GLOBAL MARKET OUTLOOK FOR REFINED PRODUCTS

Transcription

1 Thomson Reuters Oil Research Presents: GLOBAL MARKET OUTLOOK FOR REFINED PRODUCTS 14/Dec/2017 THOMSON REUTERS OIL FORUM Moscow, Russia Yan Chong Yaw, Director Oil Research, Thomson Reuters

2 INTRODUCING THOMSON REUTERS COMMODITIES RESEARCH The Commodities Research division is an independent unit within the Thomson Reuters structure, set up from 2011, as part of the company s strategy to provide exclusive content. The division is made up of 3 Commodities asset classes Energy (encompassing Oil and Power/Gas), Agriculture and Metals each with its own team of analysts, totaling over 150 in all. The Oil Research unit specializes in the oil-trading market, producing near-term, in-depth analyses of supply-demand fundamentals for each oil product group by region.

3 WHAT WE DO AT THOMSON REUTERS OIL RESEARCH FLOWS -- An innovative product available only to Thomson Reuters clients that assess oil fundamentals including flows toand-from Asia in real time for current-month/month ahead (M/M+1). This provides oil trading clients with real-time baseload market intel and non-oil trading clients with barometers of economic demand in key countries. CURVES -- Produce price Forward Curves, both timestamped and in real-time to assist trading by providing a sense of the market on a 24-hour basis and for mark-to-market purposes.

4 июн-14 июл-14 авг-14 сен-14 окт-14 ноя-14 дек-14 янв-15 фев-15 мар-15 апр-15 май-15 июн-15 июл-15 авг-15 сен-15 окт-15 ноя-15 дек-15 янв-16 фев-16 мар-16 апр-16 май-16 июн-16 июл-16 авг-16 сен-16 окт-16 ноя-16 дек-16 янв-17 фев-17 мар-17 апр-17 май-17 июн-14 июл-14 авг-14 сен-14 окт-14 ноя-14 дек-14 янв-15 фев-15 мар-15 апр-15 май-15 июн-15 июл-15 авг-15 сен-15 окт-15 ноя-15 дек-15 янв-16 фев-16 мар-16 апр-16 май-16 июн-16 июл-16 авг-16 сен-16 окт-16 ноя-16 дек-16 янв-17 фев-17 мар-17 апр-17 май-17 июн-14 июл-14 авг-14 сен-14 окт-14 ноя-14 дек-14 янв-15 фев-15 мар-15 апр-15 май-15 июн-15 июл-15 авг-15 сен-15 окт-15 ноя-15 дек-15 янв-16 фев-16 мар-16 апр-16 май-16 июн-16 июл-16 авг-16 сен-16 окт-16 ноя-16 дек-16 янв-17 фев-17 мар-17 апр-17 май-17 июн-14 июл-14 авг-14 сен-14 окт-14 ноя-14 дек-14 янв-15 фев-15 мар-15 апр-15 май-15 июн-15 июл-15 авг-15 сен-15 окт-15 ноя-15 дек-15 янв-16 фев-16 мар-16 апр-16 май-16 июн-16 июл-16 авг-16 сен-16 окт-16 ноя-16 дек-16 янв-17 фев-17 мар-17 апр-17 май Crude - India Import Average 98.93% 120 Crude China Import Average 99.37% Naphtha - North Asia Import % Gas oil - East Asia Export Average 88.78%

5 GLOBAL MARKET OUTLOOK: DIESEL The market has been oversupplied since the past 2-3 years, with refining margins at their weakest levels in over 5 years. But recent events, notably weather-related supply disruptions have boosted the market. What is the outlook, going forward?

6 GLOBAL OIL MARKET OUTLOOK - DIESEL/GASOIL Our view is that the Distillates market has entered its most challenging environment in over 10 years since the start of 2014 and is expected to remain so in the medium-term, despite its current strength. A supply glut, particularly of Ultra-Low Sulphur Diesel (ULSD), has already swamped the market, led by the US shale boom and is further burdened by huge additions to refining capacities, mainly in the Middle East and China, with more expected in the next few years. Demand outlook remains healthy, particularly from the growing economies in Africa but they are insufficient to absorb the sudden and overwhelming spike in supplies. However, recent events, such as the weather-related supply disruptions, supply imbalances and sentiment trading have lifted price benchmarks.

7 GLOBAL OIL MARKET OUTLOOK - DIESEL/GASOIL Price benchmarks rallied since the hurricanes hit refining infrastructure in the US Gulf Coast, with over 20% of the country s capacity shutdown in the immediate aftermath, pushing margins past the $15/bbl mark for the first time since March While all have since returned to normal operating levels, the few weeks of lost production continue to impact the market. Similar price rallies have been seen over the past 2-3 years, though not of the same intensity, led by supply imbalances between ULSD and high-sulphur grades, speculative trading and weather-related supply disruptions. While the world is steadily moving towards ULSD, with most 1 st -world countries already adopting the standard for several years now, it will only be by 2035 that most of the world will do so. For the near/medium term, overall diesel supplies will remain in surplus. However, a switch by the marine fuels market to low 0.5% sulphur by 2020, from the current high 3.5% sulphur, might just be the lifeline that the oversupplied diesel market needs.

