SPECIAL MONTHLY REPORT ON. ENERGY (February 2019)

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1 SPECIAL MONTHLY REPORT ON ()

2 PERFORMANCE (January 2019) (% change) NYMEX Natural Gas Crude oil MCX

3 COMPLEX Overview In the month of January crude oil prices recovered sharply higher after the meltdown seen in past few months on hope of trade deal between US and China and as OPEC and allies Canada s plan to adhere to production cuts to reduce oversupply. Russia's deputy energy minister stated that country will meet its target for curbing output by April. Saudi Minister assured the markets that there is no need for OPEC to schedule an extraordinary meeting before April and the markets are moving in right direction. Overall it traded in range of $ in NYMEX and in range of in MCX. EIA showed a drop in Saudi crude supply to the United States. Saudi Arabia is the de-facto leader of the Organization of the Petroleum Exporting Countries (OPEC), which together with some non-opec producers, including Russia, announced supply cuts late last year aimed at tightening the market and propping up prices. OPEC s monthly report noted that its output declined by 751,000 barrels a day last month to million bpd, the biggest month-onmonth drop in almost two years. the development of oil production in the United States, where crude output jumped by 2 million barrels per day (bpd) in 2018 to an unprecedented 11.9 million bpd. The boom was largely fuelled by onshore shale oil drilling. And while the US Energy Information Administration (EIA) expected shale output to rise further, it stated that output growth would slow in the coming years. Crude oil can continue to remain upbeat as its prices can test 4300 taking support near Key News Venezuela supply concerns supported Crude oil Supply concerns tied to Venezuela as a dramatic escalation in tensions has raised fears that U.S. could impose sanctions on Venezuelan oil, threatening to complicate OPEC s job of balancing global oil supplies. In 2018, Venezuela exported about 500,000 barrels of heavy crude a day to the U.S. but that has now fallen to about 350,000 barrels a day. Outlook Crude oil prices may continue its last month recovery in the month of February but profit booking at higher levels cannot be denied. Production cuts by OPEC nations and declining rig counts along with sanctions on Venezuela are supporting the prices while concerns over global growth are capping the gains. Potential U.S. sanctions on Venezuela s crude oil exports would cut off nation from Gulf Coast refiners that are among its biggest customers, likely forcing it to send more crude to China, India or other Asian countries. Oil markets have been underpinned this year by production cuts led by the Organization of the Petroleum Exporting Countries (OPEC), aimed at reining in an emerging supply overhang. Whether OPEC's efforts will be successful will also depend on Russia largest crude supplier to China Russia came in as China's largest crude oil supplier in December, cementing the top spot for all of 2018 for a third year in a row ahead of rival Saudi Arabia. Imports from Russia reached 7.04 million tonnes, or million barrels per day, in December, up 40% from 5.03 million tonnes a year earlier. Highlights of latest EIA report U.S. crude oil and petroleum product net imports are estimated to have fallen from an average of 3.8 million b/d in 2017 to an average of 2.4 million b/d in EIA estimates that the United States briefly was a net exporter of crude oil and petroleum products in November EIA forecasts that net imports will continue to fall to an average of 1.1 million b/d in 2019, and to less than 0.1 million b/d in In the fourth 2

4 quarter of 2020, EIA forecasts the United States will be a net exporter of crude oil and petroleum products, by about 0.9 million b/d. EIA estimates that U.S. crude oil production averaged 10.9 million b/d in 2018, up 1.6 million b/d from 2017, reaching its highest level and seeing its largest volume growth on record. EIA forecasts U.S. crude oil production to average 12.1 million b/d in 2019 and 12.9 million b/d in 2020, with most of the growth coming from the Permian region of Texas and New Mexico. EIA forecasts global liquid fuels production to average million b/d in 2019 and consumption to average million b/d, which contributes to modest inventory builds. EIA estimates that non-opec petroleum and other liquid fuels supply increased by 2.5 million b/d in Production growth of 2.2 million b/d in the United States accounted for most of the 2018 supply growth, with Canada, Russia, Kazakhstan, and Brazil collectively adding an additional 0.6 million b/d. EIA expects non- OPEC petroleum and other liquid fuels production to rise by 2.4 million b/d in 2019 and by 1.9 million b/d in Forecast growth in the United States contributes 1.7 million b/d and 1.2 million b/d, respectively, in each year, with Brazil providing another 0.3 million b/d in 2019 and 0.2 million b/d in Brent WTI Spread Production growth in 2019 is led by non-opec countries, particularly the United States and Brazil. EIA expects non-opec producers will increase oil supply by 2.4 million b/d in 2019, which will offset forecast supply declines of 1.0 million b/d from OPEC members. In 2020, the main drivers of oil production growth are expected to be the United States, Canada, Brazil, and Russia, while OPEC crude oil production is expected to remain flat. Global consumption of petroleum and other liquid fuels grew by 1.4 million b/d in 2018, reaching an average of million b/d for the year. EIA expects consumption growth to average slightly above 1.5 million b/d in 2019 and in The relatively stable consumption growth reflects small forecast declines in the rate of global gross domestic product (GDP) growth from 2018, which EIA expects will be generally offset by lower oil prices in 2019 and 2020 compared with 2018, along with increases in petrochemical related demand and related volume gain. Source: Reuters Analysis: Brent WTI crude oil spread narrowed from 9 to below 7.5. Overall it can hover in range of $ in the month of February. 3

