1. IMC-ERTF Panel Discussion on ‘Crude Oil Market Outlook and Implications for India’ January 27, 2016 Global market may begin to Rebalance in Q4 2016 G. C handrashekhar, Director, ERTF and Economic Advisor, IMC

2. Global crude market, so far... Large price drop since late 2014 Yet, 2016 supply growth up 2.6 mbpd High stock builds continued at 1.8 mbpd Current over-supply burden will need time to work off

3. Effect of low prices Current prices encroach on operating cost levels of non-OPEC producers; force high-cost producers to operate on negative variable cost basis; In short-term, it triggers higher decline rates for conventional producers as also decline in US shale production.

4. Break-even price for oil ($/barrel) <35 = Saudi Arabia, Iraq, Iran, Kuwait ~40 = Norway, Qatar ~50 = Russia, Venezuela >60 = UK, Egypt, USA, Canada, Nigeria

5. Supply outlook in 2016, 2017 Events that contributed to supply growth not repeatable in 2016 Near-imminent supply reduction from non-OPEC sources due low prices; output may decline ~1mbpd in 2016 and further ~0.8 mbpd 2017

6. Supply outlook in 2016, 2017 OPEC: expect growth of ~0.8 mbpd in 2016 and ~0.3 mbpd in 2017 So, global production growth to slow to only 100k bpd YoY in 2016, 2017 Supply growth to begin to contract in 2016; stock builds to stabilise in H2

7. Supply outlook in 2016, 2017 Expect market to begin to start process of rebalancing by end-Q3 - early Q4, 2016. Meanwhile, inventory will build further; so, rebalancing will be slow, delayed, painful.

8. Demand and price expectation Despite economic growth concerns, global crude demand growth expected to stay normal at 1.4 mbpd for 2016, 2017 In sum, expect prices to recover from sub-30 levels to test $ 40/bl by Q4 At some inflection point, funds will move in on long side to test upside price potential

9. Longer-term outlook – prolonged period of low prices Era of relatively low prices could last many year due (A) sluggish global growth (slowing EM growth, aging matured economies); (B) Tech advances in fuel efficiency in transportation sector; (C) Tech improvement in oil extraction reducing costs; more output from fewer rigs.

10. Risk factors Short-term: Downside if China hard landing; demand growth reduction through renewables; market share war among key producers. Upside if OPEC cartelized output cut; Geopolitical instabilities; Unexpected depreciation of USD;

11. Implications for India Effect on import, consumption, forex outflow and CAD Effect of currency (INR) weakness on landed cost Strategic reserves

12. Thank You G. Chandrashekhar Director, ERTF & Economic Advisor, IMC Phone: 022-22046633 Mobile: 919821147594 email: g.chandrashekhar@imcnet.org gchandrashekhar@gmail.com