8 GLOBAL OIL MARKET OUTLOOK - DIESEL/GASOIL Asia is the world s largest exporter of diesel, rising unabatedly over the past 5 years, culminating in a record-high of almost 8 million mt/month this year. The outflows come mainly from India, the region s largest supplier, and East Asian countries notably South Korea, Japan, Taiwan, Singapore and China. The huge on-year jump since 2016 is mainly due to surging exports from China that tripled to above 1 million mt/month from 2014 levels. Indian barrels also rose, averaging at a recordhigh of 2.32 million mt/month in 2016 and averaged at million mt this year. ASIA DIESEL SUPPLY (month average by year/kt) East Asia India Total ,090 1,788 5, ,035 1,775 5, ,244 2,244 6, ,065 2,146 6, ,472 1,793 6, ,094 2,324 7, ,682 2,269 7, East Asia India Total * 2016

9 GLOBAL OIL MARKET OUTLOOK - DIESEL/GASOIL S Korea remains East Asia s largest exporter, averaging around 2.0 million mt/month since 2011, accounting for just under half of the region s total volumes, and expected to remain at stable levels in the absence of major capacity additions. China exports, which hit all-time high levels of 1.91 million mt in March 2017, and averaged at an all-time monthly high of 1.34 million mt this year, nearly triple 2015 s month average of 545,000 mt and more than quadrupling from 2014 s 334,000 mt. Most of East Asia s exports stay in the region, going to major importers like Australia and Indonesia. India is Asia s largest exporter, accounting for about 2.27 million mt/month this year, of mostly the ULSD grade from its 2 private refiners, Reliance and Essar Oil, slightly under last year s record-high of 2.32 million mt/month. Most of its diesel exports traditionally goes to Europe, the Middle East and Africa, but has faced stiff competition since the Middle East turned into a nett exporter following large capacity additions in the past 2-3 years South Korea Taiwan Japan Singapore (Nett) China India Year South Korea Taiwan Japan Singapore (Nett) China India Total , ,788 5, ,005 1, ,775 5, ,878 1, ,244 6, , ,146 6, ,793 6, , ,283 2,324 7, , ,336 2,269 7,951

10 GLOBAL OIL MARKET OUTLOOK - DIESEL/GASOIL The surge in China s exports, nearly 10 times from just four years earlier, is largely driven by the government s move to issue both crude-import licences to the country s private refiners. They were given quotas to import million mt of crude this year, up from million mt for 2016, and rising to over 140 million mt for Diesel production far outstripped domestic demand, sparking a domestic price war between the Chinese majors, independents and even foreign players, despite the pervasively large export volumes. The oversupply situation is worsened by the fact that the government did not give any export quotas to the private refiners this year, and cut quarterly quota to around 5 million mt, down from 8 million mt/quarter last year, when the teapots also had quotas. China s diesel exports grew from 2016 s previous record-high despite the country raising its diesel specifications to 10-ppm nationally, and we expect them to stay at current high levels despite the present difficulties, though the upside will be limited CHINA GASOIL EXPORTS (MT)

11 GLOBAL OIL MARKET OUTLOOK - DIESEL/GASOIL Diesel supplies have surged dramatically, especially since 2014, mainly from the Middle East and to a lesser extent, the US. Middle East exports jumped well-above 3 million mt/month from 2016, mainly due to large additions to refining capacities in Saudi Arabia and the UAE, up from million mt/month for US exports rose from 2011 mainly due to the shale boom that resulted in increased diesel production, which saw exports to Europe surge above 1.3 million mt/month from 2011, but has since fallen in the past two years due to lower production as a result of poor margins and weather-related capacity shutdowns. MIDEAST/US DIESEL SUPPLY (month average by year/kt) US to Middle East Europe , ,606 1, ,669 1, ,699 1, ,220 1, ,705 1, ,734 1, * 3,437 1,060 Middle East US to Europe *

