, yes. but the market is already heading that direction. the key is will u.s. be competitive into the asian basin? alix: yeah. jeff: this last winter, you had

prices at $11. now they are $7. our expectation is to see them drop back down to $6. alix: we had the china futures contract last week, and you might be able to get the feel for it. midland crude is at $58, and shanghai crude is at $63. jeff: on the crude side, yes, but where is the big growth potential? i think it will be in lng. the problem is you have a lot of lng supply coming out of australia in the pacific basin, which is going to make it difficult for the u.s. lng to compete there. long-term, you can absolutely make the case, but looking out to 2020, 2021, the question is can it remain competitive against the big increases coming not only from australia, but as well as from the middle east? alix: the third topic has to do with the crazy volatility we have seen this week in all asset classes, but in particular i want to point out the s&p will -- s&p versus oil.

that correlation has actually risen. jonathan, i wanted to get your take on this. how do we view oil now as an asset class in light of equity volatility? john: the oil and broader macro asset classes, including the s&p but also other instruments, go through different phases of correlation. there are times when oil is one for one correlated to other asset classes, and then there are times when it shows its own idiosyncratic development. we think we are hitting a period of time where, no matter we are on a risk on-risk off market, as we are in a specific commodity cycle, we think that oil will outperform other asset classes independent of whether the next move in the stock market is up or down. the reason for that is the inventory buffer for petroleum right now is so low that we think we will move into our own unique set of market dynamics. so both in spreads and flat prices. alix: jeff, what about you?

not only when it comes to oil inventory, but what do you wind up doing when you have backwardation that could roll over at the end of the day? how to you do that when inflation kicks in? jeff: the backwardation is usually a reflection of the environment, where you get inflation. that late cycle environment, where demand is expressing the ability for oil supply to meet that demand, drawdown the inventories, and you get the backwardation. so backwardation and inflation go hand in hand, which is why you get the outperforming of commodities in this type of environment. alix: guys, thank you so much. our special thanks to john goldberg of bdl commodities. i will speak to you in a couple of weeks, and jeff curry, you are sticking with us. coming up, the commodity ready to break out after trading in a tight range. one expert sees 6% upside on trade wars. and as we head to break, some of the nice commodity moves we have seen over the past week. copper now up 1.5%, despite getting whacked on the trade wars. cotton also able to post some upside. this is "bloomberg commodities edge."

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♪ alix: i'm alix steel, and this is "bloomberg: commodities edge." it is time for the day-to-day, where we delve deep some of the market trends. first up, natural gas numbers. the market saw a 29 billion cubic drop. the majority of that were the midwest and the east. inventories for natural gas at 346 billion cubic feet, below that five-year average. and oil inventory numbers were very interesting as well. yes, everyone focused on exports, but if you dig below the surface, pads to had a 5 million barrel increase. it is now sitting at the highest since january 2015. here is the why. you have west -- select coming

from canada into cushing as blockages are removed, and you could have permian oil here in texas -- you can't get out because of the infrastructure that has to move to cushing. the question is, when refiners come back from maintenance, does cushing finally get a break? and we get the baker hughes rig number out tomorrow. here is where we stand. last week, the permian dropped by about one rig. and i want to see what happens and you have oil prices around $63 and a big risk off steel in the market. producers get a little scared. now we want to move on to getting into the ringer. we will look at three charts that do not make sense. some market dislocation. we are joined by jeff curry, head of commodities research at goldman sachs. this week, everyone wanted to be a soybean expert, but you are a soybean expert. when we take a look at what has happened to futures, they rolled over on the trade war issue. the bottom panel shows our soybean exports to china. they are pretty solid. what happens here? jeff: let's ask what would happen if they didn't lament -- did implement a tariff on it?

assuming their demands -- their ability to substitute away from soybeans would be very difficult. they could if they wanted to, but let's ask can they find alternative sources for the soybeans other than the united states? the answer is no. they import 35 million tons of soybeans from the united states. brazil and argentina are the other two largest producers. one thing unique about soybeans, 95% of the production comes from four countries. the u.s.,zil, argentina. we look at brazil, brazil exports another 12 million tons to elsewhere in the world. so there is no possible way they can replace those soybeans from either brazil or argentina. you also have a very poor weather, growing conditions and -- in argentina and brazil. the supplies are being curtailed. implementation of this would be very, very difficult. but i think it goes to a broader point here. as you dig deeper into goods production, the goods flow around the world, it is not very elastic. whether you are talking auto production, oil production, or even grains production.

