world oil market overview - · pdf fileworld oil market overview october 2014 seth kleinman...

World Oil Market Overview

October 2014

Seth Kleinman

Head of Energy Strategy

[email protected]

+44 (0) 20-7986-4556

See Appendix A-1 for Analyst Certification, Important Disclosures and non-US research analyst disclosures Published on 6 October 2014

Citi Research is a division of Citigroup Global Markets Inc. (the "Firm"), which does and seeks to do business with companies covered in its research reports. As a result, investors should be

aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Certain products (not inconsistent with the author’s published research) are available only on Citi's portals.

mailto:[email protected]

Seven disruptive factors are reshaping global energy trade

Levelized Cost of Energy (20010-13, $/MWh)

● It’s rare for more than one disruptive change to occur, but the unfolding of seven disruptive changes at once is unique to energy

market today.

● Much attention is rightfully being placed on the shale revolution in the US, which is impacting both sweet and sour crude flows

starting in North America, but soon after that, the world.

● Not far behind is the deep water revolution, also focused substantially on N. America, but also the Atlantic and Pacific Basins.

● Refinery capacity build-out in the Middle East and East Asia are turning global flows on their head.

● Russia’s move from a lumpy European supplier of oil and gas to a global supplier is having significant repercussions on the balance

between pipeline and seaborne transportation.

● China’s preference for pipeline sourcing is impacting not just Central Asian supply lines, but is reinforcing Russia’s move toward tied

pipeline transportation.

● New sources of LNG in the US, Canada and Australia are about to have dramatic impacts on the pricing and flows of natural gas globally.

● The dramatic drop in solar pricing, combined with ongoing drive to boost renewable generation, is already impacting coal and

natural gas markets, but is posing questions of economic viability for various high-cost LNG projects.

Source: EIG, EIA, Citi Research

2

US Net Oil Imports (m b/d, 2001-14)

0

50

100

150

200

250

300

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14

Coal with CCS Gas CCGT

Large Hydro Large Solar PV

Nuclear Wind Onshore

4

5

6

7

8

9

10

11

12

13

14

2001 2002 2003 2004 2005 2006 2007 2008 2010 2011 2012 2013

Brent crude oil prices ($/bbl, 2001-2014)

Source: Bloomberg, Citi Research

Crude oil prices have been range-bound for several years

Prices have been range-bound with new supply balancing lost supply… but it has been the wrong quality of

crude in the wrong place, unable to get to market; bearish fundamentals up against bullish geopolitics.

3

0

20

40

60

80

100

120

140

160

2000 2002 2004 2006 2008 2010 2012 2014

Brent Flat Price 1-yr Avg Price Min Max

Now Oil is Buckling Under Fundamentals; Financials and Geopolitics Don’t Help

4

The US supply glut has been taken from Cushing down to the Gulf Coast, and is now making itself felt globally.

Speculators have liquidated en-masse and geopolitical tensions have eased somewhat.

Source: EIA, Bloomberg, Citi Research

● The infrastructure build out that has drained Cushing and shifted WTI into solid backwardation has let global oil markets finally

start to feel the full impact of the US shale revolution, which has continued to defy the many skeptics and maintain growth of

over 1-m b/d.

● Brent’s sharp rally in June was driven by ISIS’ rapid progress in Iraq, yet this has stalled or more hopefully is on the cusp of

being put into reverse with help from US air strikes, while oil flows from Russia have remained unaffected by the standoff over

Ukraine.

● On top of the bullish crude market that never materialized, this geopolitical premium dissipation has driven a significant

liquidation by speculators, with net-length in ICE Brent down 75% from its peak. Although daily correlation between oil and the

USD has weakened, the rally in the USD has not been bullish for oil or other commodities.

Cross-asset oil correlations may have broken down but

recent $ strength isn’t helping matters

Mass liquidation has occurred on ICE Brent (k lots) as

weak fundamentals have gripped oil markets

0

50

100

150

200

250

300

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Tho

usan

ds

2011 2012 2013 2014

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

19-May 09-Jun 30-Jun 21-Jul 11-Aug 01-Sep 22-Sep

SPX Euro Dollar Index Gold MSCI ex US

The Global Crude Market Is Increasingly Feeling The Impact Of US Shale

5

The infrastructure that has alleviated the Cushing glut is taking the bearish impact of shale to the global crude

market; hence the crude collapse at the peak of global crude runs

Source: EIA, Bloomberg, Citi Research

● US imports continue to collapse, with June 2014 seeing an hefty 1.6-m b/d y/y drop. US net oil imports are clearly heading to

zero, and including captive Canadian flows leaves them at just 2.7-m b/d as of June with an average drop of 1.2-m b/d YTD.

● Light sweet imports are almost completely backed out of the US Gulf Coast and increasingly from the East Coast of the US and

Canada, which is pushing the Atlantic Basin light-sweet balance into surplus; pushing Brent into contango, crushing the Brent-

Dubai spread thereby encouraging Asia to absorb the WAF overhang, but this is backing Middle East crude out of Asia. This is

pushing the Saudis and other OPEC countries to cut prices (OSPs) to maintain market share.

● Step-by-step, the impact of the light-sweet onshore supply surge in the US has made its way to core OPEC. Citi’s assumption

coming into this year was that OPEC would have to cut to make room for the US supply surge, even as geopolitics has

surprised to the bullish side, that has not disrupted the increasing oversupply in this market.

Arab Light OSPs ($/bbl) have been cut to all regions, with

Saudis potentially looking to retain market share With US crude imports (m b/d) from Africa almost

all gone, Latam imports could be next to fall

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Jan-08 Oct-08 Jul-09 Apr-10 Jan-11 Oct-11 Jul-12 Apr-13 Jan-14

Tho

usan

ds

Middle East Latam Canada Africa

-5

-4

-3

-2

-1

0

1

2

3

4

5

Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Aug-14

Asia Europe US

Chinese Crude Stockpiling Is Fading As A Support

Chinese Commercial Crude Stocks (m bbls, 2010-14)

Chinese crude runs are stuttering despite additions

(m b/d, 2010-14)

6

Chinese Crude Net Imports (m b/d, 2010-14)

● Chinese net crude imports surged in 1H’14, with a huge

21% y/y increase in April to 6.8-m b/d. New refinery side

stocks following capacity additions this year and SPR and

pipeline fill have contributed to this increase yet more and

more barrels are making their way into commercial crude

storage.

● But Chinese crude net imports have started to fade in

2H’14, with July seeing the first yearly drop since Oct-13.

This reduced purchasing from China has lessened a key

support from the market.

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0


2010 2011 2012 2013 2014

Source: Chinese Customs, Xinhua News Agency, Reuters, Citi Research

190

200

210

220

230

240

250

260

270


2010 2011 2012 2013 2014

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0


Tho

usan

ds 2010 2011 2012 2013 2014

Geopolitics Remains Hot, but their Effect on Oil Markets is Diminishing

7

The bearishness of the US shale revolution is starting to dampen prices, but the geopolitical landscape remains

troubled and tail-risks remain, most notably in Libya, Iran and Iraq.

Source: IEA, EIA, Citi Research

● Despite barrels returning in Libya, the situation on the ground remains unstable and it is yet to be seen whether the

recent ramp-up of exports to ~550-k b/d can be sustained. The surge in volumes in August & September resulted from the re-

opening of the ports of Es Sider and Ras Lanuf but this may was in part a release of stored crude. The sectarian violence and

splintering of the countries leadership is as worse as it has been, skewing the risk to the downside. But production is now

reported to be 800-900-k b/d, and the unexpected 500-k b/d of light sweet crude has oversupplied the market.

● The November 24th deadline is fast approaching for the nuclear negotiations between Iran and the P5+1 but several key

topics including number of centrifuges, duration of deal and intensity of inspections remain a distance apart for the two sides.

