alix: fasten your seatbelts. m&a is here. it is the execution, stupid. the focus is on manufacturing. who was falling behind? elon musk promises to cut its reliance on cobalt for its model 3, opting for nickel instead. ♪ alix: i am alix steel, and welcome to "bloomberg commodities edge," 30 minutes focusing on the companies in and physical assets and trading

with the hottest commodities and smartest voices in the business. we start with spot on, our analysts on our biggest story. our spotlight is e&p earnings. welcome. great to have you guys here. >> we are enjoying houston. summer weather here today. alix: let's dive into permian earnings. trickling out all throughout the week. darrell, what is your biggest takeaway? >> we can look at pioneer as an example. we thought they had a great order. they produced -- a great quarter. at the high end and are on track to 20% growth in the permian, but pioneer is a great example of how important it is to be executing at scale right now in the permian basin. we think the permian basin is in this phase where they are transitioning from exploration

mode to development mode, where in the last two years, operators have been focused on acquiring acreage and holding that acreage and finding out where the sweet spots are. more recently, you know, the transition to development mode has put the focus on these companies to actually execute on a large scale. alix: pioneer struggled with that last year in the third quarter. as we take a look at equity, do you feel equities are accurately reflecting the current oil price and inability to execute, like pioneer? >> in general the equities are , not reflecting the current oil prices. it's oil price today, plus the curve, certainly reflecting the curve and the strip is reflecting a lower oil price today. the equities are not reflecting that, and i think the market is looking for a more stability in the current environment. will oil continue at this level are not? -- or not? are these companies going to generate cash flow and returns? they have moved into a new phase.

we are very much in a transition period. either oil prices will hold and equities should come up, or go down. alix: how much do you feel like the curve should we rate to -- needs to rerate to finally show investors, this is for real? >> it needs to get much closer to the current price. there is a very meaningful gap. a lot of that is, i think, a debate about where we really are set. i think we are actually in pretty good shape. companies are performing quite well. whether it is the large global integrated companies, that are focused on cost cutting, returns, and strategic deployment of capital. that's also the larger e&p's are also followingre that model. so it is a very different time period. alix: it is time to distinguish. darrell, what kind of players are doing well in the permian, particularly with takeaway

capacity and which ones are not , going to be able to weather this as well? >> the permian is an incredibly active area. 400 horizontal rigs running in the permian. this gives you a sense of the scale of the capital at the work at the permian. there is so much burden on infrastructure, not assessing cost inflation, manifesting in differentials, so we think companies with skill and better -- scale who are better positioned to negotiate and be a preferred partner for the service companies. these are companies better positioned to weather this storm, pioneer is one of them. most of their oil going to the gulf coast, they are able to circumvent some of the issues at we are seeing at midland. some of the smaller names like centennial that have very good assets, but unfortunately, are

not fully hedged against the differentials. alix: the differential hurts them, which leads me to m&a. what is your expectation for m&a? where do we see it? what kind of companies? >> those two deals are quite significant, quite transformational for the companies involved. i will note that they were all market leaders and they are well-positioned companies with very attractive assets, in general. there were complementary overlaps or complementary benefits of doing the deal. both of those deals were largely stock, stock for stock, so people are careful about not stressing the balance sheet. i think there will be continued pursuit of m&a in the basins. people from outside of the basins as well, but they will have to feel very good about the returns of the targets in the

and the returns of the combined company post-deal. i don't think it will necessarily lead to a flood of deals. there is a lot of debate as to the transition period, kind of a show me period. that needs to be further down that path before we see an acceleration of deals, but there are a lot of people looking. alix: we have many different types of deals in the permian. private equity coming in and exxon was making a big bid. you have add-ons and land swaps. what will be most prevalent in the next 12 months? >> yeah, so, i mean, there is about 112 unique operators in the permian basin. for context, there's about 25 alkan -- in the balkan. gives you a sense of how fragmented the market is, and also if you look at the land maps, there is a lot of fragmentation. so, we think there is room for independence, but exxon is wrapping up to 30 rigs. they are making a big bet on the permian.