i think the key there is that tariffs are likely to be a regressive tax on the people, because your ability to create any big shifts in either trade or production is very difficult. case in point, look at the aluminum industry in the united states. you haven't really seen any significant restarts. century has announced a restart, but we will see if it happens. very small. a point i like to say is outside of shale, the responsiveness of supply, whether it is commodities or the goods, is very limited. and one of the reasons for that is how capital intensive the production really is. which means you made the sunk cost. even if you take intellectual property, it is a sunk cost. if you have already made that sunk cost, the ability to respond to some kind of movement and price is very limited. i would go as far to say one of the reasons why we have not seen much volatility in this business

cycle is the ability that production is becoming more and more capital intensive and less dependent on labor. the bottom line is it is very difficult to create any changes. the tariff likely acts as a regressive tax on their own people, which means we will see how it evolves as far as the politics and the negotiations go. alix: an important point, because that is why the short cycle nature of shale was at the -- was important at the end of the day, because it changed that dynamic. are we going to get a breakout? the target is $1400, as you can see. jeff: our target is $1450. alix: that is a breakout. jeff: the reason why is it goes back to what is happening in the other commodities sectors, strong emerging market demand. our framework for approaching gold, we call it fear in wealth. to understand how it works, let's go to the two bookends of gold prices. $250 in 1999 and $1900 in 2011. fear and wealth in 1999.

fear was zero in the developed market. you had the.com -- the dotcom boom and the european union was coming together. what was wealth like in asia? you had the asian financial crisis. so fear down, wealth down. let's go to 2011. max fear in the developed markets. you had the european sovereign debt crisis and the financial crisis in the u.s. what about wealth in asia? off the charts. the dollar was weak, stimulus in asia. what about now? isr in the developed markets modest, but what about wealth in asia? we just talked about saudi arabia was raising its price of oil into asia. asian demand is doing incredibly well. oil demand in asia is growing at 750,000 barrels year-over-year right now, similar to 2011. so what will happen to wealth creation in asia? it is going up. what will they do with that wealth? they buy gold, which is the core of our view of $1450. alix: jeff curry, head of

commodities research at goldman sachs. handful ofone of the women in the world, sarah or between, will talk about her big plans for xto energy.

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time for what you need to know of alternative energy. want to drive an ev? you will definitely want lithium and cobalt. lithium up 13% in 2017, cobalt prices have doubled, and joining me now is claire curry, senior analyst at bloomberg new energy finance. claire, thanks for being here. walk me through the why of the huge price rises in those metals. claire: it is linked to ev's, demand has risen and so has hype. lithium and cobalt prices are rising for that reason. they are key ingredients to lithium-ion batteries. those drive electric vehicles. alix: and they are only produced in a few countries in the world. what about the companies? claire: lithium is a smaller market, and there are only four major players. they really just mine in chile, argentina, and australia. that is why there is a bit of a tight supply around lithium. alix: let's talk about that tight supplies. take a look at this chart. demand for cobalt and lithium really seen growing over the next decade. those lines are where the supply forecast is. walk us through the dynamic? claire: they are both tight

today, demand outstrips supply. we do see a number of lithium mines coming online, which will help the supply side slightly. the price will still go up. with cobalt, the same story. it is produced as a byproduct, which means suppliers of all types are going forward. alix: claire curry, of bloomberg new energy finance, good to see you. let's turn to commodities in chief. we focus on one executive in the commodities world. today it is sara ortwein from xto energy. first, let's take a closer look at the company. ♪ alix: big oil loves shale, hates shale, loves shale, and this tumultuous relationships has lasted for decades. one company that gets praise for doing it right -- aside from the price -- is exxon mobil, buying xto energy. xto has big dreams and wants to grow its permian rig count 65% in the next two years. here is what works. xto operatesd --