The next round of talks are underway. With either outcome, the swing change in Iranian production may not be that big. If a

deal of some form materializes, only small volumes of incremental barrels would be likely given that Western powers would

likely require Iran to prove that it is adhering to the agreement. If no deal is reached, barrels can still find ways to market with

Iran-Russia relations growing stronger and Iran reportedly in talks with South Africa over the resumption of oil exports.

Libyan oil supply remains a huge wildcard (m b/d) OPEC Disruptions Growth vs. Non-OPEC

Supply Growth (m b/d, 2011-14)

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14

Non-OPEC Supply Growth

OPEC Supply Disruptions Growth

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1Q2012 3Q2012 1Q2013 3Q2013 1Q2014 3Q2014 1Q2015 3Q2015

Libya Bull Libya Base Libya Bear

The Atlantic Basin Crude Deficit Is Fading

Source: IEA, ESAI, Citi Research *(Atlantic Basin is Europe, North America, Latin America, Africa and FSU excluding crude flows to Asia)

European run cut decreases have been dwarfed by the

growth in North America crude production (m b/d)

The Atlantic Basin crude balance is shifting towards a

surplus (m b/d)

8

● The crude balance in the Atlantic Basin is shifting towards a surplus as the region’s refining capabilities struggle to

cope with the vast quantities of crude coming out of North America. North American crude throughput has risen to

absorb some of the supply, but at the cost of European refiners who have also been under threat from the vast build-

out of refining capacity in Asia and the Middle East. Refinery runs in the region are largely unchanged as a result

over the last three years meaning that shale output from North America and Canada has helped to reduce the

regional deficit.

● This trend is expected to remain, leaving the Atlantic Basin oversupplied with crude. Crude production growth from

the US alone is expected at ~1-m b/d next year whilst Latin American output is expected to increase, led by Brazilian

pre-salt fields. Adding to this, the flat growth trajectories expected in the FSU and Europe and Atlantic Basin crude

output is expected to grow robustly. The troubled state of European refining will likely lead to further closures and

throughput reductions which can offset increases in North American and FSU crude runs. Latin American refinery

additions later in the decade can help absorb the rising output however. This leaves Asia to help clear up the

oversupply, something it has been unable to do recently.

39

40

41

42

43

44

45

46

47


Crude Runs Crude Production

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

FSU Europe NorthAmerica

Latin America Africa

Crude Runs Production

4

5

6

7

8

9

10

11

Feb-10 Sep-10 Apr-11 Nov-11 Jun-12 Jan-13 Aug-13 Mar-14

Production Exports

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0


2010 2011 2012 2013 2014

Market Looks To Saudi Arabia To Cut

Source: JODI, Citi Research

Strong domestic power demand is increasing the amount

of crude needed for peak Saudi summer demand (m b/d)

Yanbu, Jubail and increasing domestic crude burn are

reducing the amount of Saudi crude available for export

(m b/d)

9

● Brent below $100 and a contango in the first six months of the curve indicate the oversupplied nature of the market,

even as Iranian bbls remain offline due to sanctions and Libyan production remains half its pre-2011 level.

● Citi estimates that the global crude market is in surplus by roughly 0.4-m b/d, with products oversupplied by a slightly

smaller amount.

● Saudi crude burn is about to start falling seasonally, and seasonally falls some 0.4-m b/d from August to November.

The new 0.4 m-b/d Yanbu refinery is reportedly starting test runs, leaving total Saudi crude available for export at a

wash, meaning that they will have to cut in order to balance this market. Citi assumes that the Saudis will pullback to

close to 9-m b/d of production to balance the market, with minimal help from the rest of OPEC. But next year, with

the US growing by ~1-m b/d yet again, and the possibility of materially more oil from both Libya and Iran, more cuts

will be required to balance the market and these deeper cuts are likely to be more contentious as Saudi Arabia is

more likely to want to see action by other OPEC members.

A Saudi Pullback Doesn’t Address the Glutted Light Sweet Overhang

Source: IEA, Bloomberg, EIA, Citi Research

In the early 2000’s the Saudis increased crude output to

meet the rapid growth in crude demand (m b/d)

And combined with the potential of more Libyan light

sweet (m b/d), the Dubai-Dated spread can remain tight

10

US oil/liquids production can grow robustly to 2020…and

much of this is very light and sweet crude oil

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

mb/d

API 50+

API 40-50

API 35-40 sweet

API 35-40 sour

API 27-35 med-sour

API 27-35 sour

API <27 sweet

API <27 sour

California

But this didn’t address the light sweet shortage and

the Dubai-Dated Brent spread widened out, and as a

% of flat price reached ~-25% at its widest.

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

2000 2002 2004 2006 2008 2010 2012 2014

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

2000 2001 2002 2004 2005 2006 2008 2009 2010 2012 2013

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1Q2012 3Q2012 1Q2013 3Q2013 1Q2014 3Q2014 1Q2015 3Q2015

Libya Bull Libya Base Libya Bear

Looser S & D is Leading to Growing Oil Stocks in the OECD and China

Both crude and petroleum product stocks in the OECD and China have increased notably YTD, which has led to

weakness across the entire petroleum complex.

Source: EIA, Euroil, Chinese Customs, PAJ, Citi Research

OECD and China Crude Stocks M/M Change (m bbls) Rising OECD, China Crude Stocks (m bbls, 2012-14)

11

OECD and China Product Stocks M/M Change (m bbls) Rising OECD, China Product Stocks (m bbls, 2012-14)

1020

1040

1060

1080

1100

1120

1140

1160

1180

1200

1220

Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13

2012 2013 2014

-60

-50

-40

-30

-20

-10

0

10

20

30

40

Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14

EU China US Japan Total

1400

1420

1440

1460

1480

1500

1520

1540

1560

1580

1600

Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13

2012 2013 2014

-60

-40

-20

0

20

40

60


EU China US Japan Total

The Back of the Curve Has Started to Slip…

12

MENA turmoil and corporate capex pullbacks are both supportive deferred crude from an S&D perspective, but

flows put the back of the curve at risk, and absent backwardation this would take the front with it

Source: Bloomberg, Citi Research

● Turmoil in Iraq and Libya and sanctions on Russia are happening at the same time as capex is getting reined in across the

sector. These all point to less supply than had been expected, which could support back-end balances, but from a flow

perspective the back-end looks vulnerable to a sell-off.

● Deferred prices had resisted the weakness in prompt prices through July and August but in mid-September back-end crude

prices began to slide, with both investor selling and producer hedging activity forcing the curve lower. Back-end weakness

could be persist as 1) consumers lack credit to lock-in barrels two years out, and 2) they are also in many cases actually cutting

hedging as they are getting increasingly comfortable with the bearish outlook.

● The contango at the front of the curve means no positive roll yield, which has been a consistent lure to institutional investors,

and geopolitics is already about as bullish as it can get. This leaves the front very vulnerable to any fall in deferred prices.

Consumers have reduced long positions on ICE Brent as

they get increasingly comfortable with the bearish outlook

Long- and short-term Brent prices have converged with

the curve out to three years in contango

85

90

95

100

105

110

115

Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14

Active Contract Dec-17

200

300

400

500

600

700

800


Tho

usan

ds

2011 2012 2013 2014

Europe and Russia locked in a new paradigm of Mutually Assured Destitution

Russia Pipeline Gas Network to Europe ● A stoppage of Russian oil and gas flows to/via

Ukraine or to Europe as a whole could be hugely

impactful for oil and gas prices, especially if it is

long-lasting. A cut off instigated by Kiev would likely

lead to a resolution at least for the short-term.

● Russia is the world’s largest gas exporter with

~220-bcm/year of gas exports and the second

largest oil exporter at ~7-m b/d, which makes energy

export sanctions seem very unlikely given Russia’s

prominent role as a provider of global energy. If this

were to occur, global oil and global gas prices would

spike much higher.

