IEEJ：March 2019 © IEEJ2019

Energy Intelligence Presentation

Energy Intelligence
Presentation

Trump Policy and the Oil Market
Prepared for the Institute of Energy Economics, Japan
Ben Cahill
Manager, Research & Advisory Group

March 8, 2019

Copyright © 20192017 Energy Intelligence GroupCRE Contact Details:
Ben Cahill (Washington)(202) 662-0707
bcahill@energyintel.com
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IEEJ：March 2019 © IEEJ2019

Energy Intelligence Presentation

Oil Market Volatility Ahead in 2019
US is the key source of risk and uncertainty this year

▪ This year is shaping up to be a volatile period for the oil market. On both the demand andsupply side, there are many factors that could push prices in one direction or another.

▪ Oil demand looks weaker this year, as warning signs over slowing growth are appearing in the US,
China, Japan and other markets.

▪ On the supply side, we believe US production growth will slow this year, but the short-cycle natureof shale makes it hard to predict. Supply outages are possible in several major oil producing states.

▪ With so many uncertainties on both the demand and supply side, it is a difficult challenge for Opec
to manage the market.

▪ Much of the volatility in the oil market centers on US policy.
Geopolitics:
Demand:• Impact of USChina tradetensions

Supply:• Resilient,
responsive
nature of US
shale• Iran,Venezuela
sanctions• US pressure
on Opec states

Oil Market
Volatility in2019

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Energy Intelligence Presentation

Trump and the Oil Market: Pressure Points
Pressure tactics, trade and economic policy and sanctions▪ President Donald Trump’s leverage over the

Trump’s Oil Market Interventions

oil market is one of the main factors driving
oil price volatility since mid-2018.

▪ US presidents have sought to shape the oilmarket in the past. At times, presidents haveleaned on Opec states to produce more.

Pressure
Tactics
on Opec▪ But Trump has intervened much more directly—
and through different channels that reflect his
unique communication style.
– Trump is more willing to use blunt pressure
tactics on Opec states.
– Trump’s trade and economic policy haveimportant indirect effects on the energy
sector, raising concerns over the global
economic outlook and oil demand.
– The sanctions imposed on Iran and
Venezuela have added greatly to oil market
uncertainty.

Trade andEconomic
PolicySanctionson IranandVenezuela

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Energy Intelligence Presentation

Trump’s Worldview: Energy Dominance
Economic nationalism emboldened by booming US oil and gas production▪ Economic nationalism is a key part of

Trump Worldview: Guiding Ideas

Trump’s populist platform—andenergy is an important part of his
message.

▪ Trump’s America First platform is aboutprioritizing US economic interests andensuring that the US “wins.”

AmericaFirst“Winning” indeal-making
and diplomacy▪ Economic damage to other countries asa result of US policy is not necessarily aproblem—indeed Trump is inclined toview this as progress.

▪ Energy is an important element of thisquest to bolster the US economy.
Booming US oil and gas production as
well as exports leave the White House
feeling it has much more leverage.

▪ Opec has borne the brunt of this—with
Trump emboldened to pile pressure on
the organization, even as he imposes
sanctions on major producers.

Art of the Deal
• In a zero-sum world,
deal-making is about
winners & losers• Belief in Trump’s own
deal-making skill

Ideal of Trump
as only man
capable offixinggovernment• US interests
must come firstin international
dealings• Willing to
criticize key
alliesMake
America
Great
Again

Governmentis theProblem• Reduce taxes• End onerous
regulations• Not the role ofgovernment tochoose winners

Economic
nationalism

Revive US
Economic Power• Reverse damaging
effects of globalization• Booming economy toboost jobs, incomes

Policies tend tobenefitcorporations,rather thanworkers

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Energy Intelligence Presentation

Oil Demand in 2019: Decelerating Growth, With Downside Risks
Growing signs of weakness across key economies, with US and Chinese policy central to the outlook