12 GLOBAL OIL MARKET OUTLOOK - DIESEL/GASOIL The spike in Middle East exports is mainly led by an upsurge in exports from Saudi Arabia that has averaged well above 2 million mt/month for the past 2 years, more than 5 times the average of about 400,000 mt/month, following the startup of its Satorp and Yasref refineries, while nett exports surged to an all-time high of almost 2 million mt/month, this year. The UAE doubled the capacity of its Ruwais refinery to 800,000 bpd, and exports jumped to 300, ,000 mt/month last year, up from under 100,000 mt/month before, but fell to about 250,000 mt/month this year due to extensive damage the plant following a fire. Nett exports from the Middle East surged to an all-time high of above 2.9 million mt this year, more than 5 times the pre-expansion low of 500, ,000 mt/mth just 3-4 years ago. MIDDLE EAST DIESEL EXPORTS/IMPORTS Exports (KT) Saudi Arabia , , , Bahrain Kuwait Iran Qatar UAE (estimates) Oman Total Mideast 1, , , , , , , , Imports (KT) Saudi Arabia , Iran Iraq Total Mideast , , , Nett Export (KT) Saudi Arabia , , Mideast 1, , , , , ,872.78

13 GLOBAL OIL MARKET OUTLOOK - DIESEL/GASOIL The export surge is led by the addition of about 1.22 million barrels-per-day (bpd) of refining capacity that has come online and became fully operational in 2014/15. If all the stated expansion plans occur, there will be a total addition of 5.65 million bpd by 2021, an equivalent diesel production of 2.17 million bpd. Country Refinery New Capacity (bpd) Incremental diesel production Planned Completion Saudi Arabia Satorp 400, ,000 Operational Yasref 400, ,000 Operational Jazan 400, , /2018 (In progress) Nett 1,200, ,000 Kuwait Al-Zour 615, ,875 1H 2019 Mina al-ahmadi (466,000) 64,000 20,800 end mid 2019 Mina Abdullah (270,000) 800,000 (combined) Shuaiba -119, to close by April 2017 Nett 560, ,000 UAE Ruwais 420, ,500 Operational Oman Sohar 198,000 64,350 Q Duqm 230,000 74, Nett 428, ,100 Qatar Laffan 2 146,000 47,450 Operational Bahrain Sitra 360, , /2019 Iran Persian Gulf Star 360, , Siraf (condensate) 480, , Abadan (400,000) upgrade 122, Bandar-Abbas (320,000) upgrade 2021 Tehran (250,000) upgrade 82, Nett 1,200, ,464 Malaysia RAPID 300,000 97, Vietnam Nghi Son 200,000 65,000 1H 2018 China Kunming (Petrochina/Yunnan) 260,000 84, Zhejiang Petrochemical (Zhoushan) Phase 1 400, , Zhejiang Petrochemical (Zhoushan) Phase 2 400, , Huizhou (CNOOC) 200,000 65,000 Q Nett 1,260, ,500 TOTAL Capacity (bpd) 5,654,000 2,170,514

14 GLOBAL OIL MARKET OUTLOOK - DIESEL/GASOIL The US has exported higher volumes, particularly to Europe, from around 800,000-1million mt/month in the pre-shale boom days up to 2010, to an average of million mt/month in , on increased production that made US exporters more competitive, particularly versus Asian suppliers such as India. US exports have fallen since, averaging million mt/month since 2016, due to poor margins then as refiners shift towards higher gasoline production. Levels fell further this year, due to the hurricanes, with only 545,000 mt exported for Sept. US Distillates Export to Europe Year/Mth Jan 382 1, ,311 1, ,538 1, Feb 356 1, , Mar 207 1, , ,408 1,057 Apr 162 1, ,310 1, ,962 1,911 1,882 1,008 May 603 1, ,531 1,738 1,583 1,275 1,523 1,230 Jun 1, ,982 1,730 1,823 1,647 1,623 1,226 Jul 1,641 1, ,407 1,631 1,751 1,929 1,943 1,549 1,868 Aug 1, ,499 1,368 1,938 1,879 1,455 1,322 1,117 Sep 211 1,143 1,288 1,555 1,168 2, , Oct* ,585 2,096 1,728 2, , Nov 1, ,693 1,233 1,184 2,134 1,051 1, Dec 1, ,158 2,015 1,115 1,798 1,379 1,623 1,022 Total 9, , , , , , , , , , Avg , , , , , , , ,059.66

15 GLOBAL OIL MARKET OUTLOOK - DIESEL/GASOIL Total Import Demand from the major importing regions of East Asia, Africa and Europe from the same four main Supply regions have been fairly healthy, holding firm at just over 5 million mt/month for the past three years, jumping from under that volumein 2014 and before. Consolidated Import Demand (KT) East Asia Europe (from US) Africa Total *till Sept ,059 1, , ,921 1,435 1,412 4, ,970 1,608 1,303 4, ,885 1, , ,107 1,506 1,578 5, ,366 1,155 1,628 5, * 2, ,319 5, East Asia Europe (from US) Africa Total

