Crude OIL market outlook: the new era Multi Asset solutions For Professional Investors Marketing Communication Guillermo felices London, 2 October 2017

Outline Supply – US shale is key Demand – remains robust Oil market balance – from surplus to slight deficit Technicals – carry and positioning Price forecasts – limited upside I will explain you what is going on in oil markets and I will also give you the outlook of the MAS team for the year ahead. This topical because crude prices are down 13% despite a 10% rally in the last week or so. I will explain why this is mainly a supply story. And the I will touch on demand The oil market balance and out price forecasts Finally, I will mention some oil related positions in our portfolios

US production up, crude prices down YTD WTI: West Texas Intermediate crude oil. OPEC: Organization of Petroleum Exporting Countries Source: Bloomberg and BNPP AM,.as of 22 Sep 2017.

Supply: Barclays research shows that 80% of the cost base is below USD 60/bbl Source: Barclays Source: Barclays. Data as of end-2016.

Supply: US inventories falling but remain historically high US inventories are historically high but are starting to fall gradually US crude production close to YTD highs, despite disruptions due to hurricane Harvey Source: DoE and BNPP AM. Data as of end-Aug 2017.

Demand developments: Expect robust demand growth especially from non-OECD Source: IEA and Barclays. Data as of June 2017. We expect demand growth to accelerate in H2 2017and early 2018 Non-OECD (EM) remains the main contributor to global demand growth Growing manufacturing activity supports demand growth

Balance: Demand to outpace supply in H2, leading to slight deficit Source: Bloomberg and BNPP AM. Data as of June 2017 Deficit in H2 17 and 2018 assuming: (1) demand growth remains at post crisis average (c.1.7% YoY), (2) OPEC supply rises at 1% YoY from 2018, and (3) OECD supply continues to rise at c.5% YoY, the same pace as in 2010-15 (shale boom years)

Carry no longer negative; positioning long, but not stretched Brent curve in contango for first time since 2014; WTI still in backwardation Source: Bloomberg and BNPP AM. Data as of 22 Sep 2017. Source: Bloomberg and BNPP AM. Data as of 22 Sep 2017.

Balance: Demand to outpace supply in H2, leading to slight deficit Source: Bloomberg and BNPP AM. Data as of 22 Sep 2017. Source: Bloomberg and BNPP AM. Data as of 22 Sep 2017. US shale production and OPEC supply cuts mean crude likely in a range between USD 40-60/barrel in the next few months. 12m forecast WTI USD 52/barrel and Brent USD 55/barrel. We forecast limited upside given elastic US shale supply.

Conclusions Supply - the big story of the year, with US shale winning the tug of war vs. OPEC so far Demand - the unsung hero: demand growth to accelerate in H2 2017 and early 2018. Non- OECD remains the main contributor Market balance – balance going into slight deficit in H2, assuming slow OPEC supply growth, strong US shale production growth and robust demand growth Technicals - carry shifting to positive for Brent, making it less costly to go long crude. Positioning is net long, but not stretched Price forecasts - US shale production and OPEC supply cuts mean crude likely in a range between USD 40-60/bbl in the next few months Elastic supply of US shale producers caps the upside - we forecast Brent at USD 55/bbl and WTI at USD 52/bbl in 12 months.

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