2,300
50
2,100
40

1,900

Jan-19

Nov-18

Sep-18

Jul-18May-18Mar-18Jan-18

Nov-17

Sep-17

Jul-17May-17Mar-17Jan-17

Nov-16

1,500

Sep-1620

Jul-161,700
May-1630

Source: Reuters

Europe: Industrial Production (2015 = 100)
110
108
106
104
102

Nov-18Oct-18

Sep-18EU
Aug-18

Jul-18UK
Jun-18May-18Apr-18ITA
Mar-18

Feb-18GER
Dec-17

Nov-17Oct-17

Sep-17Aug-17

Jul-17

Jun-17

98

FRA

Jan-18100

May-17– Anything below 6% economic growth in China thisyear will generate widespread concern.
– US economic policy is likely the single mostimportant factor for the 2019 global economy.

2,500
60

Apr-17

growth of 1.2 million b/d. Policy decisions in
the US and China will be key to the outlook.

2,700

Mar-17▪ We forecast already-weak oil demand

2,900

70

Mar-16

evidence of a global economic slowdown.
Japan and Germany reported third-quarter2018 economic contractions. In China, both
exports and imports contracted in December,while retail sales and industrial production are
also slowing. Lower imports signal weakerdomestic demand, despite Beijing’s successive
efforts to ease reserve requirements in 2018.

Brent Price ($/bbl, Left)
S&P 500 Index (Right)

80

Feb-17▪ China, Europe and Japan provide mounting

3,100

Jan-16demand are key factors for the oil market
this year.

Brent Price and S&P 500 Index
90

Jan-17▪ The weaker economic outlook and softer

Source: Eurostat

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Energy Intelligence Presentation

US Economy: Robust 2018 Growth Overshadowed by Growing Policy Risks
US policy uncertainty is the single-biggest downside risk for the global economy in 2019

2
1
0
-1

3Q18

2Q18

1Q18

4Q17

3Q17

2Q17

1Q17

4Q16

-3

3Q16

-2
2Q16

growth of about 2% by 2020, as economic stimulus
recedes. Yet US policy could lead to a more rapid
slowdown or a recession.
– Trade policy: US-China trade tensions are alreadyhaving a negative global impact. A deal will likely be
struck before the 2020 elections, but may only
amount to a de-escalation of existing tensions.
– Fiscal policy: The impact of tax cuts is fading, andhighly polarized politics is having an impact. The
month-long government shutdown could shave 1
percentage point off first-quarter GDP growth.
– Monetary policy: Expectations for 2019 tightening
have fallen. Yet, there are risks that tightening will be
too aggressive and further dampen growth.
Tightening credit conditions globally will continue tocreate challenges for emerging markets.

3

1Q16

▪ US GDP growth will slow toward potential output

Investment
Net Exports

4

4Q15

but US policy uncertainty poses downside risks forboth the US and the world economy.

Consumption
Government
GDP Growth

5

3Q15

▪ GDP growth was long expected to slow in 2019,

6

2Q15

supportive monetary policy led to 3.0% growth in 2018.
But last year’s stock market volatility has led toincreased concerns about the US economy.

US Real GDP Growth by Component (% Change)

1Q15▪ Fiscal stimulus (via tax cuts and spending) andSource: Bureau of Economic Analysis (BEA)

US Median GDP Growth Expectations(% Change)

US Median Federal Funds Rate
Expectations (%)

3.2

3.6
Sep.

Dec.

3.0

3.4

Sep.

Dec.

3.2
2.8
3.0

2.6

2.8

2.4

2.6
2.4

2.2

2.2
2.0
1.8

2.0
1.8
2018

2019

2020

2018

2019

2020

Source: Federal Reserve

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Energy Intelligence Presentation

China: Slowing Economic Growth, Flat Incremental Oil Demand
But oil import requirements and refining capacity are rising, and will continue to drive the gasoline glut

▪ The Chinese economy grew at 6.6% in 2018, its
slowest rate since 1990, but not unexpected.