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7 Natural Gas Overview Natural gas traded on volatile path on uneven weather conditions in US. Overall it traded in range of $ in NYMEX and in MCX in the month of January. Weighing on gas price was smaller than average decline in gas stocks which has eased tightness concerns. Natural gas can continue its bearish momentum as it can dip lower towards 170 while facing resistance near 210 in the month of February. Natural gas prices traded down in spite of the polar vortex which was not enough to hold prices up as traders instead focused on the warmer weather that is expected to cover most of the US beginning this weekend. The 6-10 and 8-14 day forecast are for colder than expected weather throughout the west and mid-west and warmer than normal weather across most of the east coast EIA estimates of Natural gas Total U.S. natural gas consumption averaged an estimated 81.6 billion cubic feet per day (Bcf/d) in 2018, and EIA expects it to increase by 1.1 Bcf/d (1.3%) in 2019 and then increase by a further 0.9 Bcf/d (1.1%) in In 2019, EIA expects residential and commercial natural gas consumption to average 13.4 Bcf/d and 9.3 Bcf/d, respectively, which are similar to consumption levels in Based on forecasts by the National Oceanic and Atmospheric Administration (NOAA), EIA forecasts 2019 heating degree days (HDD) to be 1% lower compared with EIA estimates that dry natural gas production will average 90.2 Bcf/d in 2019, an 8.3% increase from 2018 levels. In 2020, production is expected to increase by 2.2%, averaging 92.2 Bcf/d for the year. Short-Term Weather Outlook The weather forecast in US indicates, 6-10 days forecast cooler to normal weather in region.the temperature levels in western counties are expected to be nominally normal to warmer and higher than the average temperature levels by around 30%- 50%. The 8-14 days weather outlook shows mostly the cooler temperature levels across the entire region whereas the eastern counties are expected to have lower to normal temperature levels being at levels of 30%-60% below normal temperature levels. Whereas the remaining areas are expected to have the temperatures slightly above than normal by 30%-50%. 6

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10 Vandana Bharti (AVP - Commodity Research) Boardline : Extn: 625 vandanabharti@smcindiaonline.com Sandeep Joon Sr. Research Analyst (Metal & Energy) Boardline : Extn: 683 sandeepjoon@smcindiaonline.com smc.care@smcindiaonline.com Corporate Office: 11/6B, Shanti Chamber, Pusa Road, New Delhi Tel: Mumbai Office: Lotus Corporate Park, A Wing 401 / 402, 4th Floor, Graham Firth Steel Compound, Off Western Express Highway, Jay Coach Signal, Goreagon (East) Mumbai Tel: , Fax: Kolkata Office: 18, Rabindra Sarani, Poddar Court, Gate No-4,5th Floor, Kolkata Tel.: / Fax: / SMC Global Securities Ltd. (hereinafter referred to as SMC ) is regulated by the Securities and Exchange Board of India ( SEBI ) and is licensed to carry on the business of broking, depository services and related activities. SMC is a registered member of National Stock Exchange of India Limited, Bombay Stock Exchange Limited, MSEI (Metropolitan Stock Exchange of India Ltd.) and M/s SMC Comtrade Ltd is a registered member of National Commodity and Derivative Exchange Limited and Multi Commodity Exchanges of India and other commodity exchanges in India. SMC is also registered as a Depository Participant with CDSL and NSDL. SMC s other associates are registered as Merchant Bankers, Portfolio Managers, NBFC with SEBI and Reserve Bank of India. It also has registration with AMFI as a Mutual Fund Distributor. SMC is a SEBI registered Research Analyst having registration number INH SMC or its associates has not been debarred/ suspended by SEBI or any other regulatory authority for accessing /dealing in securities/commodities market. The views expressed by the Research Analyst in this Report are based solely on information available publicly available/internal data/ other reliable sources believed to be true. SMC does not represent/ provide any warranty expressly or impliedly to the accuracy, contents or views expressed herein and investors are advised to independently evaluate the market conditions/risks involved before making any investment decision. The research analysts who have prepared this Report hereby certify that the views /opinions expressed in this Report are their personal independent views/opinions in respect of the subject commodity. DISCLAMIER: This Research Report is for the personal information of the authorized recipient and doesn't construe to be any investment, legal or taxation advice to the investor. It is only for private circulation and use. The Research Report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. No action is solicited on the basis of the contents of this Research Report. The Research Report should not be reproduced or redistributed to any other person(s)in any form without prior written permission of the SMC. The contents of this material are general and are neither comprehensive nor inclusive. Neither SMC nor any of its affiliates, associates, representatives, directors or employees shall be responsible for any loss or damage that may arise to any person due to any action taken on the basis of this Research Report. It does not constitute personal recommendations or take into account the particular investment objectives, financial situations or needs of an individual client or a corporate/s or any entity/s. All investments involve risk and past performance doesn't guarantee future results. The value of, and income from investments may vary because of the changes in the macro and micro factors given at a certain period of time. The person should use his/her own judgment while taking investment decisions. Please note that SMC its affiliates, Research Analyst, officers, directors, and employees, including persons involved in the preparation or issuance if this Research Report: (a) from time to time, may have long or short positions in, and buy or sell the commodity thereof, mentioned here in or (b) be engaged in any other transaction involving such commodities and earn brokerage or other compensation or act as a market maker in the commodities discussed herein(c) may have any other potential conflict of interest with respect to any recommendation and related information and opinions. All disputes shall be subject to the exclusive jurisdiction of Delhi High court. All disputes shall be subject to the exclusive jurisdiction of Delhi High court. 9