● A stoppage of Russian oil flows via Ukraine could

also be impactful to oil and gas prices, albeit to a

lesser extent. Crude flows via Ukraine are ~300-k b/d

via the Druzhba pipeline, which serves mostly Eastern

European refineries. Stoppages here would increase

the bid for Urals and North Sea crude, but only by 300-

k b/d.

● Gas flows are more of an issue given that around

80-bcm of Russia’s gas exports to Europe go via

Ukraine. Capacity is available on the Nordstream pipe,

yet this isn’t sufficient to cover the lost volumes and

without Ukrainian transit, several Eastern European

countries struggle to receive gas. This would spike

European gas prices but would also increase the bid

for oil as a substitute in power generation.

● Both scenarios are clear economic lose-lose situations

making them unlikely yet political motivations also play

an important role in decision making. A disruption of

gas flows in the short run would be muted by current

high storage in Europe due to the recent mild winter

and the upcoming seasonal slowdown in demand.

Source: Eastern European Gas Analysis, Citi Research

13

-100

0

100

200

300

400

500

600

700

Russia SaudiArabia

Qatar Indonesia Australia Norway Canada

Oil Gas Coal

Energy Net Exporters (MTOE)

Prior to January 2011 – before the Libyan civil conflict – global supply disruptions were mostly around 500-k b/d

worldwide; since then, these have risen to 2-m b/d then to well over 3-m b/d

Source: EIA, Citi Research

Disruptions point to volatile supply from OPEC, some non-OPEC

Estimated unplanned crude oil production outages (m b/d, 2011-14)

14

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Jan-1

1

Apr-

11

Jul-1

1

Oct-

11

Jan-1

2

Apr-

12

Jul-1

2

Oct-

12

Jan-1

3

Apr-

13

Jul-1

3

Oct-

13

Jan-1

4

Apr-

14

Jul-1

4

Oct-

14

Iran Libya Nigeria Iraq Sudan / S. Sudan Syria Yemen Other non-OPEC

…as “the grab” for oil revenue fragments petro-states

Post-Spring governance faces challenges of tribal/factional divisions among calls for political power sharing,

widespread availability of arms, Sunni-Shia divisions, and extremist groups entering the fray in power vacuums.

Source: IMF, IIF, Citi Research

Fiscal breakeven prices for selected

oil exporter countries ($/bbl)

2011 2012 2013 2014

Qatar 38 42 46 46

Kuwait 44 49 54 58

Saudi Arabia 77 74 84 88

Oman 78 80 94 104

UAE 92 79 68 67

Libya 183 89 99 100

Iraq 93 95 99 93

Russia 100 115 118 112

Iran 84 130 140 143

Bahrain 111 115 119 117

Algeria 111 120 113 113

Venezuela 140 170 165 156

Yemen 195 237 215 201

15

Libya: after a rapid recovery of oil

production post-Gaddafi, renewed strikes in east and west widen calls

political, industrial and fiscal reforms, with many groups

well-armed

Egypt: relations between

government and various anti-

government groups remain strained, even after violent

clampdown on Muslim

Brotherhood; Suez Canal disruption

remains a concern but low probability

Syria: violence continues as

diplomatic solutions remain elusive

Saudi Arabia: major wildcard, as higher

social spending, fast-growing demand (subsidized fuel),

growing power gen erodes crude surplus; so changes needed amidst leadership

succession paralysis

Iraq looks on the road to huge

production potential, but rising sectarian violence, Al-Qaeda

presence, worsening Sunni-Shia rifts means more instability

Iran: sanctions are keeping crude

exports at the 1-m b/d level, down from 2.3-m b/d pre-2012;

much at stake in P5+1 talks

Industry Returns Have Faltered

Source: Company reports and Citi Research estimates.

16

Global Oil Cash Return on Cash Invested (CROCI) – aggregate group, and split between Upstream and Downstream

Industry returns have fallen even as oil prices have stayed over $100, due mainly to poor project execution (cost

overruns and delays cut IRRs by ≈6% forecasts) but also due poorly timed acquisitions

0

1000

2000

3000

4000

5000

6000

GoM

TX

NM

MS

LA

AK

AL

-

1,000

2,000

3,000

4,000

5,000

6,000

No

v-0

7

Apr-

08

Sep-0

8

Feb

-09

Jul-0

9

De

c-0

9

Ma

y-1

0

Oct-

10

Ma

r-1

1

Aug-1

1

Jan-1

2

Jun-1

2

No

v-1

2

Apr-

13

Sep-1

3

Feb

-14

Jul-1

4

kb

/d

Utica

Permian

Niobrara

Marcellus

Haynesville

Eagle Ford

Bakken

US crude production continues to rise strongly…

Source: Bloomberg, EIA, Citi Research

Shale oil/liquids production began surging in late 2010… …driving US production up 1-m b/d y/y now to >8.5-m b/d

…with the Permian Basin and Eagle Ford continuing to perform.

17

3

4

5

6

7

8

9

Jan

-20

00

Sep

-20

00

May

-20

01

Jan

-20

02

Sep

-20

02

May

-20

03

Jan

-20

04

Sep

-20

04

May

-20

05

Jan

-20

06

Sep

-20

06

May

-20

07

Jan

-20

08

Sep

-20

08

May

-20

09

Jan

-20

10

Sep

-20

10

May

-20

11

Jan

-20

12

Sep

-20

12

May

-20

13

Jan

-20

14

US Gulf Coast production driven by Texas and offshore

Gulf of Mexico, also New Mexico (k b/d, 2005-14E)

US midcontinent production driven by North Dakota, but

also Oklahoma (k b/d, 2005-14E)

0

200

400

600

800

1000

1200

1400

1600

1800

2000TN

SD

OK

OH

ND

NE

MS

MI

KY

KS

IN

The Shale Oil Story Goes From Strength To Strength

North Dakota and Eagleford have been the key plays

to date (production-m b/d) But other plays/states are starting to be material

(production-k b/d)


Doubters Fading Away As The Impact On Global Markets Grows.

18

• US shale producers continue to stubbornly defy the sceptics. US crude production in the June monthly data was up 1.3 m-b/d y/y. Weekly data

estimate US production up 0.6-m b/d since the start of this year.

• From Citi’s Bob Morris’ E&P Second Quarter 2014 Earnings Wrap-Up: Recompletions Emerge And Could Be Quite Meaningful: Several E&P’s

announced initial success in recompleting legacy Haynesville and Marcellus horizontal wells. While the recompletion of vertical wells has been done

for years, these are some of the initial horizontal pilots to our knowledge and could have material implications for the sector. Further, while these initial

tests were done on gas wells, the technique could be used on oil wells as well and we look to initial tests along this front in the future.

• And the operators are going cashflow positive: (FT Aug 27 2014): Cash earned from operations by 25 leading North American exploration and

production companies is expected in aggregate to exceed their capital spending next year for the first time since 2008

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2001 2003 2005 2007 2009 2011 2013

Tho

usan

ds Gulf of Mexico Alaska North Dakota Texas

0

50

100

150

200

250

300

350

400

2001 2003 2005 2007 2009 2011 2013

Colorado Oklahoma New Mexico

Louisiana Wyoming

Shale revolution still at early stages of surging productivity gains


US oil/liquids production can grow robustly to 2020…and

much of this is very light and sweet crude oil

Year-on-year production growth reached 50% at its peak

…with continued productivity gains (y/y % change in

productivity per rig

…and the wide price difference between oil and gas

drove a focus on oil/liquids production

19

-10%

0%

10%

20%

30%

40%

50%

60%

-200

0

200

400

600

800

1000

1200

De

c-0

7

Ma

y-0

8

Oct-

08

Ma

r-0

9

Aug-0

9

Jan-1

0

Jun-1

0

No

v-1

0

Apr-

11

Sep-1

1

Feb

-12

Jul-1

2

De

c-1

2

Ma

y-1

3

Oct-

13

Ma

r-1

4

Aug-1

4

kb

/d

Production growth (y/y) Production growth (%y/y)

