MARKET OUTLOOK16th January 2019

OPEC Still Act as an Equalizer to Bring Market Balance

Surging U.S. Crude Oil Production Despite Recent Crude Price Correction

Worsening Economic Outlook on US-China Trade War and Rising FED Rate

Key Factors in 2018 that would Determine the 2019 Market Direction

30

40

50

60

70

80

90

Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19

ICE Brent WTI

Crude Prices Movement

1

2

3

*Prices Updated as of 9th Jan, 2019

CRUDE OIL MARKET OUTLOOK

$/BBL

Escalating

US-China trade war

Libya lost

0.4-0.8 MBD Output

SyncrudeOutage

OPEC+ considers 1 MBD Boost

OPEC-led cut

deal extended until the Dec-18

Keystone

Pipeline

leakage

Forties

Pipeline Outage

Iran protests

Venezuela’s

output hit 30-yr low

Fear of

Trade War & Syria War

Renewed

U.S. sanction on Iran

Falling U.S.

crude oil inventories

Lower

Iranian exports

U.S. hinting about waivers

Money flows

to safe assets

as FED raised rates

U.S. granting waivers to 8 countries

OPEC+ cutting

1H’19 output by 1.2 MBD

First U.S. stock draw in 11 weeks

Tumbling equity markets

Equity market recovers

0.00.51.01.52.02.53.03.5

Jun-17 Oct-17 Feb-18 Jun-18 Oct-18

Venezuelan Output Iranian Export

1 OPEC Act as an Equalizer to Bring Market Balance

C

Crude Oil

Other OPEC Producers Follow the OPEC+ Output Agreement to Bring Equilibrium to the MarketC

Lower Iranian and Venezuelan Crude OutflowsB

Source: IEA (Nov’18)

25

26

27

28

29

30

Jun-17 Oct-17 Feb-18 Jun-18 Oct-18

Other OPEC Production

OPEC Stabilizing OECD Stocks at 5-yr AverageA

MBD

Source : OPEC (Dec’18)

MBD

Financial Sanction Energy Industry Sanction

Period AJan’17 – May’18

Period BJun – Dec ‘18

Period A: Jan’17 – May’18• OPEC+ cutting crude oil production to draw down

OECD crude inventory to the 5-year average level

Period B: Jun – Dec’18• OPEC+ agreed to raise output by 1 MBD to ease

supply tightness and to offset supply loss in Iran and

Venezuela

Period C: Jan – Jun’19• OPEC+ agreed to cut production by 1.2 MBD in 1H’19

due to unexpected supply surplus after the U.S. grants

waivers to 8 Iranian crude oil importing countries until

May’19

Hyper Inflation & Economic Crisis

2200

2400

2600

2800

3000

3200

Jan Mar May July Sep Nov5yr-range 2018 2017 Avg 13-17

MBBL Iran Export & Venezuelan Production

Source : IEA (Dec’18) Source : PIRA (Dec’18)

OECD Crude Oil Inventory

1 OPEC Act as an Equalizer to Bring Market Balance

Crude Oil

The OPEC+ pact aims offset the seasonal

global inventory build in 1H’19

Agreed on an output cut of 1.2 MBD

Iran, Venezuela and Libya are exempt from

the new output cut deal

% Cuts Reference Level (MBD) Pledge Cut (MBD) % Overall

Algeria

3.04%

1.057 0.032 2.7

Angola 1.528 0.047 3.9

Congo 0.325 0.01 0.8

Ecuador0.524 0.016

1.3

Equatorial Guinea0.127 0.004 0.3

Gabon 0.187 0.006 0.5

Iraq 4.653 0.141 11.8

Kuwait 2.809 0.085 7.1

Nigeria 1.738 0.053 4.4

Saudi Arabia 10.633 0.322 26.9

UAE 3.168 0.096 8.0

Mexico

2.09%

2.017 0.040 3.3

Oman 0.995 0.025 2.1

Russia 11.421 0.230 19.2

Other Non-OPEC 3.887 0.088 7.4

Total 2.65% 45.069 1.195 100%

5-7th Dec

OPEC Meeting

02468

101214

2014 2015 2016 2017 2018Shale oil Alaska Gulf of Mexico Other Lower 48 States

U.S. Hedged Volume to Increase as Price ClimbD

Heightened Inventory Levels on Elevated OutputB

Source: EIA (Dec’18)

