SPECIAL MONTHLY REPORT ON. (October 2017)

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1 SPECIAL MONTHLY REPORT ON ()

2 PERFORMANCE (September 2017) (% change) NYMEX 7.09 Natural Gas Crude oil 1.85 MCX PERFORMANCE (January September 2017) (% change) NYMEX MCX Natural Gas Crude oil 1

3 COMPLEX Overview In the month of September crude oil prices ended on positive path as it managed to hover in range of $ in NYMEX and in MCX. Meanwhile, U.S. oil production has largely recovered from the shut downs following Hurricane Harvey, currently standing at 9.51 million barrels per day (bpd), up from 8.78 million bpd directly after the storm hit the U.S. Gulf Coast. Separately, U.S. crude imports increased by 734,000 barrels per day and domestic crude production rose 157,000 bpd to 9.51 million bpd, close to levels before Harvey hit Texas on Aug. 25. Exports of Nigeria's Qua crude oil are due to fall to 158,000 bpd in Nov from 215,000 bpd in October. OPEC and its allies have agreed to reduce output by about 1.8 million barrels per day (bpd) until March 2018 in an attempt to empty inventories. Recent hurricanes in the Gulf of Mexico have also pushed up crude inventories in some parts of the United States as U.S. refineries were shut by flooding. are still up significantly year on year, the increases slowed in the Q2 2017, and have reversed in Q3. The first quarter 2017 saw 137 oil rigs added in the United States, while the second quarter 2017 saw 97 rigs added. In stark contrast, the third quarter that ended with today s data has seen the total number of rigs decrease by 6. Global oil demand to exceed expectations in 2017, says IEA; OPEC cuts supply Global oil demand is set to accelerate faster than anticipated this year, according to the International Energy Agency (IEA), which has revised up its 2017 growth estimates. Strong second-quarter demand has buoyed oil markets, which have been struggling to rebalance as a supply glut has weighed heavily on prices. Demand grew by 2.3 million barrels per day (mb/d), or 2.4 percent, in the second quarter of 2017, prompting the Paris-based organization to increase its growth estimate for the year to 1.6 mb/d, or 1.7 percent. For 2018, the IEA is predicting growth of 1.4 mb/d, or 1.4 percent. Outlook Crude oil futures are expected to trade on volatile path in the month of October as some profit booking can be seen at higher levels. Overall crude oil can move in range of in the month of October. Meanwhile Turkey threatened to halt Kurdish oil exports through its Ceyhan port which could potentially impact mbpd of oil exports by Kurdistan. Organization of Petroleum Exporting Countries (OPEC) and other major producers, although U.S. crude has lagged behind Brent amid concerns that U.S. production-growth could stoke oversupply. Looking over the spread between various traded crude oil in market, the spread between WTI and Brent futures widened to more than $ 6.5 which is the steepest since August Latest U.S. rig count Baker Hughes reports in its latest survey that total oil and gas rig count in the United States now stands at 940 rigs, up 418 rigs from the year prior, with the number of oil rigs in the United States increasing by 6 during penultimate week of September. Oil rigs in the United States now number rigs above this time last year. Although the numbers of oil rigs OPEC output fell in August OPEC output fell in August for the first time in five months, after turmoil in Libya disrupted flows and other member countries reduced production. Compliance levels in August hit 82 percent compared with 75 percent. The data will buoy signatories who implemented the deal in January in a bid to boost oil prices but have since struggled to cap supply amid increased output from member states Libya and Nigeria. The organization is currently discussing an extension to the deal. Supply hampered by hurricane Harvey Supply is also said to have been hampered by Hurricane Harvey in the U.S., which caused refineries to shut. The storm is estimated to have shut in roughly 200,000 barrels per day of production in August, with a further 300,000 barrels per day expected to be lost in September. U.S. crude oil and petroleum product markets were significantly disrupted by Hurricane Harvey s landfall in Texas and Louisiana at the end of August. At the peak of disruption, an estimated 3.9 million barrels per day (b/d) of U.S. Gulf Coast refining capacity was taken offline. Oil transportation capacity in the region was also restricted after the hurricane. 2