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

De

c-0

7

Ma

y-0

8

Oct-

08

Ma

r-0

9

Au

g-0

9

Ja

n-1

0

Jun-1

0

No

v-1

0

Ap

r-1

1

Se

p-1

1

Fe

b-1

2

Ju

l-1

2

De

c-1

2

Ma

y-1

3

Oct-

13

Ma

r-1

4

Au

g-1

4

Oil

Gas

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

De

c-0

7

Ap

r-0

8

Au

g-0

8

De

c-0

8

Ap

r-0

9

Au

g-0

9

De

c-0

9

Ap

r-1

0

Au

g-1

0

De

c-1

0

Apr-

11

Au

g-1

1

De

c-1

1

Ap

r-1

2

Au

g-1

2

De

c-1

2

Ap

r-1

3

Au

g-1

3

De

c-1

3

Ap

r-1

4

Au

g-1

4

Oil Gas 12 per. Mov. Avg. (Oil) 12 per. Mov. Avg. (Gas)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.02

01

1

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

mb/d

API 50+

API 40-50

API 35-40 sweet

API 35-40 sour

API 27-35 med-sour

API 27-35 sour

API <27 sweet

API <27 sour

California

● By early 2015, the US could be exporting 400-500-k b/d to eastern Canada (with current levels almost 400-k b/d)…

● …another >100-k b/d from Alaska (which could move to Asia)…

● …perhaps 100-k b/d to 150-k b/d to Mexico to feed inland and West Coast refineries to improve product yields and …

● …some 200-400-k b/d of re-exports of Canadian crude (especially if imports remain sticky)…

● …and 200-300-k b/d of (lease) condensates, run through distillation/stabilization/splitters and/or if reclassified as petroleum products. Condensates are being sent to splitters in Asia.

Source: EIA, BIS, Citi Research

US crude exports surging even faster than anticipated US crude exports, mostly to Canada (k b/d, 2010-14) US crude oil production by type (m b/d, 2011-15)

20

0

1

2

3

4

5

6

7

8

9

10

2011 2012 2013 2014 2015

API 50+

API 45-50

API 40-45

API 40-50 sweet

API 35-40 sweet

API 35-40 sour

API 27-35 med-sour

API 27-35 sour

California

API <27 sweet

API <27 sour

Forecast

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45


Tho

usan

ds

2010 2011 2012 2013 2014

Even with significant rise in crude exports, PADD III crude balances look sloppy going into 2015, particularly

2H’15, unless crude export policy can keep up with US crude production growth

Source: Genscape, EIA, Citi Research

* “Call on Cushing-to-USGC flows” is the Keystone Gulf Coast and Seaway outflow volume required to just balance expected net inflows into Cushing and keep stock levels flat

21

US Crude Balances Look Heavy Even With Robust Crude Exports

PADD III crude stocks outlook for 2014-15 (m bbls) …even if PADD III refineries run at high rates (m b/d)

…as pipe and rail inflows push out P3 imports… (k b/d) …and exports rise (and flows to other PADDs) (k b/d)

Global Growth Continues to Damp Commodity Demand

● Citi economists continue to forecast tepid global GDP growth in 2015 with only pockets of outperformance

here and there. August revisions cut the 2014 outlook by 10 basis points to 2.8% and trimmed 2015 global growth

estimates to 3.4% from 3.5%.

● Both Japan and Europe are likely to expand QE programs later this year but with negative real rates and sluggish

inflation expectations, growth is expected to keep struggling in these major economies in the coming year.

● The US is expected to outperform the OECD with above-trend growth expected to persist for the next several

quarters. China’s 2014 GDP forecast of 7.3% this year and 6.9% in 2015 is potentially challenged with industrial

production in the Middle Kingdom expected to drop 0.6% to 8.5%, but a partial rebound in commodity demand is still

expected.

22

Citi’s recent history of cutting global growth forecasts for 2014 and 2015 continued through August, including for

OECD Europe and Asia and for Brazil and S. Africa, with commodity-sensitive China looking only slightly better

2014 growth forecasts revised down Citi GDP forecasts 2013-2016

Source: Citi Research

0

1

2

3

4

5

6

7

8

Global IndustrialCountries

UnitedStates

Euro Area UnitedKingdom

Japan EmergingMarkets

China

% Growth

Jan Review Aug Review Sep Review

-1

0

1

2

3

4

5

6

7

8

9

Global IndustrialCountries

UnitedStates

EuroArea

Japan EmergingMarkets

China

% Growth

2013 2014F 2015F 2016F

Refinery Additions Threaten To Swamp Product Demand Growth In 2015/16

23

Chunky net refinery additions are expected in the coming years with ~1.2-m b/d expected in 2014 ahead of ~3-m

b/d in 2015/16. With demand expected to grow at below this, further overcapacity looms.

Source: Company Reports, ESAI, JBC, ENT, OGJ, FGE, Reuters, Citi Research *(Includes CDU and Condensate Splitting Capacity)

● Net refinery additions look sizeable over the next few years as (1) large scale projects come online in the Middle East and

Asia (2) condensate splitters get built in North America and Asia (3) Russia upgrades its refining sector and (4) closures in

Europe remain sticky, with just ENI’s Mantova and ESSAR Stanlow refineries set to close in 2014.

● In Saudi Arabia, the 400-k b/d Yanbu has reportedly started test runs and is expected to start its ramp-up in Q4’14.

Q4’14 will also see the 300-k b/d Paradeep refinery, a combined 200-k b/d of Chinese refinery additions and 100-k b/d capacity

condensate splitters in South Korea and Singapore coming online.

● Refinery additions in the Middle East, FSU and North America have the added benefit of cheap feedstock whilst Indian

and Chinese refinery additions benefit from strong regional oil demand growth. That points to trouble for European and OECD

Asian refiners, with a large portion of new refinery additions having some insulation to weak product markets. Margins are

expected to remain depressed resultantly.

Key Refinery* Additions by Country (m b/d, 2014-18E) Refinery* Additions (m b/d, 2014-18E)

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3Q14 4Q14 2015 2016 2017 2018+

Africa C&S America Asia Middle EastEurope FSU East North America

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2014 2015 2016 2017 2018+

China India Saudi Arabia UAE Russia United States Brazil

US Oil Demand Growth has Moderated Since the Freezing Temperatures in 4Q’14


24

Distillate demand (m b/d) has led 2014 growth as

industrial activity has strengthened.

Gasoline demand (m b/d) has reversed declines of recent

years, yet this is expected to be short-lived.

3.4

3.5

3.6

3.7

3.8

3.9

4.0

4.1

4.2

4.3

4.4


Tho

usan

ds 2010 2011 2012 2013 2014

7.9

8.1

8.3

8.5

8.7

8.9

9.1

9.3

9.5


Tho

usan

ds 2010 2011 2012 2013 2014

1.5

1.7

1.9

2.1

2.3

2.5

2.7

2.9

3.1


Tho

usan

ds 2010 2011 2012 2013 2014

LPG demand (m b/d) has faded since last winter, yet the

petchem build-out later in the decade is expected to lift

demand.

Total oil demand growth in the US (m b/d) is up 55-k b/d

YTD but this is expect to fade into year-end.

17.5

18.0

18.5

19.0

19.5

20.0


Tho

usan

ds 2010 2011 2012 2013 2014

Non-OECD Oil Demand Growth Continues to Disappoint

Source: EIG, Citi Research

25

Non-OECD Y/Y Oil Demand Growth by Region (m b/d) Global Y/Y Oil Demand Growth by Product (m b/d)

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0


China India

Other non OECD Asia Mideast

Latin America Former Soviet Union

Africa Total Non-OECD

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5


Gasoline Diesel Fuel Oil Other

Russia-Ukraine and Eurozone Troubles Bleaken the Outlook for Regional Demand

Source: IEA, Citi Research

26

European y/y oil demand growth (m b/d) has struggled as

the Euro area macro backdrop has remained troubled.