-- exxon is ramping up to 30 rigs. they are making a big bet on the permian. the permian is becoming a big player's game. you need a lot of capital to make that work. alix: great to get your perspective. thank you so much. great to see you guys. some takeaways to want to wrap wrap it up for you. the show me story, darrell says perhaps it will be pioneer and concho that will take the cake when it comes to navigating permian differentials. look at this tweet. a famous hedge fund oil guys says the peak demand fears a bring a large supply shock if prices do not rise as fast enough $300 oil in a few years is not impossible. that tweet was later deleted.

you have aluminum, and white tariffs for on aluminum and steel, and goldman says there will be more -- they will be more aggressive in commodities. they see a thousand dollar a $1000 copper potential. this is "bloomberg commodities edge." ♪

alix: i am alix steel, and this is "bloomberg commodities edge"" time for the data dig, where we delve deeper into the market trends. first up, natural gas inventory numbers out this week. it showed a build, but there's a heat wave. 92 degrees in new york. they could burn 20% more gas 28% more gas this week. the big takeaway from oil inventory numbers had to do with the build in the west coast.

stocks are up the most since 1999. you have refiners down for maintenance, but imports jumped. we want to look at cushing. you did see some oil come up from the permian and wind up in the midwest. bloomberg news has dug deep into hiring trends in commodity industries. we have a lot of room to make up . women make up of a quarter of the workforce in utilities in oil and gas. utilities did the best by far. 28% are run by women. in the mining industry, that is only 13% run by women. the overall workforce for miners, 17% for women. let's dig even deeper into the biggest oil refining deal of all time. marathon petroleum buying endeavor for $23 billion. i spoke to the ceo, talking about the rules requiring ships

to lower fuel by 2020, and how a new company can profit off of them. >> we are very well set up to be able to import from other refiners who cannot process that into more diesel fuel or gasoline. we can import that, and we can expect a much lower feed stock price, and we can refine it and continue to hit the export markets. we will be the largest exporter of refined products in the country. alix: i am joined by fernando bolle who covers refining. part of this is that ships have to have lower fuel by 2020. -- lower sulfur content for fuel by 2020. that will cause havoc on refiners. how can marathon capitalize on that? >> there are three ways to get around three that. -- around that requirement. one is to switch to lower fuel for diesel.

the second alternative is to install scrubbers to remove the sulfur. but, the cost dynamics make that potentially cost prohibitive. your payback may be too long for something that is still in flux. and the third is to build new ships with liquefied natural gas that could be long-term cheaper and more carbon-efficient. for the refiners in the u.s., you are well advantaged because you have the most complex refining system in the world, so you are able to convert higher contents of low quality oil and quality clean , product. and second, the shale revolution is bringing us sweeter oil then an we had previously anticipated . that will help with the sulfur content as well. alix: quickly, marathon may wind up getting a lot of pipeline. what does maryland due --

on that asalize well? >> that is part of the impetus for the endeavor deal. when they acquired the refinery, they were able to grow their crude-gathering business. more than that, they have a lot of other opportunities through new acquisitions. they have a lot of low-cost capital that can go towards acquisitions. ofh of these have a lot low-cost capital that can go towards acquisitions. alix: fernando, thank you very much. let's get into the ring. three charts, three traits of des of the week. we will start on the dollar breakout versus commodities. the dollar breakout was the talk of the week. what does that wind up meaning for commodities? >> it is unlikely to be sustained. it was kind of a pain trade.

the dollar shorts were extreme. the shorts in the treasury bonds were extreme. it looks like we are flushing those out back to the path of least resistance. dollar should continue back to its trend. alix: let's go to aluminum because we hear that potential tariffs will be pushed back, and maybe we won't go as hard-core core as we thought. is there more downside for aluminum? >> i doubt it. we got up to 2700, which is pretty solid resistance. but by the end of march, it was pretty low. it gave us a year's worth of appreciation in one month. aluminum is stuck in a range. the bias remains up. supply and demand trends remain positive. alix: soybeans, china no longer buying them. what does it mean for the u.s.?

>> not a big deal. if it was, soybean prices would be down. soybean prices are continuing to rally. there is global balance of soybean, but only so much available. soybeans are pricing and looking forward to that in the future. the key for soybeans, unless it is really favorable, soybeans will continue higher. alix: thank you very much. coming up, the ceo of canary oil services company has one of the largest independent oil services -- service companies in the u.s. that is next on "bloomberg commodities edge." this is bloomberg. ♪

alix: i'm alix steel. this is "bloomberg commodities edge." it's time now for the brief, what you need to know in the world of alternative energy. tesla making headlines for something other than elon musk's attitude. the company said it has reduced the amount of cobalt to make its model 3. >> it is helpful to understand the different commodities and the trends we are pursuing in the batteries. you know, being on a path to reduce cobalt usage for instant ce is something we have been working on for literally several years now. >> i think we can get the cobalt to almost nothing. alix: joining me is from celine from bloomberg new energy

finance. make a material difference? >> cobalt, they don't have huge exposure to it. they had been able to reduce their cobalt exposure for the last two years. they use about 5% of cobalt and in theirtals batteries. they are quite low on the spectrum. we don't think it is likely they will reduce that for three or four years. >> what will be in the mix for them going forward? what will get them there? >> the chemistry will stay the same. the big struggle and challenges they have now is on the manufacturing side, making sure they are getting the volumes they told investors they would meet, 10,000 cars per week in , they are at 2000 now. , alix: are they are going to get there? >> that is the big question. that is the $50 billion question. they said they would be a t 500,000 cars produced per year