as an independent company with exxon's deep pockets. now they are moving from fort worth to houston. can xto is a powerhouse it wants xto ben ask -- can the powerhouse it wants to be if it loses its independence? alix: i recently caught up with sara ortwein, president of xto energy in houston. sara: i would not describe it as independent. it -- i wouldize call it recognizing what is important to run the unconventional business. yes, this is a separate organization. we have other separate organizations within exxon mobil. they provide the skills and the expertise that we need for various parts of our business. alix: there is a conversation that potentially you will bleed some people if you wind up moving your headquarters to houston. how do you keep your talent when competition is so fierce? sara: we have some people that want to stay in the independent

world, yes, but for the most part, they all see the potential of continuing to work in the unconventional, continuing to work on a world-class asset like the permian. and also have the benefit of being connected with all the potential across exxon mobil. alix: they say the permian -- your rig count is growing 65% in the next few years for xto energy. what is the potential barrels produced? sara: it is hard to say. we have estimated right now that in the next few years, by 2025, we are going to triple our production out of the permian basin. if we just look at the horizontal drilling, it will be five times what our production is today. so -- and that is by 2025. so significant potential for us and also significant potential for the industry.

alix: do you need to buy more acres or land to do that? sara: no, that is just on the acreage that we have today. we have significant acreage in the midland basin, and in february of this year, we announced the acquisition of the bath family acreage in the delaware basin, which is three contiguous federal units, which really are green fields. there is a little bit of protection on them, but we are able to develop it as a project in a very efficient, effective way. with the contiguous acreage, we can drill longer lateral wells and be very efficient in how we develop it. alix: do you feel like you need to add more acreage to get even longer laterals, do you want to do some land swaps, or is your acquisition complete? sara: ever since the acquisition , the bath family acquisition,

we have been adding acquisitions through trade, and to core of uses in the delaware or in the midlands. we will keep looking to do that, where it makes sense. it allows for efficient development for us and others if we can do that. right now, our average well is about 10,000 lateral feet. most of our drilling in the delaware basin is going to be in excess of 12,000. and we will look at what the optimum link is over time, but coring of the acreage, giving us the contiguous position gives us the opportunity to do that. alix: so with your exponential growth in the permian, what will be the return? at current oil prices -- let's call it $60 for wti, and what do you expect them to get to as you get more efficient? sara: today, the beauty of the permian is that much of our inventory of wells is profitable even at prices sub $40. today, we can develop and

produce a barrel of oil from the permian for around $15 a barrel. alix: is that average and sustainable? sara: that is average today, and you know of the things we have , one seen is continued efficiency. as we drill more wells and operate more wells, we get more and more efficient. since 2014, we have doubled the footage per day that we are able to drill in the midland basin, and we have reduced our per foot drilling costs by 70% of that 2014 two period, from today -- to today. there is no reason to suspect that we would not see continued efficiencies over the next years like we have seen in the past. one of the things we see is that technology continues to accelerate. alix: what constrains permian growth? what is the one thing that makes you pull back? sara: as i mentioned before, the beauty of the permian is that it

is profitable at fairly low prices. and so we expect that we will be able to develop it through market fluctuation. infrastructure is going to be important, and that is the takeaway infrastructure -- gas, ngo, crude. we see growth potential in the associated gas from permian production, of something of the order of 16 billion cubic feet a day by 2030. so that will necessitate more gas pipelines out of the region. alix: well, here is what is on my commodity radar. everything you need to know about coal, alternative energy, and politics. bloomberg's new energy finance has a killer conference next week, and bloomberg will be speaking to rick perry, u.s. energy secretary, plus executives from murray energy southern and bp. you don't want to miss that. well, that does it for the first

show of bloomberg "commodities edge." thank you so much for joining me. be sure to catch as each thursday at 1:00 p.m. new york time.

jonathan: from new york city for our viewers worldwide, i'm jonathan ferro with 30 minutes dedicated to fixed income. this is bloomberg "real yield". jonathan: coming up, payrolls delivering a big miss, but wages coming in line. the fed's slow and steady model. the president fighting back in the battle of the proposals. the administration considering tariffs on another $100 billion of chinese goods. and risk appetite taking a hit. but the pain isolates the stocks. junk credit looks relatively resilient. we begin with the big issue, the drama free payrolls report. >> this is what we should expect going forward.