Russia Y/Y oil demand growth (m b/d) has slowed since

the onset of the Ukraine crisis. A worsening economic

outlook will likely hamper demand growth.

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14

Motor Gasoline Jet and Kerosene Gas/Diesel Oil

Residual Fuels Other Products Total Products

-0.20

-0.15

-0.10

-0.05

0.00

0.05

0.10

0.15

0.20

0.25

0.30

Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14

Gasoline Naphtha Gasoil Jet Fuel Oil Total

Japanese nuclear restarts can hurt oil and gas

Japanese LNG Consumption for Power Generation

(mln tonnes, 2010-14)

Source: IEA, OGJ, JBC, ESAI, Reuters, Citi Research

Japanese Fuel Oil and Crude Consumption for Power

Generation (m b/d, 2011-14) Japanese Nuclear Power Generation (MWh, 2010-14)

● Japan’s Nuclear Regulation Authority (NRA) has indicated that

some of the safety reviews may be close to completion on the 17

nuclear reactors that have filed to restart operations. It is unclear

which reactors could be first to come back yet but once NRA approval

is given there still needs to be a one-month comment period and local

approvals granted, which further delays the process. Given this, the

impact of restarts in 2014 is likely to be muted but the election of pro-

nuclear Yoichi Masuzoe as Tokyo Governor could accelerate the

process.

● Around 23-bcm (2-Bcf/d or 16.7-mtpa) of LNG demand has been

borne out of the reduction in nuclear output which could

disappear if the reactors come back, yet fuel and crude will likely

be backed out first. This could mean 200-300-k b/d of fuel oil and

crude could be displaced once the reactors are back. Some of the

plants also require extensive safety reinforcements which won’t be

complete until end-15/2016 meaning the full fuel displacement won’t be

realized until 2016-17.

27

2.5

3.0

3.5

4.0

4.5

5.0

5.5


2010 2011 2012 2013 2014

0

100

200

300

400

500

600

700

800


2010 2011 2012 2013 2014

0.0

5.0

10.0

15.0

20.0

25.0

30.0


Mill

ions 2010 2011 2012 2013 2014

-2%

0%

2%

4%

6%

8%

10%

12%

14%

2,600

2,700

2,800

2,900

3,000

3,100

3,200

3,300

3,400

2008 2009 2010 2011 2012 2013 2014F 2015F

k b

/d

Apparent Demand YoY Growth

-80

-60

-40

-20

0

20

40

60

80

100

120


k b

/d

2010 2011 2012 2013 2014

28

The pace of economic growth in China is slowing, while the rebalancing towards more consumption-based

growth corresponds to strong growth in the gasoline segment of the barrel, while diesel languishes. Continued

refinery expansions will push the middle of the barrel further into exportable surplus.

China diesel net exports could be growing

Source: China Customs, NBS, WIND, Citi Research

China Diesel Demand Bottoms Whilst Growth in Gasoline Sales Remains Firm

China diesel demand outlook looks dim

1.4

1.6

1.8

2.0

2.2

2.4

2.6

2.8


M b

/d

2010 2011 2012 2013 2014

China gasoline drives apparent demand growth

0%

2%

4%

6%

8%

10%

12%

14%

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2,600

2008 2009 2010 2011 2012 2013 2014F 2015F

k b

/d

Apparent Demand YoY Growth

China gasoline demand outlook remains firm

29

Indian diesel demand (m b/d) has been hampered by

rising domestic retail prices and softer GDP growth

Source: China Customs, NBS, WIND, Citi Research

Indian Oil Demand Has Suffered as the Country Looks to Lower its Fuel Subsidy Bill

India has looked to reduce fuel subsidy bills, that became

bloated by a weak rupee, by lifting diesel prices (INR/Liter)

Retail gasoline prices are down YTD which has helped lift

Indian gasoline demand (m b/d)

Total Indian oil demand is up 95-k b/d YTD after growing

just 74- k b/d y/y in 2013.

50

52

54

56

58

60

62

64

66

68

45

47

49

51

53

55

57

59

61

Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14

Retail Diesel Prices USDINR - RHS

1.0

1.1

1.2

1.3

1.4

1.5

1.6


2010 2011 2012 2013 2014

0.25

0.30

0.35

0.40

0.45

0.50


2010 2011 2012 2013 2014

2.2

2.4

2.6

2.8

3.0

3.2

3.4

3.6

3.8


2010 2011 2012 2013 2014

Softer Latin American Demand Could Limit Product Imports from the US

Latin American Gasoil Y/Y Demand Growth (k b/d)

US Product Net Exports to Latin America (m b/d, 2010-14)

● Refinery woes in Latin America left the continent with

yearly oil demand growth of ~0.2-m b/d, the ideal

destination for US product exports.

● Demand growth is now softening, particularly in the

distillates pool, and with the 230-k b/d Abreu y Lima

refinery and the 85-k b/d Cartagena expansion set for

2015, product imports can start to get backed out

leaving some US exports needing a new home.

● Venezuela is also looking to boost diesel exports as

they boost gas usage for power generation, helping to

reduce the amount of diesel used as an emergency

power feedstock.

Latin American CDU Refinery Additions (m b/d)

30 Source: JODI, EIA, Company Reports, ESAI, Citi Research

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0


2010 2011 2012 2013 2014

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

2014 2015 2016 2017 2018+

Brazil Colombia Costa Rica Ecuador Venezuela

-100

-50

0

50

100

150

200

250


Argentina Brazil Chile Ecuador

Mexico Peru Total

The Relationship between GDP Growth and Oil Demand is Fading…

Source: EIA, IEA, BP, Citi Research estimates

31

The last decade saw impressive oil demand growth but

this is expected to moderate in this decade, even as

global GDP growth returns

The oil intensity of GDP growth continues to decline

meaning every unit increase in GDP growth is translating

into less oil demand growth

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

GDP Growth Citi Demand Growth

IEA MTOMR 2014 EIA IEO 2014

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013

Non-OECD OECD

32

Gas Is A Threat To Oil Demand Growth

Oil demand growth – the end is nigh? Transportation is only 1/3 of oil demand

Source: Citi Research

Natural gas substituting for oil, coupled with the increasing car and truck fuel economies already in play, is

enough to mean an end to global oil demand growth is closer than the market seems to think

88

90

92

94

96

98

100

2012 2013 2014 2015 2016 2017 2018 2019 2020

Business As Usual

After vehicle efficiency gains

After gas substitution

0 5 10 15 20 25

Rail

Shipping

Other transport

Aviation

Electricity

Petrochemicals

Residential

Trucks

Other industrials

Cars

32

The Asian Gas-vs-Oil Spread is Becoming More like that of the US & Europe

33 Source: Bloomberg, POTN, Citi Research

Global Oil-vs-Gas Price Spreads ($/bbl) Latin American Fuel Oil (k b/d) vs. LNG (mln tonnes)

Demand

-20

0

20

40

60

80

100

Jan-2012 Jun-2012 Nov-2012 Apr-2013 Sep-2013 Feb-2014 Jul-2014

Dubai-JKM WTI-HH Brent-NBP

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

300

350

400

450

500

550

600

650

Jan-10 Aug-10 Mar-11 Oct-11 May-12 Dec-12 Jul-13 Feb-14

Fuel Oil Demand LNG Demand - RHS

Increasing Fuel Efficiency Globally is a Threat to Gasoline Demand, Particularly in the OECD

Source: EIA, The International Council for Clean Transportation, Citi Research

34

Global fuel economy mandates will drive improvements

in efficiency.

Fuel economy mandates tend to be prioritized in OECD

countries where the majority of gasoline demand is

LPG’s and Gases are Accounting for and Increasing Amount of “Oil” Demand Growth


35

US LPG demand (m is expected to grow strongly which

can mask declines in the historical “Big 3” of gasoline,

distillate and residual fuel oil.

