Information document

Amsterdam, March 2018

2018 oil price forecast: who predicts best?

2

Since 2007, Roland Berger has published an annual review of available oil price forecasts

Last year's results

USD 55 forecast1) for 2017

Top-3 most accurate forecasting countries

72

52

42

Ø 55

Saudi Arabia

Nigeria

Iraq

23

19

18Iraq

Ø 20

Saudi Arabia

Nigeria

Period 1999-2017

Average absolute year-on-year oil price forecasting1) error [%]

> Since 2007, Roland Berger has published a yearly review of the oil price forecast

> Major oil exporting countries use a forecasted value of the oil price in their annual budgets

> We have studied the forecasting track records of the ten largest oil exporting countries from 1999 to 2017

> The budgeted oil prices of the top-3 most accurate countries are used to forecast the oil price for the year ahead

> National oil price forecasts are compared to forecasts from the major energy institutions: NYMEX, EIA and OECD

Roland Berger study of oil price forecasts – February 2018, WTI based

Source: Roland Berger

1) To improve comparability, forecasts are adjusted for the ratio of local oil prices to WTI prices (5-year moving average) and for budget deviations (5-year moving average, excluding 2001, 2009 and 2015)

3

In addition to analyzing forecasting accuracy, Roland Berger's annual review examines current market dynamics

2 Analysis of the accuracy of countries and institutions as forecasters of the oil price in 2017 and aggregate over the last years

Accuracy of oil price forecasts

Elements of this year's study

1 Oil price development & market dynamics of 2017 Analysis of 2017

3 Future oil prices

Forecast of the 2018 oil price based on national and institutional forecasts

Analysis of market dynamics for future oil supply and demand

4

1. Analysis of 2017

5

USD 55

Top-3

forecasts

In 2017, the average barrel price was USD 51/bbl, slightly lower than the USD 55/bbl forecasted by the top-3 forecasters

Source: EIA; Roland Berger

0

10

20

30

40

50

60

70

80

90

100

110

120

130

140

150

2016 2017 2012 2010 2018 2015 2008 2007 2006 2014 2013 2009 2011

51

Development of monthly WTI averages [USD/bbl], Jan 2006 – Dec 2017

2017 average

1 Analysis of 2017

6

Both supply and demand grew in 2017 – For the first time since 2013, 2017 saw a consistent period of undersupply

Oversupply Undersupply

Source: EIA; Roland Berger

85

90

95

100

2017 2014 2015 2012 2016 2013

Global supply and demand of oil and net differential [m bbl/day]

Total global supply Total global consumption

-0.5

0.0

-0.6

0.9

-0.4 -0.4

Net change

-0.3

0.1 0.6

0.0

-1.2 -0.5 -0.4

-1.3 -0.8

1.3

2015

0.8 1.5

2013 2012

1.7

2017

1.5 1.3

-0.7

0.4

2014

-0.8

2016

1 Analysis of 2017

7

This undersupply was driven by OPEC's extended production quota, which they are reportedly adhering to

33.5

24.9

28.9

24.9

2009

32.4

2016 2017

32.5

38.8

33.3

30.0

2015

35.5

32.7 31.1 30.9

37.6

2013 2011

36.0

30.0 30.0

2012 2014

31.9 31.8

37.0

30.0 30.0

36.0

30.0

2010

34.6

29.2

OPEC production quota and actual production [m bbl/day]

Source: OPEC; BP Statistical Review of World Energy 2017; Roland Berger

Quota Production – OPEC reports Production – BP statistical review

Deviation from quota

n/a

OPEC data -0.4%

BP data

16.4% 17.7% 10.9%

n/a

1 Analysis of 2017

3.7% 8.9% 6.1% 3.0% 6.2%

20.1% 25.3% 29.4% 34.8% 39.2% 18.3% 23.3% 20.1%

8

Overall, OPEC complied with the quota – Libya and Nigeria were excluded from the quota and increased production significantly