▪ Beijing has growth expectations of 6%-6.5% in 2019—in line with its medium-term goals. While China is
known for hitting its targets, this year brings
unprecedented uncertainty.

▪ Industrial output growth fell to 5.7% year-on-year in
November, down from 7% in April. The Purchasing
Managers’ Index (PMI), a leading indicator of industrial
activity, has also decelerated monthly since May and in
November dipped below 50, signifying a contraction.
Automobile sales also declined in 2018.

▪ China is still projected to account for nearly 40% of the
non-OECD’s 1 million b/d demand growth in 2019 andit will meet most of this with increased imports.
– Auto sales fell in 2018, but rising car ownershiprates will continue to support gasoline demand
growth. Diesel demand will remain volatile andheavily dependent on industrial production growth.

▪ China is expected to add 640,000 b/d of new refining
capacity in 2019. The domestic market is alreadyarguably oversaturated, and new capacity will lead tohigher product export volumes from Chinese refiners.

China: Weakening Economic Indicators
15%

52

10%

51
5%
0%

50

-5%
49

PMI (Right)
Auto Sales Growth (Left)

-10%
-15%

48

Jan-18Mar-18May-18

Jul-18

Sep-18

Nov-18Source: National Bureau of Statistics and China Association of Automobile Manufacturers

China: Oil Demand Growth by Product (million b/d)
0.7
0.6
0.5

Other
Kero/Jet
Total

Gasoil/Diesel
Gasoline

0.4
0.3
0.2
0.1
0.0
-0.1
-0.2
-0.3
2015

2016

2017

2018

2019

Source: Energy Intelligence

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Energy Intelligence Presentation

Global Trade: Protectionism Harms the Energy Sector
Direct and indirect impacts, but the most important is the threat to global growth▪ The direct impact of protectionism is rising
for the energy industry. Global energy flows
have been drawn into trade disputes—
particularly with US-China trade tensions.

▪ Another direct impact is on investor
uncertainty—especially for second-wave US
LNG projects.

▪ However, the largest impact ofprotectionism will be indirect, with slower
economic growth hurting energy demand.

▪ A slowdown in global trade growth andincreased economic uncertainty will dampen
global economic growth prospects.

Impacts of US Protectionist Measures and Retaliation by Trade Partners
Direct Impact on Energy Sector

Indirect Impact

Less
Competitive US
Energy Exports

Energy-Sector
Investor
Uncertainty

Higher EnergySector Input
Costs

Weaker Trade Growth and Investment
Uncertainty lead to Slower Economic
GrowthShifts in Global
Energy Flows

Barriers to
Project FIDs
(esp. US LNG)

Lower
Company andProject Margins

Slower Global Oil & Gas Demand
Growth8

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Energy Intelligence Presentation

Venezuela Sanctions: Severe Impact
Output likely to fall by 500,000 b/d in the next few months▪ After new US sanctions, Venezuela will
struggle to find buyers, access diluent andsustain upstream investments.

US imports of Venezuelan crude are frozen▪
▪

▪ Venezuelan output is likely to fall by about
500,000 barrels per day in the next several
months.

▪

500,000 b/d in search of a new home
India is a top cash-paying alternative (Reliance’s
Jamnagar and Nayara’s Vadinar refineries), but
potential buyers are wary
China is unlikely to step up as major buyer▪ As sanctions take full effect, the Venezuelan
production trajectory will depend increasingly
on the political outlook.

▪ President Nicolas Maduro will likely continue toforcefully resist growing international pressure
to step down in the coming months.

Lack of diluents will have a major impact▪
▪

▪ Venezuela is likely to descend deeper intochaos, with substantial risks that production
falls even further.