16 GLOBAL OIL MARKET OUTLOOK - DIESEL/GASOIL Australia is one of the primary demand drivers, with import volumes more than doubling from just under 600,000 mt/month in 2010 to over 1 million mt/month since 2014 and hitting an all-time high of 1.39 million mt/month this year. Its import demand is driven largely by the closures of its old and uneconomical refineries, and is expected to stay at around current levels, as the process of mothballing the plants has completed. Indonesia demand has been fairly steady at 800,000-1 million mt/month since 2007 but fell by nearly 50% since 2015, averaging at 500,000 mt/month for 2017, as the country both increased domestic production, following refinery upgrading, and moved away from using gasoil as an expensive utility fuel, following aggressive government moves to switch to cheaper alternatives such as coal and natural gas. Australia/Year Total/KT Monthly Avg/KT , , , , ,021 1, ,181 1, ,880 1, * 12,487 1,387 *up till Sept Indonesia/Year Total/KT Month Avg/KT , , , , ,771 1, , , , , , * 4, *up till Sept

17 GLOBAL OIL MARKET OUTLOOK - DIESEL/GASOIL The one hope for a gasoil recovery lies in the marine fuels market, traditionally a fuel oil bastion, when it becomes mandatory for sulphur levels to drop to 0.5%, from the current 3.5%, globally by Refineries globally are not producing sufficient 0.5% sulphur fuel oil to meet both the global bunkers demand of million mt/month and about 5-million mt/month in Asia, with no plans to upgrade, especially in Asia and the Middle East. The two most likely solutions are switching 3.5% sulphur fuel oil with a 0.5% sulphur gasoil blend or instal sulphur-removing Scrubbers on board the ships.

18 GLOBAL OIL MARKET OUTLOOK - DIESEL/GASOIL Scrubbers are equipment fitted on board ships that remove sulfur dioxide (SOx) gases from the vessel s exhaust, allowing the continued use of high-sulfur fuel oil (HSFO). The cost is high at $1-$5 million per unit, particularly for owners with large fleets and in the current poor market, can be punitive. Uncertainty remains over how the waste materials from the scrubbers can be disposed of they can t be thrown into the sea, meaning they will have to be kept on board until the ship docks, and there aren t many disposal facilities in the world s major ports. Increased running costs -- crew will need to be trained to operate the scrubber, as well as more personnel might be needed, maintenance costs of the scrubber will also eat into the vessel s bottomline.

19 GLOBAL OIL MARKET OUTLOOK - DIESEL/GASOIL Gasoil s structural oversupply has seen the price spread between its benchmark 500-ppm grade and fuel oil s 180-cst grade at its narrowest in 7-8 years, particularly its front-month average, at $15.49/bbl for Fuel Oil-Gasoil Spread Month 1 Month 6 Month 12 However, the oversupply is in the ultra-low sulphur 10-ppm grade, not the high-sulphur 0.5% sulphur grade. This necessitates that the final option be an economical blend between 10-ppm gasoil and high-sulphur fuel oil, which could soon lose much of its value. We believe this will be the most likely option in the immediate aftermath of 2020, as it is the least punitive option Year Month 1 Month 6 Month

20 GLOBAL OIL MARKET OUTLOOK - DIESEL/GASOIL Gas Oil Cracks Month-Average Jan $11.52 $9.15 $15.54 $17.93 $19.64 $18.52 $15.81 Feb $12.21 $9.67 $15.51 $18.15 $21.23 $16.90 $17.85 Mar $11.43 $9.98 $15.53 $17.51 $17.87 $15.29 $22.04 Apr $11.57 $8.77 $13.68 $18.04 $15.82 $16.22 $21.72 May $10.08 $10.72 $13.92 $16.66 $16.15 $15.91 $18.26 Jun $10.42 $11.87 $13.07 $13.99 $17.64 $16.17 $19.33 Jul $12.58 $10.82 $10.18 $13.76 $18.41 $17.51 $18.58 Aug $13.35 $9.66 $11.35 $14.96 $17.73 $19.39 $18.41 Sep $14.33 $10.60 $13.42 $14.84 $16.75 $19.17 $17.19 Oct $13.01 $12.62 $12.07 $14.52 $16.95 $18.73 $17.41 Nov $12.76 $12.17 $13.71 $16.52 $17.36 $17.70 $19.42 Dec $11.29 $11.26 $15.76 $18.15 $19.93 $18.10 AVERAGE $12.03 $10.61 $13.27 $16.01 $17.77 $17.60 $18.72 Gasoil Month-Average Timespread Jan -$0.35 -$0.80 -$0.11 $0.01 $0.03 $2.23 $1.39 $0.59 $2.57 $3.31 Feb $0.02 -$0.83 -$0.32 $0.43 $0.21 $1.81 $1.16 $0.31 $2.75 $4.28 Mar $0.09 -$0.39 -$0.14 $0.16 $0.11 $1.80 $1.73 $0.26 $3.50 $6.51 Apr $0.14 -$0.10 -$0.16 $0.34 $0.02 $1.95 $2.47 $0.34 $3.10 $7.21 May $0.12 -$0.05 -$0.07 $0.61 $0.53 $2.13 $1.82 $0.39 $2.10 $5.15 Jun $0.10 $0.03 -$0.48 -$0.18 $1.50 $2.41 $1.23 $0.26 $1.23 $5.38 Jul $0.29 -$0.10 -$0.83 -$0.31 $1.44 $2.86 $1.31 $0.53 $1.13 $3.39 Aug $0.06 -$0.36 -$0.76 -$0.15 $0.29 $2.86 $1.93 $0.64 $0.72 $0.80 Sep $0.48 -$0.29 -$0.44 -$0.24 $0.25 $2.91 $1.91 $0.13 $0.02 $1.02 Oct $0.32 -$0.01 -$0.20 -$0.36 $1.15 $2.66 $2.02 $0.14 -$0.18 $2.35 Nov $0.14 -$0.11 $0.10 -$0.16 $1.20 $1.96 $2.46 $0.54 $0.22 $3.25 Dec -$0.51 -$0.29 -$0.04 $0.85 $0.52 $2.25 $0.86 -$0.07 $3.72 AVERAGE $0.13 -$0.29 -$0.31 $0.00 $0.64 $2.18 $1.81 $0.42 $1.40 $3.85 Asia Diesel Cracks (Singapore 500-ppm to Dubai) peaked at a 29-month high of just under $15/bbl in Sept as a result of the US hurricanes and the year s largest trading play but have since weakened to under $13/bbl, as it has been for much of the past 2 years, including averaging at a more-than 5-year low of $10.61/bbl last year, signaling the market s inherent weakness. Prompt Intermonth Spreads for the 500-ppm grade also similarly averaged at a 37-month high of 48 cents/bbl in backwardation for Sept, but had spent most of the past 3 years in contango or just above parity, as it is now, despite being in the throes of the peak winter season.