And the bulk of US LPG’s are expected to come from gas

plant processing rather than as refinery output, of which

they are accounted for in traditional oil balances.

-0.4

-0.3

-0.2

-0.1

0

0.1

0.2

0.3

0.4

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

LPG E85 Motor Gasoline

Jet Fuel Distillate Fuel Oil Residual Fuel Oil

Other

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Refinery Output Gas Plant Processing

Oil price fall may challenge OPEC’s fiscal breakevens

Source: IEA, Citi Research

The Middle East remains the largest region for production and conventional resources, at the lower end of

project breakeven and operating cost curves

36

Cost Curves – Shale

Source: Company reports and Citi Research estimates.

37

North American Shale Oil and Gas Is Seeing Numerous, Localised Cost-Curve Changes – Down Through Productivity/Efficiency

Gains, Up Through Infrastructure Constraints

38

Appendix A-1

Analyst Certification

The research analyst(s) primarily responsible for the preparation and content of this research report are named in bold text in the author block at the front of the product except for those sections where an analyst's name appears in bold alongside content which is attributable to that analyst. Each of these analyst(s) certify, with respect to the section(s) of the report for which they are responsible, that the views expressed therein accurately reflect their personal views about each issuer and security referenced and were prepared in an independent manner, including with respect to Citigroup Global Markets Inc and its affiliates. No part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendation(s) or view(s) expressed by that research analyst in this report.

IMPORTANT DISCLOSURES

Analysts' compensation is determined based upon activities and services intended to benefit the investor clients of Citigroup Global Markets Inc. and its affiliates ("the Firm"). Like all Firm employees, analysts receive compensation that is impacted by overall firm profitability which includes investment banking revenues.

For important disclosures (including copies of historical disclosures) regarding the companies that are the subject of this Citi Research product ("the Product"), please contact Citi Research, 388 Greenwich Street, 28th Floor, New York, NY, 10013, Attention: Legal/Compliance [E6WYB6412478]. In addition, the same important disclosures, with the exception of the Valuation and Risk assessments and historical disclosures, are contained on the Firm's disclosure website at https://www.citivelocity.com/cvr/eppublic/citi_research_disclosures. Valuation and Risk assessments can be found in the text of the most recent research note/report regarding the subject company. Historical disclosures (for up to the past three years) will be provided upon request.

NON-US RESEARCH ANALYST DISCLOSURES Non-US research analysts who have prepared this report (i.e., all research analysts listed below other than those identified as employed by Citigroup Global Markets Inc.) are not registered/qualified as research analysts with FINRA. Such research analysts may not be associated persons of the member organization and therefore may not be subject to the NYSE Rule 472 and NASD Rule 2711 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. The legal entities employing the authors of this report are listed below:

Citigroup Global Markets Ltd Seth M Kleinman

OTHER DISCLOSURES

For securities recommended in the Product in which the Firm is not a market maker, the Firm is a liquidity provider in the issuers' financial instruments and may act as principal in connection with such transactions. The Firm is a regular issuer of traded financial instruments linked to securities that may have been recommended in the Product. The Firm regularly trades in the securities of the issuer(s) discussed in the Product. The Firm may engage in securities transactions in a manner inconsistent with the Product and, with respect to securities covered by the Product, will buy or sell from customers on a principal basis.

Securities recommended, offered, or sold by the Firm: (i) are not insured by the Federal Deposit Insurance Corporation; (ii) are not deposits or other obligations of any insured depository institution (including Citibank); and (iii) are subject to investment risks, including the possible loss of the principal amount invested. Although information has been obtained from and is based upon sources that the Firm believes to be reliable, we do not guarantee its accuracy and it may be incomplete and condensed. Note, however, that the Firm has taken all reasonable steps to determine the accuracy and completeness of the disclosures made in the Important Disclosures section of the Product. The Firm's

39

research department has received assistance from the subject company(ies) referred to in this Product including, but not limited to, discussions with management of the subject company(ies). Firm policy prohibits research analysts from sending draft research to subject companies. However, it should be presumed that the author of the Product has had discussions with the subject company to ensure factual accuracy prior to publication. All opinions, projections and estimates constitute the judgment of the author as of the date of the Product and these, plus any other information contained in the Product, are subject to change without notice. Prices and availability of financial instruments also are subject to change without notice. Notwithstanding other departments within the Firm advising the companies discussed in this Product, information obtained in such role is not used in the preparation of the Product. Although Citi Research does not set a predetermined frequency for publication, if the Product is a fundamental research report, it is the intention of Citi Research to provide research coverage of the/those issuer(s) mentioned therein, including in response to news affecting this issuer, subject to applicable quiet periods and capacity constraints. The Product is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in the Product must take into account existing public information on such security or any registered prospectus.

Investing in non-U.S. securities, including ADRs, may entail certain risks. The securities of non-U.S. issuers may not be registered with, nor be subject to the reporting requirements of the U.S. Securities and Exchange Commission. There may be limited information available on foreign securities. Foreign companies are generally not subject to uniform audit and reporting standards, practices and requirements comparable to those in the U.S. Securities of some foreign companies may be less liquid and their prices more volatile than securities of comparable U.S. companies. In addition, exchange rate movements may have an adverse effect on the value of an investment in a foreign stock and its corresponding dividend payment for U.S. investors. Net dividends to ADR investors are estimated, using withholding tax rates conventions, deemed accurate, but investors are urged to consult their tax advisor for exact dividend computations. Investors who have received the Product from the Firm may be prohibited in certain states or other jurisdictions from purchasing securities mentioned in the Product from the Firm. Please ask your Financial Consultant for additional details. Citigroup Global Markets Inc. takes responsibility for the Product in the United States. Any orders by US investors resulting from the information contained in the Product may be placed only through Citigroup Global Markets Inc.

Important Disclosures for Bell Potter Customers: Bell Potter is making this Product available to its clients pursuant to an agreement with Citigroup Global Markets Australia Pty Limited. Neither Citigroup Global Markets Australia Pty Limited nor any of its affiliates has made any determination as to the suitability of the information provided herein and clients should consult with their Bell Potter financial advisor before making any investment decision.

The Citigroup legal entity that takes responsibility for the production of the Product is the legal entity which the first named author is employed by. The Product is made available in Australia through Citigroup Global Markets Australia Pty Limited. (ABN 64 003 114 832 and AFSL No. 240992), participant of the ASX Group and regulated by the Australian Securities & Investments Commission. Citigroup Centre, 2 Park Street, Sydney, NSW 2000. The Product is made available in Australia to Private Banking wholesale clients through Citigroup Pty Limited (ABN 88 004 325 080 and AFSL 238098). Citigroup Pty Limited provides all financial product advice to Australian Private Banking wholesale clients through bankers and relationship managers. If there is any doubt about the suitability of investments held in Citigroup Private Bank accounts, investors should contact the Citigroup Private Bank in Australia. Citigroup companies may compensate affiliates and their representatives for providing products and services to clients. The Product is made available in Brazil by Citigroup Global Markets Brasil - CCTVM SA, which is regulated by CVM - Comissão de Valores Mobiliários, BACEN - Brazilian Central Bank, APIMEC - Associação dos Analistas e Profissionais de Investimento do Mercado de Capitais and ANBID - Associação Nacional dos Bancos de Investimento. Av. Paulista, 1111 - 11º andar - CEP. 01311920 - São Paulo - SP. If the Product is being made available in certain provinces of Canada by Citigroup Global Markets (Canada) Inc. ("CGM Canada"), CGM Canada has approved the Product. Citigroup Place, 123 Front Street West, Suite 1100, Toronto, Ontario M5J 2M3. This product is available in Chile through Banchile Corredores de Bolsa S.A., an indirect subsidiary of Citigroup Inc., which is regulated by the Superintendencia de Valores y Seguros. Agustinas 975, piso 2, Santiago, Chile. The Product is distributed in Germany by Citigroup Global Markets Deutschland AG ("CGMD"), which is regulated by Bundesanstalt fuer Finanzdienstleistungsaufsicht (BaFin). CGMD, Reuterweg 16, 60323 Frankfurt am Main. Research which relates to "securities" (as defined in the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong)) is issued in Hong Kong by, or on behalf of, Citigroup Global Markets Asia Limited which takes full responsibility for its content. Citigroup Global Markets Asia Ltd. is regulated by Hong Kong Securities and Futures Commission. If the Research is made available through Citibank, N.A., Hong Kong Branch, for its clients in Citi Private Bank, it is made available by Citibank N.A., Citibank Tower, Citibank Plaza, 3 Garden Road, Hong Kong. Citibank N.A. is regulated by the Hong Kong Monetary Authority. Please contact your Private Banker in Citibank N.A., Hong Kong, Branch if you have any queries on or any matters arising from or in connection with this