Diluent is used to transport Orinoco crude and to
blend it to create diluted crude oil (DCO)
200,000 to 400,000 b/d of output is at risk

Sanctions will undercut investment▪
▪

At least 200,000 b/d at risk with sanctions requiring
Chevron and the top four service companies to halt
operations by July 27
The threat of US sanctions is too risky for many
firms, especially in non-Orinoco joint ventures,
given concerns about payment

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Energy Intelligence Presentation

Venezuela Sanctions: Three Production Scenarios
Output of 1.5 million b/d by 2020 is a stretch even in a high case

▪ Scenario 1: The regime hangs onto power:
The country is able to find access to cashpaying buyers for oil exports. Russia would becentral in this scenario. We see this scenario as
unlikely beyond 2019.

▪ Scenario 2: Maduro regime pursues anegotiated transition: The timing would most
likely come after US sanctions reach their full
impact by mid-2019. This is the best casescenario for production, but in light of the farreaching challenges facing the sector, output
would likely only reach about 1.2 million b/d bylate 2020.

▪ Scenario 3: A messy transition after
prolonged period of conflict and chaos: We
see this most disruptive scenario as also themost likely. The critical difference with the firstscenario is that ultimately the regime cannot
hang on. A messy transition would likely
materialize only over the next year, withproduction bottoming out in late 2019 or later.

Venezuela: Political Scenarios and Production Implications (million b/d)
1.2
1.0

Scenario 1: Maduro Hangs On
Scenario 2: Negotiated Transition
Scenario 3: Messy Transition

0.8
0.6
0.4
0.2
0.0
Q1'19
Q2'19
Q3'19
Q4'19
Q1'20
Source: Energy Intelligence Research & Advisory

Q2'20

Q3'20

Q4'20

Barriers to a Production Rebound in Venezuela••••

Human capacity: exodus of workers
Scale of investment required to fix infrastructure:
upgraders, ports, pipelines, fields
Time required to pass new regulations andinvestment terms
Lack of investor interest in Orinoco (extra-heavy)
crude

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Energy Intelligence Presentation

Iran Sanctions: Significant Blow to Iranian Exports
Exports above 1 million b/d in January, but little clarity on waiver renewals in May▪ Last November, the Trump administration gave
exemptions from sanctions to eight top buyersof Iranian crude: China, India, Japan, Turkey,
Italy, Greece, Taiwan and South Korea.

▪ The waivers require countries to show
“significant reductions” of Iranian crude. WhiteHouse officials still insist that these waivers will
not be extended past May.

▪ China, India, Japan and South Korea boosted
crude imports from Iran to an estimated932,000 b/d in January, with overall Iranian
exports above 1 million b/d.

Iran: Export Volumes to Key Asian Buyers (000 b/d)
700
600

300

Japan*

200
South Korea

100
0
2017

2018

Jan. 2019

Note: Japan data showed no imports through Jan. 20, but loadings were slated for late Jan.
Source: China’s National Bureau of Statistics and General Administration of Customs, India’s
Ministry of Commerce, Japan’s METI, South Korea’s KNOC

Alternatives to Iranian Crude▪

continued buyer appetite for Iranian crude.

▪

▪ Last November showed that Trump is wary of▪ The waivers could end for some countries in

India

400

▪ March will provide important signals about

taking actions that would raise oil prices.

China

500

▪

Refiners have turned to Iraqi, Saudi, Russian andUS crude as alternatives to Iranian oil.
As of mid-February, Greece and Italy had notimported crude from Iran since November,
although they have waivers to do so.
Turkey and India have showed steady imports overthe past few months.

May. But barring a major decline in oil prices, it
seems unlikely that Trump will be aggressive as
his threats suggest.
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Energy Intelligence Presentation

Supply Volatility: US Growth Moderating This Year and Next
Demand deceleration, tight capital control, crude quality and lower productivity to rein in growth▪ The US beat expectations last year, delivering 1.5 million b/d in growth. But we expect US
supply growth to slow this year, averaging 1.2 million b/d over 2019 but with a year-end exit
rate of only 800,000 b/d.

