Brent spot Brent 20-day rolling average WTI spot WTI 20 day rolling average. USD per barrel. USD per barrel. WTI - Brent Arb

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1 USD per barrel USD per barrel Prices are holding steady ahead of Opec s apparently fateful meeting in Vienna on Thursday. All of the pieces are in place for the Opec/non-Opec countries to agree on an extension to the global cuts, with just the duration of the extension to be set. Judging by the way oil prices have firmed, the market is expecting good news to come out of the meeting, despite suggestions from some of the participants that waiting until next year to make a definitive move would be the smart play. What Alexander Novak, Russia s Energy Minister, means by saying different options are under consideration is anyone s guess. In the meantime, predictions for oil prices next year are as wide-ranging as ever. JP Morgan is predicting USD 58 per barrel of Brent in 2018 (after revising it by USD 11 at the end of October), while S&P Global have increased their forecast by USD 10 to USD 55 per barrel. At the other end of the spectrum is economist Jim O Neill, former chairman of Goldman Sachs Asset Management, who has stuck his neck out and said that prices could rise to as high as USD 80 per barrel in He argues that global economic growth is picking up, which will in turn fuel oil demand. On the supply side, O Neill notes the events in Saudi Arabia, and the uncertainty which clouds the reasoning behind them. Could oil prices rise as high as USD 80? There are certain assumptions that can be made, such as Opec extending the cuts through to the end of 2018 (and that they will be adhered to) and that global oil demand will continue to rise. And then there are the more unpredictable elements. The US is the current swing producer, currently producing record levels of crude, with shale expected to continue its explosive growth. However, Morgan Stanley is saying that shale output will have to grow from an average of 5.8 Mn bpd in 2017 to 6.8 Mn bpd in 2018 in order to fill the growing gap between supply and demand. Shale producers are turning their focus to making a profit rather than just pumping as much as they can, with Morgan Stanley forecasting shale growth to be just 5 per cent per year going forward. Otherwise, the situations in Venezuela, Libya and Nigeria, in which the ceasefire with the militia in the Niger Delta was recently ended, are all wildcards in the oil price scenario. It is unlikely that any of these producers will step in to help US shale fill the gap; in fact, they may contribute to it widening further. The likes of Mexico and Brazil may up production, but their capacity is not significant enough to bridge it alone. The remaining weight on prices are inventories. According to the IEA, crude inventories were drawn down by around 53 Mn barrels in Q3, although, in the OECD, stocks are still 150 Mn barrels above the five-year-average. But as long as the global cut is in effect, inventories will continue to decline as demand exceeds supply. But then, should Thursday s outcome be a surprise, a large scale sell-off would be on the cards, and any oil price predictions for the foreseeable future would be thrown out of the window. Over to you, Opec Brent spot Brent 20-day rolling average WTI spot WTI 20 day rolling average WTI - Brent Arb WTI - Brent Arb 20-day rolling average

2 Mn bpd Russia has pledged its commitment to extending the Opec/non-Opec cuts beyond March 2018; the position of the world s second-largest producer of crude oil had become increasingly unclear until Alexander Novak s clarification. But the Russian Energy Minister also revealed that he could not see Russian crude production moving far from 11 Mn bpd through to Output is currently roughly Mn bpd. Weekly US crude production, meanwhile, continues to set new records, averaging Mn bpd during the week ending 17 November. It is the fifth consecutive week during which US production has increased. Compounding the situation, the US oil rig count increased during the week ending 22 November, with a further nine taking the total up to 747. The rig count is back to its highest level since mid-october. On Monday, Iraq made nine oil and gas blocks available for foreign investment, as Opec s second-largest producer made clear its intentions to increase production. Iraqi Oil Minister Jabbar Al-Luiebi said, We invite all international companies to participate. Five block are situated near the Iranian border, three are close to the Kuwaiti border, and the remaining block is offshore in the Persian Gulf. Nigerian National Petroleum Corporation has publicly declared that the government target of 2.3 Mn bpd in 2018 is achievable, although the unrest in the Niger Delta will be a major factor. Petrobras on Monday revealed that production has begun in the Libra block in the Santos pre-salt oilfield. The FPSO has a production capacity of 50,000 bpd and the consortium operating in the Libra block comprises Shell, Total, CNOOC, and CNPC, as well as Petrobras, which holds the largest, 40 per cent share OPEC (Source: IEA, Affinity Estimate) Russia (Source: IEA, Affinity Estimate) K bpd US (Source: EIA, IEA) Rest of the World (Source: Affinity Estimate) Production 800 Rig Count