40

document. The Product is made available in India by Citigroup Global Markets India Private Limited, which is regulated by Securities and Exchange Board of India. 1202, 12th Floor, FIFC, G Block, Bandra Kurla Complex, Bandra East, Mumbai - 400051 Corporate Identity Number: U99999MH2000PTC126657 Tel:+9102261759999 Fax:+9102261759961. The Product is made available in Indonesia through PT Citigroup Securities Indonesia. 5/F, Citibank Tower, Bapindo Plaza, Jl. Jend. Sudirman Kav. 54-55, Jakarta 12190. Neither this Product nor any copy hereof may be distributed in Indonesia or to any Indonesian citizens wherever they are domiciled or to Indonesian residents except in compliance with applicable capital market laws and regulations. This Product is not an offer of securities in Indonesia. The securities referred to in this Product have not been registered with the Capital Market and Financial Institutions Supervisory Agency (BAPEPAM-LK) pursuant to relevant capital market laws and regulations, and may not be offered or sold within the territory of the Republic of Indonesia or to Indonesian citizens through a public offering or in circumstances which constitute an offer within the meaning of the Indonesian capital market laws and regulations. The Product is made available in Israel through Citibank NA, regulated by the Bank of Israel and the Israeli Securities Authority. Citibank, N.A, Platinum Building, 21 Ha'arba'ah St, Tel Aviv, Israel. The Product is made available in Italy by Citigroup Global Markets Limited, which is authorised by the PRA and regulated by the FCA and the PRA. Via dei Mercanti, 12, Milan, 20121, Italy. The Product is made available in Japan by Citigroup Global Markets Japan Inc. ("CGMJ"), which is regulated by Financial Services Agency, Securities and Exchange Surveillance Commission, Japan Securities Dealers Association, Tokyo Stock Exchange and Osaka Securities Exchange. Shin-Marunouchi Building, 1-5-1 Marunouchi, Chiyoda-ku, Tokyo 100-6520 Japan. If the Product was distributed by SMBC Nikko Securities Inc. it is being so distributed under license. In the event that an error is found in an CGMJ research report, a revised version will be posted on the Firm's Citi Velocity website. If you have questions regarding Citi Velocity, please call (81 3) 6270-3019 for help. The Product is made available in Korea by Citigroup Global Markets Korea Securities Ltd., which is regulated by the Financial Services Commission, the Financial Supervisory Service and the Korea Financial Investment Association (KOFIA). Citibank Building, 39 Da-dong, Jung-gu, Seoul 100-180, Korea. KOFIA makes available registration information of research analysts on its website. Please visit the following website if you wish to find KOFIA registration information on research analysts of Citigroup Global Markets Korea Securities Ltd. http://dis.kofia.or.kr/fs/dis2/fundMgr/DISFundMgrAnalystPop.jsp?companyCd2=A03030&pageDiv=02. The Product is made available in Korea by Citibank Korea Inc., which is regulated by the Financial Services Commission and the Financial Supervisory Service. Address is Citibank Building, 39 Da-dong, Jung-gu, Seoul 100-180, Korea. The Product is made available in Malaysia by Citigroup Global Markets Malaysia Sdn Bhd (Company No. 460819-D) (“CGMM”) to its clients and CGMM takes responsibility for its contents. CGMM is regulated by the Securities Commission of Malaysia. Please contact CGMM at Level 43 Menara Citibank, 165 Jalan Ampang, 50450 Kuala Lumpur, Malaysia in respect of any matters arising from, or in connection with, the Product. The Product is made available in Mexico by Acciones y Valores Banamex, S.A. De C. V., Casa de Bolsa, Integrante del Grupo Financiero Banamex ("Accival") which is a wholly owned subsidiary of Citigroup Inc. and is regulated by Comision Nacional Bancaria y de Valores. Reforma 398, Col. Juarez, 06600 Mexico, D.F. In New Zealand the Product is made available to ‘wholesale clients’ only as defined by s5C(1) of the Financial Advisers Act 2008 (‘FAA’) through Citigroup Global Markets Australia Pty Ltd (ABN 64 003 114 832 and AFSL No. 240992), an overseas financial adviser as defined by the FAA, participant of the ASX Group and regulated by the Australian Securities & Investments Commission. Citigroup Centre, 2 Park Street, Sydney, NSW 2000. The Product is made available in Pakistan by Citibank N.A. Pakistan branch, which is regulated by the State Bank of Pakistan and Securities Exchange Commission, Pakistan. AWT Plaza, 1.1. Chundrigar Road, P.O. Box 4889, Karachi-74200. The Product is made available in the Philippines through Citicorp Financial Services and Insurance Brokerage Philippines, Inc., which is regulated by the Philippines Securities and Exchange Commission. 20th Floor Citibank Square Bldg. The Product is made available in the Philippines through Citibank NA Philippines branch, Citibank Tower, 8741 Paseo De Roxas, Makati City, Manila. Citibank NA Philippines NA is regulated by The Bangko Sentral ng Pilipinas. The Product is made available in Poland by Dom Maklerski Banku Handlowego SA an indirect subsidiary of Citigroup Inc., which is regulated by Komisja Nadzoru Finansowego. Dom Maklerski Banku Handlowego S.A. ul.Senatorska 16, 00-923 Warszawa. The Product is made available in the Russian Federation through ZAO Citibank, which is licensed to carry out banking activities in the Russian Federation in accordance with the general banking license issued by the Central Bank of the Russian Federation and brokerage activities in accordance with the license issued by the Federal Service for Financial Markets. Neither the Product nor any information contained in the Product shall be considered as advertising the securities mentioned in this report within the territory of the Russian Federation or outside the Russian Federation. The Product does not constitute an appraisal within the meaning of the Federal Law of the Russian Federation of 29 July 1998 No. 135-FZ (as amended) On Appraisal Activities in the Russian Federation. 8-10 Gasheka Street, 125047 Moscow. The Product is made available in Singapore through Citigroup Global Markets Singapore Pte. Ltd. (“CGMSPL”), a capital markets services license holder, and regulated by Monetary Authority of Singapore. Please contact CGMSPL at 8 Marina View, 21st Floor Asia Square Tower 1, Singapore 018960, in respect of any matters arising from, or in connection with, the analysis of this document. This report is intended for recipients who are accredited, expert and