21 GLOBAL OIL MARKET OUTLOOK - DIESEL/GASOIL The market s unusual strength in Sept was also down to a trading play that saw about 23 million bbls of mostly 500-ppm gasoil being traded in the daily pricing window, or about 1.15 million bbls/day. This is the 2 nd highest per day volume for at least the last 10 years, just under the previous record of 1.24 million bbls/day seen last Dec, when total volumes for the month closed at million bbls. However, the play has ended and the market s fundamentals have started to reassert themselves, with the price benchmarks already easing. We believe the market s current weaker structure, at pre-sept levels of around parity despite the peak demand winter season, is a sign of these large supplies coming back into the market Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total Avg

22 GLOBAL OIL MARKET OUTLOOK - DIESEL/GASOIL $ pm $ ppm $67.00 $66.00 $65.00 $64.00 окт-17 ноя-17 дек-17 янв-18 фев-18 мар-18 апр-18 май-18 июн-18 июл-18 авг-18 Narrow Price Spread between 10ppm- 500ppm: The price spread between the two grades have been narrow, at below $2.00/bbl for most of its 12-month forward curve, and for much of the past 2-3 years, reflecting the market s abundance of the premium 10-ppm grade and the lack of high-sulphur lots in the current market. Current levels are well below $1/bbl, reflecting the huge oversupply of 10- ppm. 500 pm 10ppm Diff Oct-17 $73.12 $73.99 $0.87 Nov-17 $73.04 $74.04 $1.00 Dec-17 $73.02 $73.92 $0.90 Jan-18 $72.99 $73.74 $0.75 Feb-18 $72.85 $73.49 $0.64 Mar-18 $72.68 $73.27 $0.59 Apr-18 $72.48 $73.09 $0.61 May-18 $72.20 $72.94 $0.74 Jun-18 $71.90 $72.74 $0.84 Jul-18 $71.64 $72.54 $0.90 Aug-18 $71.44 $72.39 $0.95 Sep-18 $71.29 $72.29 $1.00 *snapshot Nov 30, 2017

23 GLOBAL OIL MARKET OUTLOOK - DIESEL/GASOIL 10-ppm 10-ppm 500-ppm 10-ppm 10-ppm 500-ppm 500-ppm (some countries expected to move to 50 ppm by end 2017) 50-ppm 500-ppm 2500-ppm 500-ppm S Africa: 10-ppm E Africa: 50-ppm 10-ppm Most 1 st world countries, including the European Union, the US and Canada, Australia, as well as Japan, S Korea, China, Hong Kong, South Africa are already on 10-ppm, while India, the Philippines, Ghana and Kenya are on 50-ppm but effectively receiving 10-ppm. Most other Asian, African, Middle East, South and Latin America are on 500 ppm. Some West African countries, Nigeria, Ivory Coast, Benin and Togo have announced plans to shift to 50-ppm this year but have missed their deadlines. Indonesia remains on 2500-ppm, with no announced plans to change. The world is expected to fully move to ULSD by 2035.