by the end of 2018, and they need to go up tenfold from the production numbers they are at now. it's going to be a steep ramp, for sure. biggest hurdlee for them? >> i think the manufacturing know-how. the industry experts have taken apart the car. electronics are great, the manufacturing is not so good. just the process itself. it is still an operational challenge. they are now facing these old school manufacturing issues. alix: fair point. thank you so much. to commodity in chief, where we focus on one executive in the commodity world. today, it is dan eberhardt from canary. let's take a closer look at its his company and the struggle facing oil services. they are the underperformer of the oil rally.

producer budgets shriveled. now, a new hope, pricing power. fracking saying they see the return of 20% profit margins as producers ramp-up. the problem, how much will they spend? they bank on efficiency doing more with less. enter canary, one of the largest independent drilling companies in the u.s. with an 8.5% market share. the majority of its business in the permian and balkan. who wins? the private players, or the diversified companies who can offer scale and options? i recently caught up with dan and asked him about his business. dan: we are pretty much at full capacity at a point where we have to decide if we want to add capacity or not. that depends on the pricing we can get moving forward. alix: at what point is the turn were you feel like you finally have that pricing power back? dan: i think the leverage is

really switching a little bit from where the e&p's have been dictating to service companies, and service companies are about to have a bigger seat at the table to influence pricing and where the market is going. alix: a lot of the e&p's talk about discipline and won't go crazy growth. even at $70 oil. do you see that? is that true? dan: that is true, but we have heard it before. last cycle, you saw it is the majors that are talking about capital discipline, and the midmarket less so, and in the startups and private companies even less so. they talked about it last cycle, and they completely missed the shale boom. s way ind to buy it' o.th xt the others are scrambling to catch up with some of the shale play. you are seeing that from some of the majors, but it will be the velocity of the cycles being predicted by the mid-caps. alix: they will be dependent on

the debt and equity markets staying open. do you see them staying open enough to get the cash? dan: i think the smaller you get, the harder it is. the equity markets are open, especially where oil has moved this year, you will see them very open the last half of the year. the majors are only looking to increase their drilling spending by 7% or 8%. i think that will be revised upward as oil moves up later in the year. more of the mid-caps space is looking to spend 10% to 25%, and there is a lot of room for service companies to grow their --gins on little bit and margins a little bit and grow their volumes as well. alix: where do you need to invest most in your business to meet the demand that will come? dan: we purchased 50 new pickup trucks, the first time we have done that in years. and we have awarded millions and millions of dollars of capital equipment. and something that we have not done in 2016 in 2017.

we are really bullish in the next 18 months. alix: let's talk about the labor issue. how much labor do you think oil companies need to get in the next 12 to 18 months? dan: the industry, at $75 oil which is where we are headed, , the industry will pull 4000 people from your blue-collar, trucking, manufacturing and construction markets to the permian and the balkan. i think it's going to happen. alix: how much does that increase your cost? dan: we will have to pay to get that labor, so there will be a lot of wage inflation. the country is looking at that nationally. not just in our space right now. the labor market is really tight. alix: how much can you pass that on to customers? not one of percent yet. -- 100% yet. how much are you hoping to? dan: we need to pass on more than 100% of it. in addition to rising labor costs, the insurance cost are going up as well as our own fuel costs.

it is funny being in the oil services business. and we also need a return on capital, so if we are buying new equipment, we need return on capital to make sense for us to invest and expand in capacity so we need to get more than 100% of the increase in our costs. alix: that was my interview with dan eberhart from canary. here's what's on my commodity radar. next week, china's april trade data. what are they doing in terms of importing and exporting? are they buying those soybeans? or have they tapered that back? also, check out bloomberg's equality summit on may 8. more about gender equality in commodities. on may 10, the world agricultural supply and demand report. we will get the good read on planting supply and demand for next year for the 2018-2019 season. that wraps it up for "bloomberg commodities edge." make sure to catch us each thursday 1:00 p.m. new york

time and six clock p.m. in london -- and 6:00 p.m. in london. ♪

jonathan: from new york city for our viewers worldwide i am , jonathan ferro. for 30 minutes dedicated to fixed income, this is "bloomberg real yield." up payroll rebounding in , april. the unemployment rate below 4% for the first time since 2000. trouble in paradise. argentina hiking rates three times in just a week, and turkish markets looking fragile. elon musk lashing out on a conference call, tesla's debt rolling over. we begin with a big issue, the payrolls report. >> 3.9% unemployment rate is strong