Avg. 12.1 MBD (2019)

+1.18 MBD YoY

U.S. Crude Oil ProductionMBD

2 Surging U.S. Crude Oil Production Despite Recent Crude Price Correction

Crude Oil

U.S. Shale Oil Breakeven Still Below WTI Prices C

Surging U.S. Production Led by Shale OilA

Source: EIA (Jan’19)

U.S. Crude Oil Inventory

200

300

400

500

600

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 525yr-range 2018 2017 avg 13-17

MBBL

0

20

40

60

80

2018 2019 2020

% Hedged Average U.S. Crude Oil Hedge

Source: Morgan Stanley (Nov’18)Source: PIRA (Dec’18)

40 42 4447 49 51

0

20

40

60

Permian Eagle Ford Bakken

Half-Cycle Full-Cycle

Breakeven Cost of 3 Major Shale Basins$/BBL

8.5 MBD (2019)+1.19 MBD YoY

Shale Oil

-6-

On-going US-China Trade Disputes to Drag Down Global Economic Growth

Tariffs in Place

4 Apr’18

* Including 10% on LNG

but excluding crude oil in the list

U.S.

$50 Billion

(25%)

Tariffs in Place

24 Sep’18$50 Billion

(25%)$200 Billion

(10%)

Tariffs from

2 Mar’19$250 Billion

(25%)

China

$50 Billion

(25%)

$50 Billion

(25%)$60 Billion*

(5-10%)

Impacts0.2-1.5% to

China GDPUp to 0.4% to

U.S. GDP

Up to 0.5% to

Global GDP by 2020

Sources : Reuters (Jan’19) , Bloomberg (Oct’18), Oxford Economics and IMF (Oct’18), PIRA (Nov’18)

Up to 1.7% on U.S.

GDP and 1.5% on China GDP by 2020

Delayed from 1 Jan’19

due to U.S.-China

negotiations

U.S. China Trade Talks 7- 9 Jan’19

U.S. and China could reach a trade deal after China

has pledged to substantial amount of agricultural,

energy, manufactured, and other products and

services from the United State

3 Worsening Economic Outlook on US-China Trade War and Rising FED Rate

Crude Oil

-7-

3 Worsening Economic Outlook on US-China Trade War and Rising FED Rate

Crude Oil

FED Interest Rates TimelineFED 2018 interest rates hike: Mar 22 (1.75%), Jun 14 (2.0%), Sep 27 (2.25%), Dec 19 (2.5%)

Global Recession follows after FED interest rates hike

Sources : U.S. Department of Treasury

-8-

Trade Disputes and Monetary Tightening Led to Lower Demand Forecasts

2.1

1.7 1.61.5

1.71.71.6

1.5

1.31.4

1.5 1.5

0.0

0.5

1.0

1.5

2.0

2.5

2018 2019 2018 2019 2018 2019

Early 2018

PIRA IEA EIA

MBD

Sources : PIRA (Jan’18, Dec’18), *IEA (Aug’18, Dec’18), EIA (Jan’18, Dec’18)

3 Worsening Economic Outlook on US-China Trade War and Rising FED Rate

Crude Oil

*

Early 2018 vs. October 2018 Demand Growth Forecast for 2018 and 2019

CONFIDENTIAL AND PROPRIETARY

Oil Market Outlook – Q1’19

Factors to Watch

Q1’19

Crude Oil Prices (Q4’18)

Crude Oil Prices (Q1’19)

Global Oil Demand and Supply Balance

Slightly Surplus in Q1’19 Amid OPEC+ Supply Cut & U.S. Supply Growth

Worsening Economic Outlook on Trade War and FED Raising Rates

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

94

96

98

100

102

1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19

MBDMBD

Surplus/Deficit (RHS) Demand (LHS) Supply (LHS)