▪ Shale producers are being forced to further tighten capital discipline, with business models adjusting
to a $50/bbl (or lower) WTI price. The average shale producer currently has a ~$60/bbl cash-flow
break-even.

▪ Steep declines, a lack of incremental productivity and other bottlenecks will also limit growth.
US Oil and Gas Supply Growth Forecast(‘000 b/d for oil supply on left axis, Bcf/d for gas supply on right axis)
10

2,000

8

1,500

6
1,000

4
2

500

0

0

-2
Annual Oil Supply Change-500

Annual Gas Supply Change-4-6-1,000
2016

2017

2018E

2019E

2020E

2021E

2022E

2023E

Source: Energy Intelligence

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Energy Intelligence Presentation

Supply Volatility: US Shale Growth to Continue, But Slowdown Under Way
Sustained low WTI prices can have a material impact on growth rates(quarterly year-on-year growth, million b/d)
1.8
1.6
1.4
1.2

▪ WTI prices and price expectations will be a key

1.0

factor. Downward adjustments to production
guidance are ongoing and will continue in the
coming months.

0.6

remain a top growth constraint for much of2019.
– Existing takeaway options are running at very highutilization rates. In late Q3’19, large-scale oiltakeaway options will become available.
– But gas midstream constraints will continue into
2020, restricting oil supply growth given the
Permian’s associated gas and regulatory constraints
on gas flaring.

▪ US crude production growth will continue, but
this year could be the last that exceeds the rateof 1 million b/d.

0.8
0.4
0.2
0.0
4Q20

3Q20

2Q20

1Q20

4Q19

3Q19

2Q19

1Q19

4Q18

3Q18

2Q18

1Q18

4Q17

-0.2
1Q17

▪ Midstream bottlenecks in the Permian Basin willReaccelerate Case ($65/bbl)
Base Case ($50/bbl)
Retrench Case ($45/bbl)

3Q17

decelerate this year, with projected growthin our Base Case of 1 million b/d for the top
four basins.

US Shale Oil Outlook: Supply Growth by WTI Price Case

2Q17

▪ Shale oil production growth is expected to

Source: Energy Intelligence Research & Advisory; Note: includes Permian, Bakken, Eagle Ford and Niobrara

Permian Supply vs. Demand Outlook for Oil and Gas(million b/d for oil on left, Bcf/d for gas on right)
7
6

Supply Outlook (Left)
Oil Takeaway + Refining (Left)

35
30

Gas Supply Outlook (Right)
5

Gas Takeaway (Right)

25

4

20

3

15

2

10

1

5

0

0
1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20

Source: Energy Intelligence Research & Advisory

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Energy Intelligence Presentation

Supply Volatility: Other Non-Opec Growth Concentrated in Brazil
UK will also add volumes, while China and Mexico will see further declines▪ Even outside of the US, non-Opec output growth ishighly concentrated, mainly in Brazil. Surprise
disruptions or slower growth can materially tighten
global balances.

▪ Brazil will be the largest source of non-Opec growthoutside the US. Together Brazilian additions will drive
steady growth in 2019 of over 150,000 b/d.

Petrobras’ Brazil Project Plans: All Projects Are Operated by the NOC
2018

2019

▪ Tartarugas▪ Berbigao
Verde e Mestica▪ Atapu 1▪ Lula Norte▪ Buzios 4▪ Lula Extremo
Sul▪ Buzios 1▪ Buzios 2
Underlined projects▪ Buzios 3
are on stream▪ The UK will see also output rise, as new fields come(2020)

2021

2022▪ Marlim
Revitalization,
Modules 1-2▪ Whale Park
Integrated▪ Mero 1▪ Buzios 5▪ Sepia▪ Sergipe
Deepwater▪ Mero 2▪ Itapu

LegendPost-Salt Concession
Pre-Salt Concession
Pre-Salt Transfer of Rights PSC
Pre-Salt PSC

on line and independent E&Ps delay decommissioning
and extend the life of many mature fields.