Source: Zero Hedge; OPEC; Roland Berger

OPEC oil production and difference with quota

OPEC oil production 2017 ['000 bbl/day]

618

390

211

153

522

607

817

200

135

531

Venezuela 1,916 1,972

UAE 2,915

1,660 Nigeria2) 1,556

Kuwait 2,708

Libya2)

10,058

2,707

Iraq 4,445

9,953

Equatorial Guinea1)

1,639

Gabon1)

Ecudaor

4,351

1,039 1,043

3,797 Iran 3,811

1,673

Algeria

Angola

Saudi Arabia 2,874

Qatar

1) Quota not published; estimated based on overall 4.6% production cut; 2) Excluded from quota due to internal conflicts. 2016 production shown as quota

[%]

0.4% 4

-2.0% -34

9

-18

-11

14

94

427

104

1

Difference with quota ['000 bbl/day]

-11

41

-56

-105

Quota Production 2017 Production 2016

1 Analysis of 2017

1.7%

-11.6%

-5.1%

0.4%

2.2%

109.5%

6.7%

0.0%

-1.8%

1.4%

-2.8%

-1.0%

9

0

50

100

150

0

50

100

150

The OPEC production decline was compensated by an increase in swing capacity from US shale oil, which dampened prices

Source: EIA; Rystad Energy; BP Statistical Review of World Energy 2017; Roland Berger

US shale oil production ['000 bbl/day]

WTI price and shale oil profitability [USD/bbl]

Profitability and growth of US shale oil

1 Analysis of 2017

10,073

2,948

7,125

2012

8,894

2,078

6,816

2011

7,862

1,242

6,620

2010

7,549

797

6,753

2009

7,263

603

7,817

2008

6,784

524

6,260

Shale

Other

2017 2016

12,354

4,241

8,113

2015

12,757

4,582

8,175

2014

11,779

3,962

2013

6,660

n/a

Profitability of shale oil US shale oil production Indicative break-even price of shale oil

10

The growth of US (shale) oil production by ~5.6 m bbl/day is the main reason behind the growth in global oil production

-812

-710

-536

-472

Russia

Saudi Arabia

2,037

5,570

9,256

1,253

Iraq

1,687

Canada

World total

US

1,276

United Kingdom

Libya

Norway

-1,394

Venezuela

Mexico

Biggest changes in oil production between 2008 and 2016

Change in production ['000 bbl/day]

Market share

2008 2016

Rank

2008 2016

1,1%

3

12

1

2

7

11

18

8

6

17

1

5

1

3

6

14

19

11

12

30

Source: BP Statistical Review of World Energy 2017; Roland Berger

1 Analysis of 2017

8.2%

2.9%

12.9%

12.0%

3.9%

3.0%

1.9%

3.8%

3.9%

2.2%

13.4%

4.8%

13.4%

12.2%

4.8%

2.2%

2.7%

2.6%

0.5%

11

2. Accuracy of oil price forecasts

12

Saudi Arabia, the historical top forecaster, was much too bullish in 2017 – Institutions remain the better forecasters

Source: Ministry of Finance of selected countries; EIA; NYMEX; OECD; Press reports; Roland Berger

2017 forecasting error

Top 10 oil exporting countries

and institutions

19%

1%

3%

41%

28%

5%

1%

48%

18%

1%

16%

14%

32% Algeria

Iran

Iraq

Kuwait

Mexico

Nigeria

Norway

Russia

Saudi Arabia

Venezuela

NYMEX

EIA

OECD

2 Accuracy of oil price forecasts

Historically top-3 best forecasters

had a forecast error of 20% in 2017

Average forecasting error: 8%

Absolute year-ahead oil price forecasting error, 2017 [%]

Actual

2017 forecast1)