24 GLOBAL OIL MARKET OUTLOOK - DIESEL/GASOIL (CONCLUSION) In the near-term, we believe that the gasoil market will be supported by a combination of factors currently at play, particularly production losses due to weather-related supply disruptions in the US and outages/maintenances in Asia/Europe in the face of the looming winter. This could well sustain the market at relatively stronger price-levels at least until Q4/Q1, despite impact of the hurricanes on refining infrastructure appearing to be minimal, with most of the US refineries returning to normal operating rates within a few weeks. However, US inventories shrank in the summer months for the first time since 2000, versus growing an average of 10% for each year before, signaling a loss of production that might impact during the winter supplies, particularly if it is harsh.

25 GLOBAL OIL MARKET OUTLOOK GASOLINE (CONCLUSION) The market is supported by production losses as a result of the hurricanes, as well as refinery outages in Australia, the United Arab Emirates, South Korea and France that caused large production losses, while India, Asia s largest supplier, did not max its exports, like it did in Australia imported an all-time high 1.62 million mt for March, nearly double its monthly average on a major shutdown of its 146,000-bpd refinery in Kwinana that occurs once every 4 years. The UAE s 800,000-bpd refinery in Ruwais has been down since the start of the year, following a fire, and gasoil exports have fallen to 200, ,000 mt/month, down from 300, ,000 mt previously; with the plant not expected fully functional until 2019.

26 GLOBAL OIL MARKET OUTLOOK GASOLINE (CONCLUSION) GS Caltex, South Korea s second largest refiner, has shut its 66,000-bpd vacuum residue hydrocracker since August following two fires at its 790,000-bpd Yeosu plant, with the restart date uncertain. Fires at four of oil major Shell s plants in different locations led to shutdowns of varying durations, with the most severe at its 404,000-bpd Pernis plant in the Netherlands, Europe s largest, which was entirely shut for three weeks from July 29, forcing it to declare force majeure on several products. Another fire at its 325,700 bpd plant in Deer Park, Texas, led to a month-long shutdown, in mid-august, exacerbated by Hurricane Harvey, while a 227,586 bpd facility in Lousiana was shut for a week and another 140,000-bpd refinery in Germany was also hit by a fire. In H1 2017, India exported an average of 1.26 million mt/month; well below its H average of 1.4 million mt/month.

27 GLOBAL OIL MARKET OUTLOOK - DIESEL/GASOIL (CONCLUSION) However, we believe the market s broader fundamentals will reassert themselves, beyond this winter season at the latest, as the oversupplied environment is structural and the excess barrels are not going away anytime soon. Supplies are expected to rise further between now and 2019, more capacity additions in the Middle East and Asia, notably Vietnam, are expected to proceed, as well as China s increased exports. The shift to 10-ppm globally is slow, over the next years, and will not come soon enough to absorb the current oversupply of the ULSD grades. Going forward, there will continue to be similar price rallies, driven by weather-related supply disruptions and supply imbalances, particularly between high 500-ppm and low 10-ppm sulphur grades, as many Asian and African countries still have high-sulphur benchmarks.

28 GLOBAL OIL MARKET OUTLOOK - DIESEL/GASOIL (CONCLUSION) On the demand side, we believe gasoil demand will steadily increase, but the question remains if it would be sufficient to absorb the prevailing oversupply. Demand from key buyers is unlikely to see any dramatic increase the European economy remains stagnant, Australia has already maxed its short-term demand as no further refinery closures are expected, while Indonesia is producing more of its own supply and moving away from diesel as a power-generation fuel. The only real lifeline in a sudden surge in demand, and this can potentially occur if a substantial portion of the 9-10 million mt/month marine fuels market shifts towards gasoil.

29 GLOBAL OIL MARKET OUTLOOK - DIESEL/GASOIL THOMSON REUTERS OIL RESEARCH & FORECASTS MEDIUM OUTLOOK FOR DIESEL STEADY/BEARISH

30 GLOBAL MARKET OUTLOOK: GASOLINE Gasoline The darling of the refining barrel in 2015 and the pauper in How will gasoline fare in 2017/18 and what are its key drivers?

31 GLOBAL OIL MARKET OUTLOOK - GASOLINE The Gasoline market has led by firm fundamental demand from the US, China, Australia and Indonesia for the past 2-3 years. East Asia s demand is largely supplied regionally, by South Korea, China, Taiwan, Japan, Singapore and to a lesser extent, India. Despite the huge increases in refining capacity, particularly from the Middle East, yields for gasoline remain relatively low at 10-15%, versus 30-35% for diesel, keeping its supply-demand balance structurally strong. The incremental Middle East production have largely stayed at home to meet domestic consumption and the region is still a nett importer. Recent events, particularly weather-related supply disruptions, refinery outages and sentiment trading, have led to production losses that has kept price benchmarks firm.

