Outlook on Crude Oil for 2018. Date: 28.05.2018 IMC presentation Presented by Yeshwant Rao, Consultant - Commodities and Currencies for Almus Risk consulting LLP and Commtrendz Research.

Outlook on Crude Oil for 2018. The analysis undertaken generally for the purpose of hedging/positional trading operations would combine … Macro issues surrounding the demand and supply of oil and (2) Technical/quantitative analysis. This has led to a two part presentation lasting for about 2 to 5 minutes each.

Outlook on Crude Oil for 2018. Macros: Increasing Demand: IEA’s research shows global economic growth to be around 3.9% during the period 2017-19. Oil demand - 97.8m/bd for 2017. It is expected to grow by 1.4mb/d for 2018 as per IEA. OPEC research shows the oil demand growth for 2018 as 1.65m/bd. This would generally drive up the overall demand for energy products across the globe. (Demand Part of analysis is over)

Outlook on Crude Oil for 2018. Tightening Supply: Bullish information on Supply: Drop off in upstream investment by 25% in both 2015 and 2016 followed by a flat 2017 would not be of much help to meet the rising demand. Modest rise in upstream investment is reported in 2018.  Inadequate investment in recent years, could make producers struggle to meet the rising demand in 2018-2019. This would be a bullish factor.

Outlook on Crude Oil for 2018. OPEC Supply cuts. Friday’s (25.05.18) evening newswires reported that Saudi Arabia and Russia considering relaxing of supply cuts in their Jun 22 meeting. Putin said Russia could live with USD 60/bbl. Saudi kingdom is keen on investing hugely in the development of its economy. They also want a higher crude price to raise the stated amount of USD 100 billion by selling Saudi Aramco’s 5% stake. Only a higher oil price could achieve this easily. The issue date seems to have been pushed to 2019.

Outlook on Crude Oil for 2018. Iran sanctions: Iran could manage to circumvent the sanctions. Its big buyers China and India have found a way to import crude from Iran earlier. Iran produces about 3.8 mb/d and of this about 500,000 could be cut due to the sanctions; but previous experience with the sanctions suggest that the actual number of barrels that could go out the market could be just about 200,000 instead of the widely believed 500,000. This loss of 200,000 or 500,000 mb/d could push the price by anything between 2 to 3 dollars.

Outlook on Crude Oil for 2018. Venezuela sanctions: Venezuela, a country with world’s largest oil reserves, has fallen into a downward spiral; its oil production has shrunk to just 1.42mb/d in April 2018 from 2.55mb/d in Jun 2013 due to mismanagement of the country’s economy. With the recent US sanctions, the production might dip below even 1.0mb/d by the end of 2018. ConocoPhillips won a court ruling and seized assets of PdVSA from Curacao, crippling its ability to export to Asian counties like China and India. Extent of loss in production due to sanctions and assets seizure would be known in the coming months. Many believe that the production decline could accelerate.

World Crude Oil Reserves

Outlook on Crude Oil for 2018 Start of Atlantic Hurricane season Atlantic hurricane season starts promptly on 1st June with the onset of hurricane Alberto. This season could see volatile sessions associated with the hurricanes movements. Sudden spikes and equally fats drops could be anticipated during the June-November hurricane season.

Outlook on Crude Oil for 2018 Bearish information on Supply Supply from America has been rising significantly. The US with 10.7 mb/d production recently, has overtaken Saudis as the world’s no:2 oil producer. Russia is the leading producer for now (11 mb/d). Rising number of LNG and Electric run buses/trucks especially in China would bring down diesel demand. Friday’s rig count data showed that US has engaged higher no: of rigs on oil production. Higher US production could effectively offset the output cut by OPEC as far as US is concerned. (Supply part of analysis is over)

Outlook on Crude Oil for 2018 MACROS SHOW THAT WE HAVE A SCENARIO WHERE THE DEMAND IS GROWING, AND SUPPLY IS THREATENED, A SURE RECIPE FOR HIGHER OIL PRICES.  TECHNICAL VIEW: Technically the picture is bullish for both Brent and WTI. The weekly/monthly charts that are taken for the purpose of study show that the recent upmove has been overstretched and price is due for a correction any time now. Friday late evening break of news about KSA and Russia considering relaxing the supply cuts and also Putin’s statement that they can do well with USD 60/barrel have caused the most needed slide in prices. Now coming to the tech analysis….

Brent rally overstretched - Ref: Bottom pane

Outlook on Crude Oil for 2018 Summarizing … Macros and technical picture for Crude oil for 2018 appear bullish. Recent upmove appears overstretched and would need to spend some time in correction. Tentative objectives for Brent during the year range from 82.50 to 85.00. The risk area is around 71.00/70.00. END. Thank you all.