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

2. 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

3. 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.

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

5. 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.

6. 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

7. 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 (shale boom years)

8. 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.

9. 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.

10. 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 H and early 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.

11. Disclaimer
BNP PARIBAS ASSET MANAGEMENT UK Limited, “the investment company”, is authorised and regulated by the Financial Conduct Authority. Registered in England No: , registered office: 5 Aldermanbury Square, London, England, EC2V 7BP, United Kingdom.
This material is produced for information purposes only and does not constitute:
1. an offer to buy nor a solicitation to sell, nor shall it form the basis of or be relied upon in connection with any contract or commitment whatsoever or
2. investment advice.
This material makes reference to certain financial instruments authorised and regulated in their jurisdiction(s) of incorporation.
No action has been taken which would permit the public offering of the financial instrument(s) in any other jurisdiction, except as indicated in the most recent prospectus and the Key Investor Information Document (KIID) of the relevant financial instrument(s) where such action would be required, in particular, in the United States, to US persons (as such term is defined in Regulation S of the United States Securities Act of 1933). Prior to any subscription in a country in which such financial instrument(s) is/are registered, investors should verify any legal constraints or restrictions there may be in connection with the subscription, purchase, possession or sale of the financial instrument(s).
Investors considering subscribing to the financial instrument(s) should read carefully the most recent prospectus and Key Investor Information Document (KIID) and consult the financial instrument(s’) most recent financial reports. These documents are available on the website.
Opinions included in this material constitute the judgement of the investment management company at the time specified and may be subject to change without notice. The investment management company is not obliged to update or alter the information or opinions contained within this material. Investors should consult their own legal and tax advisors in respect of legal, accounting, domicile and tax advice prior to investing in the financial instrument(s) in order to make an independent determination of the suitability and consequences of an investment therein, if permitted. Please note that different types of investments, if contained within this material, involve varying degrees of risk and there can be no assurance that any specific investment may either be suitable, appropriate or profitable for an investor’s investment portfolio.
Given the economic and market risks, there can be no assurance that the financial instrument(s) will achieve its/their investment objectives. Returns may be affected by, amongst other things, investment strategies or objectives of the financial instrument(s) and material market and economic conditions, including interest rates, market terms and general market conditions. The different strategies applied to financial instruments may have a significant effect on the results presented in this material. Past performance is not a guide to future performance and the value of the investments in financial instrument(s) may go down as well as up. Investors may not get back the amount they originally invested.
The performance data, as applicable, reflected in this material, do not take into account the commissions, costs incurred on the issue and redemption and taxes.
This document is directed only at person(s) who have professional experience in matters relating to investments (“relevant persons”). Any investment or investment activity to which this document relates is available only to and will be engaged in only with Professional Clients as defined in the rules of the Financial Conduct Authority. Any person who is not a relevant person should not act or rely on this document or any of its contents.
All information referred to in the present document is available on
21/09/2018

12. Please follow us at
#LondonExpertsDays