41

institutional investors as defined under the Securities and Futures Act (Cap. 289). The Product is made available by The Citigroup Private Bank in Singapore through Citibank, N.A., Singapore Branch, a licensed bank in Singapore that is regulated by Monetary Authority of Singapore. Please contact your Private Banker in Citibank N.A., Singapore Branch if you have any queries on or any matters arising from or in connection with this document. This report is intended for recipients who are accredited, expert and institutional investors as defined under the Securities and Futures Act (Cap. 289). This report is distributed in Singapore by Citibank Singapore Ltd ("CSL") to selected Citigold/Citigold Private Clients. CSL provides no independent research or analysis of the substance or in preparation of this report. Please contact your Citigold//Citigold Private Client Relationship Manager in CSL if you have any queries on or any matters arising from or in connection with this report. This report is intended for recipients who are accredited investors as defined under the Securities and Futures Act (Cap. 289). Citigroup Global Markets (Pty) Ltd. is incorporated in the Republic of South Africa (company registration number 2000/025866/07) and its registered office is at 145 West Street, Sandton, 2196, Saxonwold. Citigroup Global Markets (Pty) Ltd. is regulated by JSE Securities Exchange South Africa, South African Reserve Bank and the Financial Services Board. The investments and services contained herein are not available to private customers in South Africa. The Product is made available in the Republic of China through Citigroup Global Markets Taiwan Securities Company Ltd. ("CGMTS"), 14 and 15F, No. 1, Songzhi Road, Taipei 110, Taiwan and/or through Citibank Securities (Taiwan) Company Limited ("CSTL"), 14 and 15F, No. 1, Songzhi Road, Taipei 110, Taiwan, subject to the respective license scope of each entity and the applicable laws and regulations in the Republic of China. CGMTS and CSTL are both regulated by the Securities and Futures Bureau of the Financial Supervisory Commission of Taiwan, the Republic of China. No portion of the Product may be reproduced or quoted in the Republic of China by the press or any third parties [without the written authorization of CGMTS and CSTL]. If the Product covers securities which are not allowed to be offered or traded in the Republic of China, neither the Product nor any information contained in the Product shall be considered as advertising the securities or making recommendation of the securities in the Republic of China. The Product is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security or financial products. Any decision to purchase securities or financial products mentioned in the Product must take into account existing public information on such security or the financial products or any registered prospectus. The Product is made available in Thailand through Citicorp Securities (Thailand) Ltd., which is regulated by the Securities and Exchange Commission of Thailand. 399 Interchange 21 Building, 18th Floor, Sukhumvit Road, Klongtoey Nua, Wattana ,Bangkok 10110, Thailand. The Product is made available in Turkey through Citibank AS which is regulated by Capital Markets Board. Tekfen Tower, Eski Buyukdere Caddesi # 209 Kat 2B, 23294 Levent, Istanbul, Turkey. In the U.A.E, these materials (the "Materials") are communicated by Citigroup Global Markets Limited, DIFC branch ("CGML"), an entity registered in the Dubai International Financial Center ("DIFC") and licensed and regulated by the Dubai Financial Services Authority ("DFSA") to Professional Clients and Market Counterparties only and should not be relied upon or distributed to Retail Clients. A distribution of the different Citi Research ratings distribution, in percentage terms for Investments in each sector covered is made available on request. Financial products and/or services to which the Materials relate will only be made available to Professional Clients and Market Counterparties. The Product is made available in United Kingdom by Citigroup Global Markets Limited, which is authorised by the Prudential Regulation Authority (“PRA”) and regulated by the Financial Conduct Authority (“FCA”) and the PRA. This material may relate to investments or services of a person outside of the UK or to other matters which are not authorised by the PRA nor regulated by the FCA and the PRA and further details as to where this may be the case are available upon request in respect of this material. Citigroup Centre, Canada Square, Canary Wharf, London, E14 5LB. The Product is made available in United States by Citigroup Global Markets Inc, which is a member of FINRA and registered with the US Securities and Exchange Commission. 388 Greenwich Street, New York, NY 10013. Unless specified to the contrary, within EU Member States, the Product is made available by Citigroup Global Markets Limited, which is authorised by the PRA and regulated by the FCA and the PRA. Pursuant to Comissão de Valores Mobiliários Rule 483, Citi is required to disclose whether a Citi related company or business has a commercial relationship with the subject company. Considering that Citi operates multiple businesses in more than 100 countries around the world, it is likely that Citi has a commercial relationship with the subject company. Many European regulators require that a firm must establish, implement and make available a policy for managing conflicts of interest arising as a result of publication or distribution of investment research. The policy applicable to Citi Research's Products can be found at https://www.citivelocity.com/cvr/eppublic/citi_research_disclosures. Compensation of equity research analysts is determined by equity research management and Citigroup's senior management and is not linked to specific transactions or recommendations. The Product is not to be construed as providing investment services in any jurisdiction where the provision of such services would not be permitted. Subject to the nature and contents of the Product, the investments described therein are subject to fluctuations in price and/or value and investors may get back less than

42

originally invested. Certain high-volatility investments can be subject to sudden and large falls in value that could equal or exceed the amount invested. Certain investments contained in the Product may have tax implications for private customers whereby levels and basis of taxation may be subject to change. If in doubt, investors should seek advice from a tax adviser. The Product does not purport to identify the nature of the specific market or other risks associated with a particular transaction. Advice in the Product is general and should not be construed as personal advice given it has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Accordingly, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to their objectives, financial situation and needs. Prior to acquiring any financial product, it is the client's responsibility to obtain the relevant offer document for the product and consider it before making a decision as to whether to purchase the product. Citi Research generally disseminates its research to the Firm’s global institutional and retail clients via both proprietary (e.g., Citi Velocity and Citi Personal Wealth Management) and non-proprietary electronic distribution platforms. Certain research may be disseminated only via Citi’s proprietary distribution platforms; however such research will not contain changes to earnings forecasts, target price, investment or risk rating or investment thesis or be otherwise inconsistent with the author’s previously published research. Certain research is made available only to institutional investors to satisfy regulatory requirements. Individual Citi Research analysts may also opt to circulate published research to one or more clients by email; such email distribution is discretionary and is done only after the research has been disseminated. The level and types of services provided by Citi Research analysts to clients may vary depending on various factors such as the client’s individual preferences as to the frequency and manner of receiving communications from analysts, the client’s risk profile and investment focus and perspective (e.g. market-wide, sector specific, long term, short-term etc.), the size and scope of the overall client relationship with Citi and legal and regulatory constraints. Citi Research product may source data from dataCentral. dataCentral is a Citi Research proprietary database, which includes Citi estimates, data from company reports and feeds from Thomson Reuters. The printed and printable version of the research report may not include all the information (e.g., certain financial summary information and comparable company data) that is linked to the online version available on Citi's proprietary electronic distribution platforms.

© 2014 Citigroup Global Markets Inc. Citi Research is a division of Citigroup Global Markets Inc. Citi and Citi with Arc Design are trademarks and service marks of Citigroup Inc. and its affiliates and are used and registered throughout the world. All rights reserved. Any unauthorized use, duplication, redistribution or disclosure of this report (the “Product”), including, but not limited to, redistribution of the Product by electronic mail, posting of the Product on a website or page, and/or providing to a third party a link to the Product, is prohibited by law and will result in prosecution. The information contained in the Product is intended solely for the recipient and may not be further distributed by the recipient to any third party. Where included in this report, MSCI sourced information is the exclusive property of Morgan Stanley Capital International Inc. (MSCI). Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, redisseminated or used to create any financial products, including any indices. This information is provided on an "as is" basis. The user assumes the entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. MSCI, Morgan Stanley Capital International and the MSCI indexes are services marks of MSCI and its affiliates. The Firm accepts no liability whatsoever for the actions of third parties. The Product may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the Product refers to website material of the Firm, the Firm has not reviewed the linked site. Equally, except to the extent to which the Product refers to website material of the Firm, the Firm takes no responsibility for, and makes no representations or warranties whatsoever as to, the data and information contained therein. Such address or hyperlink (including addresses or hyperlinks to website material of the Firm) is provided solely for your convenience and information and the content of the linked site does not in anyway form part of this document. Accessing such website or following such link through the Product or the website of the Firm shall be at your own risk and the Firm shall have no liability arising out of, or in connection with, any such referenced website.

ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST

world oil market overview - · pdf fileworld oil market overview october 2014 seth kleinman...

Documents