32 GLOBAL OIL MARKET OUTLOOK - GASOLINE Demand from Asia s two largest buyers, Australia and Indonesia have risen since 2012, and have provided steady demand for the region s supplies, mainly from S Korea, Taiwan, Japan and Singapore. Australia s demand doubled to about 400, ,000 mt/month since 2015, peaking at about 450,000 mt/month in H1 2017, up from around 250,000 mt from 2014 and earlier. This is driven largely by the closures of its ageing and inefficient refineries. However, Australian demand had peaked, with no more refineries being closed, and we believe the year average will be steady at about 400,000 mt/month Australia Nett Import (KT) Australia Nett (KT) Year Import (till Sept)

33 GLOBAL OIL MARKET OUTLOOK - GASOLINE Indonesia s demand has been steady, with absolute numbers at high levels of million mt/month, jumping above the 1- million mt mark in 2012, largely due to growth to its vehicle population. However, imports eased to about million mt since 2016, mainly due to increased domestic production that resulted from the upgrading of the country s refineries Indonesia Nett Import (KT) Indonesia Nett (KT) Year Import , , , , , (till Sept) 1,120.41

34 GLOBAL OIL MARKET OUTLOOK - GASOLINE US gasoline demand has steadily rebounded from 2012 in the past 2 years, with monthly imports 20 million bbls/month, in line with the improving US economy, but larger domestic production, as a result of the shale boom, kept imports well below the pre average of 30 million mt/month. For the May-Aug summer driving season, monthly imports rebounded to a 5-year high of above 25 million bbls/month and has held firm at above 22 million bbls/month since Year Avg Driving Season Avg Year/Month (KB) Yr Average 33,854 34,806 35,445 33,249 28,656 26,614 25,024 20,222 19,496 18,038 20,387 21,587 20,927 Driving season average (May 28-Sept 4) 33,980 39,588 40,213 36,182 28,941 30,463 27,935 23,019 22,024 21,125 23,769 25,512 22,340

35 GLOBAL OIL MARKET OUTLOOK - GASOLINE India is Asia s largest exporter, with a monthly average of million mt over the past 5 years, with most of its exports coming from its private refiners Reliance and Essar, as with the case for diesel. Exports from other major exporters, S Korea, Taiwan, Japan and Singapore, have been largely steady over the past 2-4 years, in the absence of any meaningful increase to refining capacity. The largest jump in exports came from China, which nearly doubled to an average of about 830,000 mt/month for this year, from under 500,000 in 2015 and earlier. *till Sept Asia Gasoline Nett Exports (KT) Year Singapore China S Korea India Japan Taiwan TOTAL , , , , , , , , , , , , * , ,995.35

36 GLOBAL OIL MARKET OUTLOOK - GASOLINE The jump in China s exports is largely driven by the government s move to issue both crude-import licences to the country s private refiners. This is despite being Asia s largest consumer with vehicle sales quadrupling in the past 10 years. Despite its large exports, China is also a major importer, but for mostly unfinished gasoline blending components such as mixed aromatics, which also can be used as feedstocks for petrochemical crackers. Nett China Gasoline Exports (KT) (till Jul)

37 GLOBAL OIL MARKET OUTLOOK - GASOLINE Vehicle sales in China has quadrupled over the past 10 years, hitting 2.3 new million vehicles/month in 2016, growing by an average of 15.3% during the period. This unabated growth has translated into a huge appetite for gasoline, although import volumes for finished products are low as it imports mostly blending components. However, the easing GDP, which has fallen to 6.5-7% currently, has led to a fall in vehicle sales for the first time in at least 10 years, falling by about 3% on-year. Years Vehicle Sales % Growth Growth , , % 133, , % 48, ,135, % 354, ,503, % 368, ,544, % 40, ,608, % 64, ,832, % 224, ,957, % 124, ,046, % 89, ,328, % 281, * 2,292, % *till Oct

38 GLOBAL OIL MARKET OUTLOOK - GASOLINE In 2016, gasoline margins crashed as a result of overproduction by refiners in Asia and the US, largely drawn by sterling gasoline margins the year before, and in the face of poor diesel margins. This year, exports for most of Asia s refiners, in H1, were steady-to-higher vs H1 2016, with the exception of India and Japan. The exports were led by China and South Korea, both at 800, ,000 mt/month, followed by Singapore and Taiwan at about 630,000 mt and 350,000 mt respectively. India averaged at 1.25 million mt/month, up from the full-year 2016 s average of 1.12 million mt/month but well below the yedar s H1 average of 1.44 million mt/month Asia Gasoline Exports (H1 only) Singapore China S Korea India Japan Taiwan H1 Asia Gasoline Nett Exports (KT) Singapor Year e China S Korea India Japan Taiwan TOTAL , , , , , , , , , , , , , ,050.12