4 Ports and crude oil pipelines along the Texas Gulf Coast were closed because of the hurricane. These closures limited the movement of crude oil in the region. The lower refinery demand for crude oil and limited ability to move crude oil resulted in crude oil inventory builds at Cushing, Oklahoma and on the Gulf Coast of 0.8 million barrels and 1.7 million barrels, respectively, Brent WTI Spread Source: Reuters Analysis: Brent and US crude oil prices have risen 25% and 18% in the last three months, respectively. The Brent and WTI crude oil spread hit $6.8 per barrel on September 25 which was the highest level in 26 months. The major oil producers production cut deal has supported crude oil prices since November It led to a fall in global crude oil inventories, which supported Brent crude oil prices in particular. Meanwhile WTI crude oil s upside has been capped as US crude oil production has risen 12% since September 2016.While US crude oil inventories are 25% above their five-year average. Brent WTI crude oil spread can hover in range of $4.5-7 in the month of October. Some key points from EIA estimates Significant disruptions in the U.S. energy market have occurred in recent weeks as a result of Hurricane Harvey. The severity and duration of these outages create additional uncertainty about the path of energy prices in the coming weeks and months. EIA expects much of the reduction in refinery production of petroleum products to be offset by a decline in petroleum product net exports. EIA expects net petroleum product exports to average 1.1 million b/d in September, down from an average of 2.9 million b/d during the first eight months of A reduction in net exports can either come from a decrease in exports or an increase in imports. U.S. crude oil production is estimated to have averaged 9.2 million b/d in August, down about 40,000 b/d from the July average. Crude oil production in the Gulf of Mexico fell to a monthly average of 1.6 million b/d in August, down by 70,000 b/d from the July level. At the time of publication, many oil production platforms in the Gulf of Mexico had returned to operation, and EIA forecasts overall U.S. crude oil production will continue to grow in the coming months. EIA forecasts Brent spot prices to average $51/b in 2017 and $52/b in West Texas Intermediate (WTI) average crude oil prices are forecast to be about $2/b lower than Brent prices in both 2017 and Iraq s crude oil production Iraq is the second-largest OPEC producer. The EIA (U.S. Energy Information Administration) estimates that Iraq s crude oil production rose by 25,000 bpd (barrels per day) to 4,500,000 bpd in August 2017 from the previous month. Production rose 0.6% month-overmonth and 70,000 bpd or 1.5% year-over-year. Production rose despite a production cut deal. Iraq s crude oil production hit 4,660,000 bpd in December 2016, which is the highest level ever Crude oil may trade on volatile path on mixed fundamentals. Global macroeconomic numbers along with weekly inventory data in US will also affect the overall sentiments. Range Crude Oil MCX NYMEX Rs per barrel $45-55 per barrel 3

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8 Natural Gas Overview Natural gas traded the month of September on sideways path amid mixed fundamentals. Overall it traded in range of $ in NYMEX and in MCX in the month of September. U.S. electricity producers sharply curtailed gas consumption in the first half of 2017 amid competition from alternative power sources and mild temperatures that cut overall power demand. Consumption fell by 682 billion cubic feet or 14 percent compared with the same period in Outlook Natural gas may trade on volatile path as it can move in range of in the month of October. Latest weather related demand for Natural gas Generally, the weather during October in major regions of the United States is mild. According to the National Weather Service, the Southern US states could see heavy rains in near term. The Eastern part of United States is also expected to have rainstorms. Heavy rainfall in these regions may lead to cool temperatures. The nation s Western states are the only regions that are expected to experience warm weather. On the whole, mild weather could be expected for the next few weeks. Mild weather may result in a lower demand for natural gas. Positive outlook for Long-term D e s p i t e o c c a s i o n a l h i c c u p s, l o n g - t e r m fundamentals for the Natural gas continue to be supportive on the back of structural imbalances. While domestic natural gas production is expected to rebound this year, the growing use of liquefied natural gas (or LNG), booming LNG and Mexican exports, replacing coal-fired power plants and higher demand from industrial projects will likely take care of the increased output. The resulting effect will ensure natural gas storage keeping pace with the five-year average in the near future, with deficits piling up later on. Over time, these secular tailwinds are likely to support natural gas sentiment and price. EIA Natural gas production U.S. dry natural gas production is forecasted to average 73.7 billion cubic feet per day (Bcf/d) in 2017, a 1.4 Bcf/d increase from the 2016 level. Natural gas production in 2018 is forecasted to be 4.4 Bcf/d higher than the 2017 level. Stockpiles held in underground storage in the lower 48 states rose by 58 billion cubic feet (Bcf) for the week ended Sep 22, EIA estimates of Natural gas Expected growth in natural gas exports and domestic natural gas consumption in 2018 contribute to the forecast Henry Hub natural gas spot price rising from an annual average of $3.05/MMBtu in 2017 to $3.29/MMBtu in Natural gas may trade on volatile path in the month of October as rig count data along with weather conditions in US and inventory data is likely to give further direction to the prices. Range Natural gas NYMEX $2.75- $3.40 per mmbtu MCX Rs per mmbtu 7

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