JMMC Review - Crude. JMMC Review: The art of balance. Clearing the clouds. June 23rd, 2018

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JMMC Review - Crude Treasury Research Group For private circulation only JMMC Review: The art of balance The OPEC and non-opec members decided to strive and bring back conformity levels of the group

1 JMMC Review - Crude Treasury Research Group For private circulation only JMMC Review: The art of balance The OPEC and non-opec members decided to strive and bring back conformity levels of the group that reached 147% in May to 100% which entails an increase of 1 million bpd. We expect markets to be bearish on this development and see Brent falling to USD 71-74/barrel in the near term. The next OPEC non-opec meeting will be held on 4 th December but members to meet again in September and monitor and revisit their progress. Congo was included as part of the OPEC group making it comprise of 15 members now and the Declaration of cooperation to include 25 nations in total. Clearing the clouds June 23rd, 2018 Ashray Ohri Please see important disclaimer at the end of this report The 4 th OPEC and non-opec ministerial meet concluded today and was a lot clearer than the closed OPEC group meet yesterday. The JMMC announced they will strive to bring back the groups conformity level that had reached 147% in May back to 100%, which entails an increase in supply by 1 million bpd roughly that will be met collectively by the group. Who does what and by how much: The increase is to be co-ordinated among the members of JMMC, and this reinstates the point that no specific allocation has been decided towards individual countries, giving enough flexibility to other countries who have the capacity to increase output to fill in for nations that cannot increase supply in the short term. This clarifies that the group is heading to an effective 1 million bpd of increase and put aside doubts from the last few days that the principle announcement of increase and the actual increase would be different. Saudi oil minister confirmed that the group had enough spare capacity to achieve the 1 million bpd increase but would not exceed this cap and at the same time respect other countries ability to increase supply. The pace of increase: The committee said this endeavor would be effective from 1 st July. Russia oil minister mentioned they would have to monitor the situation of the pace of drilling and how quickly oil exploratory companies respond, giving no clear indication. However, Saudi Arabia seems to have anticipated the need for increase and Saudi Aramco machinery is said to have started pumping oil already. The Saudi oil minister mentioned the July output number would see a measurable increase that would be in hundreds of thousands of barrel per day. We expect the increase to be gradual as nations bring their spare capacity online but see it moving closer to the 1 million bpd mark over the months. The consumers say in this: The JMMC expressed their sensitivity towards impact of prices on consumers as was voiced by the US, China and India, the three largest consumers, in the past weeks. The committee acknowledged a demand destruction could happen at the recent price levels and they did not want consumers shifting from petroleum. This is more important specially at a time when demand is expected to peak with the summer driving season and as per estimates the global July demand is close to 2 million bpd higher than the number in May. Implication on Prices We believe the latest clarification from the joint OPEC and non-opec committee today is bearish for prices. Oil markets had rallied by more than 3% on Friday with Brent closing at USD 75.5/barrel, as markets were reacting to an effective increase of around kbpd of supply. However, the recent clarification of an effective increase by 1 million bpd is supposed to calm markets when they open on Monday and trade around the USD 71-74/barrel range in the near term. A similar reason was expressed by the Saudi oil minister in the Q&A session today where he mentioned markets may have under-estimated the degree of action by the JMMC on Friday.

2 The art of balance The next OPEC non-opec meeting has been scheduled for the 4th of December in Vienna, but members are to meet again in September and monitor and revisit the progress of their increase in supply. The committee mentioned that they would strongly adhere to the 1 million bpd increase in supply which brings back conformity to 100% as they believe that would balance markets, and an over-supply or under-supply would be managed among members. The ministers did not eliminate the possibility that a further increase in supply could be underway if oil markets remained under deficit due to more supply outages from other nations. The meeting today signaled that the priority was to balance markets and stabilize prices and they would try to arrive at a common ground where prices are not too high to drive away consumers and neither too low to that investors don t find the oil industry lucrative enough. 2

3 ICICI Bank: ICICI Bank Towers, Bandra Kurla Complex, Mumbai Phone: (+91-22) Treasury Research Group Economics Research Sunandan Chaudhuri Senior Economist (+91-22) Kamalika Das Economist (+91-22) (ext 6280) Shivom Chakravorthy Economist (+91-22) (ext 6229) Sumedha Dasgupta Economist (+91-22) (ext. 7243) Ramakrishna Reddy Economist (+91-22) Bogathi Sri Virinchi Kadiyala Economist (+91-22) Pradeep Kumar Economist (+91-22) Sparsh Chhabra Economist (+91-22) Ashray Ohri Economist (+91-22) Yash Panjrath Economist (+91-22) Treasury Desks Treasury Sales (+91-22) Currency Desk (+91-22) Gsec Desk (+91-22) FX Dérivatives (+91-22) /43 Interest Rate Derivatives (+91-22) Commodities Desk (+91-22) Corporate Bonds (+91-22)

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5 Disclaimer Any information in this should not be construed as an offer, invitation, solicitation, solution or advice of any kind to buy or sell any financial products or services offered by ICICI Bank, unless specifically stated so. ICICI Bank is not acting as your financial adviser or in a fiduciary capacity in respect of this proposed transaction with you unless otherwise expressly agreed by us in writing. Before entering into any transaction you should take steps to ensure that you understand the transaction and have made an independent assessment of the appropriateness of the transaction in the light of your own objectives and circumstances, including the possible risks and benefits of entering into such transaction. You may consider asking advice from your advisers in making this assessment. No part of this report may be copied or redistributed by any recipient for any purpose without ICICI s prior written consent. Disclaimer for US/UK/Belgium residents This document is issued solely by ICICI Bank Limited ( ICICI ). The material in this document is derived from sources ICICI believes to be reliable but which have not been independently verified. In preparing this document, ICICI has relied upon and assumed, the accuracy and completeness of all information available from public sources ICICI makes no guarantee of the accuracy and completeness of factual or analytical data and is not responsible for errors of transmission or reception. The opinions contained in such material constitute the judgment of ICICI in relation to the matters which are the subject of such material as at the date of its publication, all of which are expressed without any responsibility on ICICI s part and are subject to change without notice. ICICI has no duty to update this document, the opinions, factual or analytical data contained herein. 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