3 Mn bpd Mn Barrels/Day Mn bpd The IEA believes that higher prices this year and next will impact oil demand, resulting in a negative revision in demand growth forecasts, down to 1.5 Mn and 1.3 Mn bpd respectively. At the Gulf Petrochemical and Chemical Association Forum, it was established that Chinese and US demand for petrochemicals will be the key driver behind oil demand in In total global demand for petrochemical products is expected to rise by 3.5 per cent in With demand continuing to far exceed supply at the moment, as we head towards 2018, it becomes a question of how supply will be able to keep up with robust, sustained demand growth; assuming that the Opec/non-Opec committee goes ahead and extends the global cut for another nine months (0.50) (0.19) (0.32) (0.22) (0.31) 92 Global Oil Demand Global Oil Supply (1.00) (0.92) 90 (1.50)

4 Indian energy demand has almost doubled since 2000, with the growth in demand accounting for 10 per cent of global growth. Home to 18 per cent of the global population, India s energy demand only equates to around 5.5 per cent of total world demand. This highlights the further growth potential that exists in the country. As such, India is expected to be the world s fastestgrowing economy between 2015 and 2040, averaging 5 per cent annually. Average income and living standards are estimated to continue rising, lifting more people out of poverty and into urbanised areas. With this growth, there will inevitably come a rapid increase for energy demand. With this in mind, policies are key for improving the allure of investment while also managing the direction of growth with regard to the energy mix to power a sustainable Indian development. Coal is the most abundant fuel in India s current energy mix but environmental pledges have underlined a commitment to low-carbon growth. However, given the scale of growth required, the share of fossil-fuels remaining in the energy mix is still forecast to be greater than 50 per cent by 2040, according to the IEA. Oil consumption averaged a little under 4.5 Mn bpd in 2016, with approximately just 18 per cent of crude consumption being domestically produced. Crude oil imports grew 4.9 per cent in October 2017 year-onyear, most likely a result of economic growth and low oil prices for use in the expanding industry and transport sectors. Crude imports carry the largest monetary value of all Indian imports, worth over USD 62 Bn in The vast majority of crude imports originate from across the Arabian Sea in the Middle East, typically seeming to favour Opec member nations. Between April and October 2017, 63.5 per cent of crude imports came from the Middle East, while 83.6 per cent were from the wider Opec organisation. Refined product imports are much less than for crude due to a high domestic production via an expansive refinery capacity of 4.64 Mn bpd. The largest of its refineries is the Jamnagar refinery located in the Gujarat region in the north-west of India. Operated by Reliance Industries, Jamnagar is the largest oil refinery complex in the world and carries capacity equivalent to almost 28 per cent of India s total. Reports emerged this year of plans to expand the processing capacity of Jamnagar by over 40 per cent by the year These plans are a stark contrast to other reports claiming that India will vow to sell only electric vehicles by In an attempt to reduce the infamous pollution in its cities, it is believed that a renewed policy will drive the change. Problems that may hinder these efforts will include both infrastructure and affordability, in addition to electricity generation methods. Such policies are likely to face resistance should the electricity powering the vehicle fleet not be generated by renewable means.

5 Million Barrels USD per barrel 31 A combination of rising crude oil prices and falling gasoline prices have impacted refining margins quite severely over the past few weeks, although the slight softening of WTI over the past few days has pushed the crack spread up to USD per barrel at the time of writing. Gasoline prices continue to fall across the US as inventories grow and demand wanes; according to the EIA prices averaged USD per gallon during the week ending 27 November, a fall of 3.5 cents per gallon on the week Crack Spread (netbacks) This week, US crude oil inventories for once have behaved as analysts expected, shedding the gains made the previous week of 1.9 Mn barrels during the week ending 17 November. A combination of rising exports and refineries stepping up their throughput to prepare for the inevitable rise in gasoline demand once the holiday season gets going are the largest contributors to this draw down. Product inventories rose for the second straight week, with gasoline (albeit marginally), kerosene, and distillate fuel oils all creeping up on the week Crack Spread 20-day rolling average 1, Mn bbl Change Change % US Crude (Weekly) % US Products (Weekly) % EU Crude (Monthly) % EU Products (Monthly) % US Crude Stocks EU Crude Stocks US Product Stocks EU Product Stocks

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