1. Kunal Shah Head of Commodities Research Globe Oil, 2015 New World Order Global economy, where are we heading? Outlook on crude oil

2. U.S. and China growth divergence Source: Reuters, NB Research China’s GDP has been continuously contracting from 2010 and its likely to contract to 6.4% - 6% going forward in 2016. On the other hand from 2013 U.S. economy is expanding at rapid pace and have posted robust growth in the first half of 2015. U.S. GDP growth rate may average out by 3.25% in 2015 After the rate hike it remains to be seen but we expect we may see some cool off in GDP growth rate. But U.S economy remained very strong and can withstand moderate rate hike.

3. 1.China’s producer price index is into deflationary territory since last 3 years. 2.Industrial production in China have fallen from 19 to 6 and Mfg PMI at 47!! Its not Chinese slowdown, its deliberate slowdown Source: Reuters, NB Research

4. China has been major demand driver of Commodities over a decade

5. Chinese deliberately cooling of economy derailing other emerging and developed countries In 1997 emerging market accounted for 20% of the global GDP In 2015 emerging market accounts for around 40% of the global GDP Latam Countries (Argentina, Brazil, Chile, Colombia, Mexico, Peru)

6. Sharp fall in LATAM currencies due to its dependence on export to China Source: Bloomberg, NB Research Latam Currency Index consists of Argentina: 10%, Brazil: 33%, Chile:12%, Colombia: 7%, Mexico: 33%. Peru: 5% Latin America exports have fallen by 20% from 2012. Slowdown in Chinese economy had direct impact on LATAM currency which has been depreciating sharply. LATAM index have weakened from 120 in 2010 to 66 in 2015. Weaker currencies also fuelled inflation in some of the LATAM countries, compounding problems for them

7. Countries affected exporting to China & lower commodity prices List of countries whose exports are affected  Due to Chinese slowdown ( Apart from LATAM)& Due to lower prices of commodities  Taiwan  Australia  South Korea  South Africa  Thailand  Malaysia  Vietnam  Kazakhstan  Ukraine  Philippines  Russia  Canada  Venezuela, Norway  Middle east countries mainly oil producers

8. Before 2007-08 and after 2008, Before 2007-08 U.S. CONSUMER LED GROWTH, AND LEVERAGE CYCLE IN U.S WAS GOING POST 2008 AFTER RECESSION U.S. GRADUALLY DELEVERAGED AND IS ON GROWTH PATH AFTER 2008, TABLES TURNED DUE TO ULTRA LOW MONETAREY POLICIES RUNNING, AND STIMULUS PACKAGES LEVERAGE CYCLED IN EMERGING MARKET STARTED, CHEAP BORROWING IN FOREIGN CURRENCY, FEDERAL RESERVE RATE HIKE STARTED TO GET DISCOUNTED WHICH WAS FOLLOWED BY WEAKENING OFF CURRENCIES AND DELEVARGING IS TAKING PLACE. After 2008

9. Central Banks dilemma, nightmare? Central Banks Dilemma (Running out of Ammunition) After printing trillions dollar, inflation have remained subdued and emerging market crisis have led to slowdown in global growth. Even after massive QE announced by ECB in 2015, the results are less spectacular. So like law of diminishing marginal utility we are getting diminishing returns from additional Quantitative easing Massive investment and stimulus led growth in China led to housing boom and followed by strict measures by PBOC. So Central bankers are acting cautiously and are aware about hazards of artificially inflating the asset prices and getting short term growth

10. World economic forecasts

11. The major positive for global economy is lower oil price, QE for consumer Sharp fall in crude oil prices is boon for many economies who were going through stress of high oil prices but surely not for producer.

12. U.S. crude oil production Between 2008-2015 U.S. oil production moved up by 4.5mbpd, mainly due to production of shale oil

13. U.S. crude oil supply growth going forward Source : EIA, IEA, NB RESEARCH U.S. crude oil production is likely to decline in 2016 due to sharp cuts in drilling, spending and new oil well completions. During the year 2015 we have seen upstream spending cut by 30-35%. In spite of sharp fall in rig count near 55% drop in rig count production hasn’t fall significantly because majority of crude oil production came 20-25% of oil wells. In second quarter of 2015 Baker Huges said 20% of drilled oil wells have not been fracked.

14. U.S. CRUDE OIL SUPPLY DYNAMICS U.S. Crude oil drilling cost and rate of fracking sand have declined by 15-20% due to lower oil prices as producers have been negotiating with suppliers and costs are coming down which is also preventing any major spike in crude oil. U.S. Crude oil production have declined almost by 5,00,000 barrels and prices have moved up post that. There are more than 3800-4000 drilled wells but unfracked oil wells so the moment prices go up to $55-60/barrel, with cost of production down producers will be encouraged to frack this drilled wells. We are entering in refinery maintenance season where demand for crude oil remains subdued and inventory remains high at U.S. The longer prices remains low the more production cuts we will see and hence will provide floor to the prices.

15. Supply growth from OPEC Source: Reuters, EIA, NB Research After OPEC meeting in November 2014, which was trigger point for oil to break $80/barrel Saudi Arabia and Iraq cumulatively added 1.5 million barrels per day as on date. Considering Iran sanctions will be lifted we don’t expect any major cut in production by Saudi Arabia as they clearly want to maintain their market share. OPEC countries are likely to cut their investments going forward.

16. Iran: Not major threat right now U.S. President has enough votes to veto the “resolution of disapproval” by Congress so by end of 2015 or in the first half of 2016 sanction on Iran will get lifted. By the end of first half of 2016 we expect Iran may start exporting 0.6 to 0.8 mbpd which will balance the loss of supply from U.S. and OPEC. So Supply side without Iran will provide floor to the oil prices and will give them reason to move up and with Iran will balance out loss of supply from other countries. Due to low prices global demand growth will be robust

17. Outlook on crude oil During the winter season, we may see strong pull back in crude oil in the first of 2016 we expect it move up but we don’t remain very bullish as the moment WTI trades above $55/barrel U.S. crude oil production will start moving up. Federal reserve rate hike may lead to stronger dollar, which is bearish for crude oil Any decline towards $40/barrel good buying opportunity for WTI as U.S. crude oil production is declining and likely to decline further moving forward in 2016.

18. THANK YOU

19. Disclaimer This presentation has been prepared by Nirmal Bang Commodities Private Ltd.The information, analysis and estimates contained herein are based on Nirmal Bang Research assessment and have been obtained from sources believed to be reliable. This document is meant for the use of the intended recipient only. This document, at best, represents Nirmal Bang Research opinion and is meant for general information only. Nirmal Bang Research, its directors, officers or employees shall not in anyway be responsible for the contents stated herein. Nirmal Bang Research expressly disclaims any and all liabilities that may arise from information, errors or omissions in this connection. This document is not to be considered as an offer to sell, or a solicitation to buy any securities. Nirmal Bang Research, its affiliates and their employees may from time to time hold positions in securities referred to herein. Nirmal Bang Research or its affiliates may from time to time solicit from or perform investment banking or other services for any company mentioned in this document