67.4

43.0

41.7

43.7

48.3

75.2

51.3

36.8

71.6

51.6

50.9

41.4

49.3

50.2

1) To improve comparability, forecasts are adjusted for the ratio of local oil prices to WTI prices (5-year moving average) and for budget deviations (5-year moving average, excluding 2015)

13

1) Updated top 3 based on up to year n-1. To improve comparability, forecasts are adjusted for the ratio of local oil prices to WTI prices (5-year moving average) and for budget deviations (5-year moving average, excluding 2001, 2009 and 2015)

In 2009, institutions started forecasting better than oil exporting countries – Since 2012, they are unbeaten

Source: Ministry of Finance of selected countries; EIA; NYMEX; OECD; Press reports; Roland Berger

17

107

19

35

2124

69

151616

4

2019

12

2008 2007 2006 2005 2004 2003 2002

Yearly oil price forecasting error, institutions and top-3 countries1), 2002-2017 [%]

85

53

58

611

2

8

20

14

65

28

1919

10

20

48

2015

12

2016

27

2017 2009 2010 2011 2012 2013 2014

Institutions Top-3 most accurate countries

"Institutions predict best" "Countries predict best"

2 Accuracy of oil price forecasts

14

The emergence of institutions as better forecasters coincides with the rise of the US as a major (shale) oil producer and exporter

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

15,000

10,000

5,000

0

Source: OPEC; EIA; Roland Berger

CRUDE OIL PRODUCTION

EXPORTS (all petroleum products)

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

10,000

5,000

0

15,000

"Institutions predict best" "Countries predict best"

Crude oil production per country and US exports, 2007-2017 ['000 bbl/day]

USA Saudi Arabia Other producers Russia

2 Accuracy of oil price forecasts

15

Saudi Arabia's bullish forecast was driven by some misplaced estimates but mainly by management of the public budget

1) Excluding crisis years 2001, 2008 and 2015; 2) Based on Iran's exports of crude oil and petroleum products in 2016

Source: OPEC; CIA; Press reports; Roland Berger

2 Accuracy of oil price forecasts

> Between 1999 and 20161), Saudi Arabia's oil price forecast averaged 37% below the actual

> The National Transformation Plan (NTP 2020) launched in 2016 has put extra pressure on Saudi Arabia's public budget

> A less conservative estimate helps keep the public deficit as small as possible (8.9% of GDP in 2017), since the petroleum sector accounts for 87% of the public budget

1 Management of the public budget

> Saudi Arabia had not expected shale oil prices to drop below USD ~75/bbl, so it underestimated US supplies at current oil prices

2 Interpretation of US shale oil break-even price

> Saudi Arabia expected the oil ban on Iran to be reinstated, removing ~3 m bbl/day2), or 3.8% of the total exported volume, from the market

3 Outlook on Iran's exports

Main drivers behind Saudi Arabia's bullish forecast

16

3. Future oil prices

17

The oil price is now at about USD 58 – For 2018, both institutions and the top-3 most accurate countries predict a price of around USD 54

Source: Ministry of Finance of selected countries; National banks; Press reports; Roland Berger

58

WTI oil price as of Dec 2017

54

59

55

47

Saudi Arabia

Average

Nigeria

Iraq

54

56

51

55

OECD

EIA

NYMEX

Average

Corrected prediction of top-3 countries

Prediction of institutions

Both countries and institutions expect the oil price to decrease

2018 WTI price forecasts1) [USD/bbl]

Future oil prices 3

1) Updated top 3 based on up to year n-1. To improve comparability, forecasts are adjusted for the ratio of local oil prices to WTI prices (5-year moving average) and for budget deviations (5-year moving average, excluding 2015)

18

20

30

40

50

60

70

80

90

100

10 15 20 25 30 35 40 45 50 55 60 65 70 75 80

Glo

bal

oil

con

sum

pti

on

[m

bb

l/day

]

Global GDP [constant 2010 USD]