▪ While production in Norway will continue to fall thisyear, the massive Johan Sverdrup field is expected tostart in November, providing a 2020 surge in output.

▪ China is not likely to stop declining production, despite
pronouncements by President Xi.

▪ Likewise, in Mexico, initiatives by new President
Andres Manuel Lopez Obrador—such as an increasein PEMEX drilling at mature fields—will fail to halt thecountry’s production slide.

▪ Kazakhstan will also add volumes as production
ramps up at Kashagan, but maintenance at key fields
and its participation in the Opec/non-Opec cuts makethis less certain.

Non-Opec Supply: Major Growers and Decliners in 2019 (million b/d)
0.6
NOR

0.5

MEX

CHI

KAZ

UK

BRA

0.4
0.3
0.2
0.1
0.0

-0.1
-0.2
-0.3
-0.4
-0.5
2015

2016

2017

2018

2019

Source: Energy Intelligence

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Energy Intelligence Presentation

Supply Volatility: Near-Term Outages Could Still Shake Up Balances
Venezuela, Iran, Libya, Nigeria and Canada are the new “fragile five”▪ Near-term supply risks will remain high thisyear with traditional countries—Venezuela,
Iran, Libya, and Nigeria—joined by Canada.

▪ Iranian output took a big hit in late 2018, andfurther large declines are possible in 2019
depending on US sanctions policy andcontinued exceptions for major buyers.

▪ Output will continue to fall in Venezuela asneglect and underinvestment take their toll evenin a best-case scenario. Risks are heavily
weighted to the downside.

▪ Canada—mandated production cuts by Alberta
in late 2018 are likely to ease after Q1’19. The
cuts could be extended if Western Canadianinventories do not fall.

▪ Libya and Nigeria’s unsettled political andsecurity situations will present ongoing risks, asevidenced by the latest outages in Libya.

Supply Volatility: Risk Profiles of the New “Fragile Five”
Domestic Risks: Supply
outages caused byendogenous risk, such aspolitical turmoil, economiccrisis, internal security threats
and regulatory hurdles.

Domestic
Risks

Libya

Nigeria
Market Dislocations:
Caused by misaligned
incentives between
producers andconsumers.

CanadaExternal Pressures:
Outages due toexogenous factors,
such as sanctions or
conflict.

Venezuela

MarketDislocations

External
Pressures

Iran

New “Fragile Five” Production Outlook (annual change, million b/d)
1.5
CAN

VEN

IRN

NIG

LIB

1.0
0.5
0.0
-0.5

-1.0
-1.5
-2.0
2015

2016

2017

2018

2019

Source: Energy Intelligence

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Energy Intelligence Presentation

Oil Market Management: New Deal Underscores Potential Centrality of Opec
Modest supply deficit forecast for this year if the Opec and non-Opec cuts hold up▪ Volatility is a challenge, but gives Opec and Russia an opportunity to be a stabilizing force.
▪ Upholding the current 1.2 million b/d cut will likely prove critical to restoring balance this year. The
deal should help to restore balance—and even yield small deficits—by the second quarter.

▪ Energy Intelligence anticipates an overall supply deficit of 300,000 b/d in 2019.
▪ The cuts are also helping Opec to restore spare capacity in the event of further outages. In the
coming months, spare capacity is likely to rise to about 1.7 million b/d.
Global Oil Supply-Demand Balance (million b/d)
104

Total Demand102

Total Supply

100
98
96
94
92

4Q19

3Q19

2Q19

1Q19

4Q18

3Q18

2Q18

1Q18

4Q17

3Q17

2Q17

1Q17

4Q16

3Q16

2Q16

1Q16

4Q15

3Q15

2Q15

1Q15

4Q14

3Q14

2Q14

88

1Q14

90

Source: Energy Intelligence

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Energy Intelligence Presentation