39 GLOBAL OIL MARKET OUTLOOK - GASOLINE Similarly, US inventories peaked at around 30-million mt/month in 2016, including hitting all-time high levels of above 30 million mt/week for 3 straight weeks, averaging at about 28.5 million mt/week by end-august as price benchmarks crashed. The scenario is similar this year, with strong inventory builds of over 30 million mt/week for 4-5 consecutive weeks in February, and averaging at similar levels by end-august, but with no price crash this time US TOTAL GASOLINE INVENTORY BY YEAR (KT) Stocks (Kt) Average 24, , , , , , , , , , ,743.56

40 GLOBAL OIL MARKET OUTLOOK - GASOLINE Unlike in 2016, Gasoline price benchmarks stayed strong in the face of increased supply, with its Cash Singapore 92-RON cracks to Brent Crude Futures averaging at above $10/bbl for only a second time in the past 7 years, and averaging at a 19- month high of $12.86/bbl in Aug. The market did show some signs of weakness in May-July, averaging at under $10/bbl, ironically during the peak US Q2 summer driving season. The impact of Hurricane Harvey lifted the cracks further, with daily levels for September soaring above $15/bbl, the highest price level in nearly two years. $14.00 $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $0.00 Asia Gasoline Cracks (Cash) Gasoline Month Average Cracks Year Jan $7.59 $8.80 $7.97 $7.08 $5.08 $15.32 $11.13 Feb $5.08 $10.18 $13.94 $8.13 $8.78 $7.75 $11.46 Mar $4.36 $9.94 $11.33 $8.91 $13.19 $10.03 $9.12 Apr $5.16 $11.00 $7.28 $9.52 $12.40 $8.46 $10.85 May $7.62 $8.12 $8.03 $8.73 $15.29 $8.48 $9.95 Jun $4.25 $5.54 $11.46 $8.69 $17.12 $6.58 $9.63 Jul $7.53 $8.36 $11.87 $11.31 $15.53 $2.73 $10.04 Aug $11.72 $11.39 $4.36 $5.80 $14.16 $4.70 $12.86 Sep $11.86 $8.91 $2.85 $9.89 $12.96 $8.25 $12.31 Oct $11.86 $8.73 $2.58 $10.20 $11.26 $8.50 $10.02 Nov $0.86 $7.27 $4.17 $8.11 $10.19 $9.59 $10.36 Dec $3.59 $6.71 $5.54 $7.38 $13.46 $9.29 Avg Price $6.79 $8.75 $7.61 $8.65 $12.45 $8.31 $10.70 *Up till Sept 30

41 GLOBAL OIL MARKET OUTLOOK GASOLINE (CONCLUSION) We believe that the price environment was able to stay firm this year, even prior to the hurricanes, due to confluence of coincidental events in Australia, the United Arab Emirates, South Korea and France that caused large production losses, while India, Asia s largest supplier, did not max its exports, like it did in Australia imported 700,000 mt for March, nearly double its monthly average on a major shutdown of its 146,000-bpd refinery in Kwinana that occurs once every 4 years. The UAE s 800,000-bpd refinery in Ruwais has been down since the start of the year, following a fire, and it has sought 1.5 million mt of gasoline for March-December delivery; with the gasoline-making unit not expected to be online until The continued shutdown of GS Caltex s 66,000-bpd vacuum residue hydrocracker since August, following two fires at its 790,000-bpd Yeosu plant, adds to the production losses. Fires at four of oil major Shell s plants in different locations led to shutdowns of varying durations, with the most severe at its 404,000-bpd Pernis plant in the Netherlands, Europe s largest, which was entirely shut for three weeks from July 29.

42 GLOBAL OIL MARKET OUTLOOK GASOLINE (CONCLUSION) We believe that gasoline, unlike diesel, is already fundamentally strong in the medium-term, and these production losses will keep the market firmer, especially with the UAE expected to continue imports well into next year and the GS Caltex plant yet to return. Australian and Indonesian demand are expected to be steady at higher levels, though the upside is limited as no further refinery closures in Australia are expected. Improving US demand that has seen import levels rise steadily since 2010, amid a robust economy, heading towards post-shale peaks. However, we believe that refiners are unlikely to switch the configuration of their plants to yield more gasoline versus diesel this time round, unlike in 2016, as diesel supplies are also expected to be tight in the short term as a result of the same production losses.

43 GLOBAL OIL MARKET OUTLOOK GASOLINE THOMSON REUTERS OIL RESEARCH & FORECASTS NEAR/MEDIUM OUTLOOK FOR GASOLINE STEADY

44 THANK YOU For more information, contact Yaw Yan Chong, Director, Oil Research Call: DID: , Cell: Message: IM (Reuters Messaging): All data from Thomson Reuters Oil Research & Forecasts on Eikon, customs departments of China, S Korea, Japan, Taiwan, India and Singapore