2016 2007

2000

1995

1990

1983

1979

1975

1970

1965

Historically, global oil consumption has followed global GDP growth

Global oil consumption [m bbl/day] vs. global GDP, 1965-20161)

Source: The World Bank Development Indicators; BP Statistical Review of World Energy 2017; Roland Berger

1) 2016 forecast based on OECD GDP growth, applied to World Bank data

2008 peak oil prices

1979 oil crisis 1973 oil crisis

Future oil prices 3

19

2.5

2.0

1.5

1.0

2016 2014 2012 2010 2008 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 1980 1978 1976 1974 1972 1970 1968 1966 1964

Oil

[m b

bl/d

ay]

per

tri

llio

n U

SD

GD

P

However, since a peak in 1973, the correlation between oil consumption and GDP growth has weakened

Global oil consumption [m bbl/day] per trillion USD GDP, 1965-20161)

1973 peak: 2.5 m bbl/day per USD tn GDP

1979 oil crisis

1973: USD ~22 tn GDP with 56 m bbl/day oil consumption

2016: USD ~78 tn GDP with 91 m bbl/day oil consumption

2016: 1.2 m bbl/day per USD tn GDP

Source: World Bank Development Indicators; BP Statistical Review of World Energy 2017; Roland Berger

1) 2016 forecast based on OECD GDP growth, applied to World Bank data

Future oil prices 3

20

Expected

peak oil 0

10

20

30

40

50

60

70

80

90

100

110

120

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040

Future oil prices 3

Depending on the scenario, BP predicts global oil demand to peak between 2025 and 2035

Global oil demand [m bbl/day] per year

Source: BP Energy Outlook 2018; Roland Berger

Actuals Evolving transition Faster transition Even faster transition ICE1) transition

1) Internal combustion engine

21

With its proven reserves, the US can ride it out until peak oil, maintaining pressure on the oil price as a swing supplier

13

102

26

98

172

153

158

110

266

48

Brazil

Kuwait

China

UAE

Canada

Iraq

Iran

Russia

Saudi Arabia

US

Proven reserves ['000 million bbl] Production 2016 ['000 bbl/day] Time left [years]

Source: BP Statistical Review of World Energy 2017; Roland Berger

Country

2,605

3,151

3,999

4,073

4,460

4,465

4,600

11,227

12,349

12,354

Proven reserves and production rate of 10 biggest oil producing countries

1) Based on years 2006-2016

Future oil prices 3

59.1

26.7

94.3

93.9

105.4

65.8

17.6

88.2

13.3

10.6

22

CEOs of major oil companies generally agree that the oil price will see a slight increase in the coming years

Source: Press; Roland Berger

Selection of quotes on the oil price

Lower forever; yeah, that's the mindset.

Yeah, to be perfectly honest, I do think we

will have quite a bit of movement in the oil

price going forward, and there is a better

than 50-50 chance that we will see oil

prices trend up

08-01-2017, Ben van Beurden

CEO, Shell

I don't expect there to be a real spike in the

markets, barring some geopolitical

event…I've always said we're in the USD

50-60 range until the end of the decade

11-13-2017, Bob Dudley

CEO, BP

I think we will most likely be below USD

70 a barrel

02-07-2018, Eldar Sætre

CEO, Statoil

It's very hard to predict what will be the oil

price…We see the prices for the medium

term between USD 65 and USD 55 per

barrel

11-15-2017, Pedro Parente

CEO, Petrobras

A continuation of these market trends,

combined with further steady draws in

global oil inventories, is now creating the

required foundation for further upward

movement in oil prices and subsequent

growth in global E&P investment

10-20-2017, Paal Kibsgaard

CEO, Schlumberger

While the outlook for commodity prices

has improved, our operating plan remains

unchanged and we have already taken

clear actions to demonstrate our

commitment to maintain discipline and

follow our priorities

11-08-2017, Ryan Lance

CEO, ConocoPhillips

Future oil prices 3