Opec and Non-Opec Cooperation to Continue
Group is likely to extend the current deal

▪ Outwardly, the Opec and non-Opec group
appears dysfunctional and divided byinternal conflicts, but we think it is boundtogether by:– Saudi Arabia and Russia, which still see value
in a united front to deal with shale, geopolitics
and the financialization of oil markets.
– The influence of geopolitics on oil prices,
requiring constant monitoring of oil markets.
– Emergence of the US as the biggest wild cardfor oil markets in 2019, including shale's
capacity to surprise the market.
– The importance of unified messages tocombat the powerful forces of volatility.
– Need for higher prices, ideally $70/bbl or
more.

Estimated Opec Cuts for First-Half 2019 (’000 b/d)
Baseline

Pledged
Quota
Cut

Dec.
OutputPotential
Spare

Adjusted
Spare

Saudi
Arabia10,633322

10,311

10,643

1,607

657

Iraq

4,635

141

4,494

4,699

150

0

UAE

3,168

96

3,072

3,250

250

250

Kuwait

2,764

85

2,679

2,802

348

98

Nigeria

1,738

53

1,685

1,630

0

0

Angola

1,528

47

1,481

1,445

0

0

Algeria

1,057

32

1,025

1,063

0

0

Ecuador

524

16

508

520

0

0

Congo
(Br.)

325

10

315

338

0

0

Gabon

187

6

181

223

0

0

Eq.
Guinea

127

4

123

85

0

0

Opec 11

26,686812

25,874

26,698

2,355

1,005

Iran

3,296

0

--

2,545

0

0

Venezuela

1,171

0

--

1,074

0

0

0
2,355

0
1,005

Libya

1,114

0

--

953

Opec 1432,267----

Russia11,421

230

11,191

31,27011,470Source: Energy Intelligence, Opec, government data and Jodi. Notes on spare capacity: Potential
spare includes constrained capacity. Adjusted spare is startable in 30 days and sustainable for atleast 90 days. Iran excludes offshore condensates. Saudi Arabia and Kuwait equally share the
Neutral Zone with 500,000 b/d capacity, which takes several months to bring back on. Notes on
Opec cuts: Qatar not included in table. Iran, Venezuela and Libya are exempt from quotas.
Volumes based on October 2018 secondary source production assessment and production
volumes for non-Opec alliance as reported by Opec.

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Energy Intelligence Presentation

But This Year Will be the Biggest Test for Opec Cohesion Since 2014-15
Faltering demand and robust non-Opec supply could shift focus back to market share▪ Opec’s June and December decisions suggest that the cartel will take action when Brent prices are
at risk of falling outside the $60/bbl-$80/bbl range on a sustained basis.

▪ The top threat to Opec/non-Opec cohesion is a twin shock scenario: a dramatic demand slowdown
to below 1 million b/d led by an acute economic deceleration, and still-robust incremental supply.

Bullish Market Factors▪ Economic pressures could tempt output
increases in key countries, regardless ofany agreement.
▪ Risk of geopolitics influencing oil policy,
undermining cooperation.

▪ Risk of outages or acceleratingproduction declines in key Opec
countries, especially Venezuela, Iran, Libya
and Nigeria.

Supply▪ Robust US shale recovery, and strong
medium-term potential.
▪ Major 2019-20 supply additions from
Brazil and Norway.

▪ Potential US tight oil growth obstacles:
value focus, input and infrastructure limits.
▪ Concentration of supply growth incountries not immune to disruptions.

Demand▪ Rising protectionism and risk of tradetensions, especially between US and China.
▪ Weakening OECD demand outlook after
recent anomalous growth.

▪ Current synchronized recovery in key
OECD and non-OECD economies.
▪ Expansionary fiscal policies in top
economies, led by the US.

Dynamics
within Opec
and Russia

External to
Opec-Russia

Internal to
Opec-Russia

Bearish Market Factors

18

IEEJ：March 2019 © IEEJ2019

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