MEG Oil Market Outlook

MEG Oil Market Outlook (covering crude oil and oil products) July 2018 bancosta blue studies volume WET 2017/#13 research www.bancosta.com ; research@bancosta.com Jul 2018 MEG Oil Market Outlook 1

Index 1. Crude Oil page 3 2. Refining Capacity page 23 3. Oil Products page 28 4. Final Words page 41 Jul 2018 MEG Oil Market Outlook 2

Crude Oil (production and trade) Jul 2018 MEG Oil Market Outlook 3

In this outlook we will look into the oil market (crude, refining and oil products) of the Middle East Gulf and in particular of Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates (UAE) and Yemen. According to OPEC, Middle Eastern countries accounted for 53.3 percent of global proven oil reserves and over 34 percent of global crude production in 2017; making the Arabian Gulf the largest crude producing region globally. Looking at crude oil reserves in the MEG, Saudi Arabia holds 33.3 percent, followed by Iran and Iraq with an additional 19.5 percent and 18.4 percent respectively. These reserves are located both onshore and offshore in shallow water. In terms of production, the MEG countries produced in total approximately 25.7 million barrels per day (bpd) in 2017. Saudi Arabia is by far the largest producer in the region accounting for 38.8 percent of the total. Iraq in 2017 was the second largest producer in the region accounting for 17.4 percent of the region s production remaining on similar levels of the previous year. Iraq s crude production is mainly situated in the southern part of the country and even during the U.S. invasion/occupation the country continue to produce however at significantly smaller quantities. Since 2007 when the Iraqi authorities started submitting consistent data, there has been constant growth in production reaching 4.65 million bpd in 2016. Iraqi production in 2017 averaged around 4.47 million bpd, 3.8 percent less y-o-y. In 2016 the international sanctions, that have strangled the Iranian economy over the past decade, have been lifted allowing Iranian production to grow of about 400,000 bpd and being the third largest producer in MEG in 2016, but new sanctions decided by the U.S. could affect again exports from the country. All eight countries except of Bahrain and Oman are members of OPEC, as a result the production and export strategy in the region is fairly coordinated. In September 2016, in Algiers, OPEC members agreed the first oil cut in 8 years. OPEC will reduce output by about 1.2 million bpd by January cutting its production to 32.5 million barrels. The agreement has been extended for the following months until June 2018 when, mainly due to a good rebound in crude oil prices, OPEC members and Non-OPEC acceding countries were discussing to reduce these cuts. On 22 June 2018 major oil producers have agreed to pump more crude to help reduce prices and prevent a supply shortage changing the trend recorded in the previous 18 months and the countries seem to be ready to increase their global production of around 1 million bpd. Following this line, crude oil exports from Saudi Arabia surged to a 15-month high in June as the country ramped up its production. Jul 2018 MEG Oil Market Outlook 4

Global Proven Crude Oil Reserves by Region - 2017 (Source: OPEC ; in percent of total volume) Africa 8.6% Asia Pacific 3.2% North America 2.5% Latin America 22.7% Eurasia 8.1% Europe 0.7% Middle East 54.3% Middle East countries control the largest global proven oil reserves, over half of the world s total. Latin America accounts for almost 23 percent, followed by Africa and Eurasia (mainly Russia) with around 8 percent each. Jul 2018 MEG Oil Market Outlook 5

MEG Proven Crude Oil Reserves by Country - 2017 (Source: OPEC ; in percent of total volume) UAE 12.2% Iran 19.5% Saudi Arabia 33.3% Qatar 3.2% Oman 0.7% Kuwait 12.7% Iraq 18.4% Saudi Arabia holds the biggest proven oil reserves in the region, accounting for 33.3 percent of the MEG s total. This is followed by Iran and Iraq, which account for 19.5 percent and 18.4 percent respectively. Jul 2018 MEG Oil Market Outlook 6

units MEG Crude Oil Active Rigs by Country - last 10 years (source: OPEC/Baker Huges ; in number of units ; July 2018) 600 500 400 300 200 100 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Iran Saudi Arabia Kuwait UAE Oman Iraq Others The number of active oil rigs in the Middle East has almost doubled compared to a decade ago, from 277 in 2007 to 535 in 2017. The rise in active rigs was aided by the end of the Iraq war, and the rally in crude oil prices from the bottom reached in end 2008. While crude prices fell again between 2014-2016, the number of active rigs stayed elevated as MEG producers seeked to retain market share, decreasing only in 2017 with the OPEC production cut agreement. Jul 2018 MEG Oil Market Outlook 7

million bpd MEG Crude Oil Production by Country - last 10 years (source: OPEC/JODI; in million bpd ; July 2018) 30.0 25.0 20.0 15.0 10.0 5.0 0.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 S. Arabia Iraq Iran UAE Kuwait Oman Qatar Others Crude oil production in the MEG has increased over the past decade by approximately 15 percent. The region recorded a strong production increase in 2016, exceeding 26 million barrels per day, followed by a reduction in 2017 mainly due to cuts in production decided by OPEC. Jul 2018 MEG Oil Market Outlook 8

Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 million bpd Saudi Arabia Crude Oil Production - last 24 months (source: OPEC/JODI; in million bpd ; July 2018) 11.0 10.8 10.6 10.4 10.2 10.0 9.8 9.6 9.4 9.2 9.0 Saudi Arabia has consistently maintained its leading position among crude oil producers in the MEG. The country s production over the last 24 months has been robust, mostly averaging around 10 million bpd. There was some slowdown from the end of 2016 due to OPEC s crude oil cut deal signed in September 2016. Jul 2018 MEG Oil Market Outlook 9

Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 million bpd Iraq Crude Oil Production - last 24 months (source: OPEC/JODI; in million bpd ; July 2018) 5.6 5.4 5.2 5.0 4.8 4.6 4.4 4.2 4.0 3.8 3.6 Following the end of the Iraq war, crude oil production recorded a strong increase before reaching a steady level of around 4.5 million bpd. Over the past two years there has only been a slight slowdown, with output now remaining flat at around 4.4 million bpd during the last 12 months. Jul 2018 MEG Oil Market Outlook 10

Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 million bpd Iran Crude Oil Production - last 24 months (source: OPEC/JODI; in million bpd ; July 2018) 4.6 4.4 4.2 4.0 3.8 3.6 3.4 3.2 3.0 2.8 2.6 As exports were stimulated following the lifting of sanctions in January 2016, Iran s crude oil production increased from around 3.1 million bpd in 2015, to around 4 million bpd by the end of 2016. Production has since steadied at around 3.8 million bpd, although there is the risk of production decreasing going forward as exports are again affected by renewed sanctions implemented by the U.S.. Jul 2018 MEG Oil Market Outlook 11

million bpd MEG Crude Oil Consumption by Country- last 10 years (source: OPEC/JODI; in million bpd ; July 2018) 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Iran Iraq Kuwait Qatar Saudi Arabia UAE Others Crude oil consumption in the MEG has grown by around 2 million bpd over the last ten years. The lion s share of growth came from Saudi Arabia, where several refineries were built, resulting in consumption increasing by around 1.1 million bpd over the past decade, to its current level of around 2.9 million bpd. Jul 2018 MEG Oil Market Outlook 12

Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 million bpd Saudi Arabia Crude Oil Consumption - last 24 months (source: OPEC/JODI; in million bpd ; July 2018) 3.2 3.0 2.8 2.6 2.4 2.2 2.0 1.8 1.6 1.4 1.2 Over the past few months, crude oil consumption in Saudi Arabia fell, likely due to the planned maintenance of the 400,000 bpd SAMREF refinery and cooler temperatures at the start of the year. The extremely hot summer months in Saudi Arabia tend to strongly affect the consumption of crude oil for power generation. Jul 2018 MEG Oil Market Outlook 13

Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 million bpd Iran Crude Oil Consumption - last 24 months (source: OPEC/JODI; in million bpd ; July 2018) 2.6 2.4 2.2 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 Consumption of crude oil in Iran has maintained at relatively steady levels over the last 24 months, although the increase in exports following the lifting of Iranian sanctions, as well as the possibility of importing new feedstocks for domestic refineries, has allowed Iran to slightly increase crude oil consumption. Jul 2018 MEG Oil Market Outlook 14

Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 million bpd U.A.E. Crude Oil Consumption - last 24 months (source: OPEC/JODI; in million bpd ; July 2018) 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Crude oil consumption in the U.A.E. is mainly linked to the 900,000 bpd Ruwais refinery in Abu Dhabi, with consumption increasing along with the completion of an expansion project in 2015. Another expansion is being planned for the Ruwais refinery, which will boost its refining capacity to 1.5 million bpd by 2025. Jul 2018 MEG Oil Market Outlook 15

Global Crude Oil Exports by Region - 2017 (Source: OPEC ; in percent of total volume ; July 2018) Africa 14.0% Asia Pacific 2.9% North America 9.0% Latin America 11.3% Middle East 41.9% Eastern Europe and Eurasia Western Europe 16.0% 4.9% The Middle East dominated as the largest crude exporting region in 2017, accounting for around 42 percent of global exports. The next largest exporting region is Eastern Europe and Eurasia (mainly Russia), as well as Africa. Jul 2018 MEG Oil Market Outlook 16

MEG Crude Oil Exports by Country - 2017 (Source: OPEC ; in percent of total volume ; July 2018) UAE 12.7% Others 1.0% Iran 11.3% Iraq 20.3% Saudi Arabia 37.2% Qatar 2.5% Oman 4.3% Kuwait 10.7% Saudi Arabia, Iraq, and the UAE account for around 37 percent, 20 percent, and 13 percent respectively of crude exports from the MEG. Jul 2018 MEG Oil Market Outlook 17

million bpd MEG Crude Oil Exports by Country - last 10 years (source: OPEC/JODI; in million bpd ; July 2018) 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Iran Iraq Kuwait Oman Qatar Saudi Arabia UAE Others In 2016, crude exports reached a record of 19.3 million bpd, mainly due to a strong growth in Iranian and Iraqi performance. In 2017, crude exports fell slightly to 18.7 million bpd, mainly due to the implementation of OPEC production cuts. Jul 2018 MEG Oil Market Outlook 18

Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 million bpd Saudi Arabia Crude Oil Exports - last 24 months (source: OPEC/JODI; in million bpd ; July 2018) 8.5 8.0 7.5 7.0 6.5 6.0 5.5 Before 2017, exports from Saudi Arabia had continued at a good pace, in line with OPEC s policies to conserve market share in spite of the low price of crude oil. Following the OPEC output cut agreement, exports from Saudi Arabia fell from over 8 million bpd in end 2016, to an average of around 7 million bpd in 2017. The pace of exports have been increasing in recent months as the oil price situation improves. Jul 2018 MEG Oil Market Outlook 19

Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 million bpd Iraq Crude Oil Exports - last 24 months (source: OPEC/JODI; in million bpd ; July 2018) 5.0 4.5 4.0 3.5 3.0 2.5 2.0 Iraq increased crude production exports to a record level in end 2016, ahead of the OPEC production cut meeting in Algeria. Exports from the country have since maintained at around 3.8 million bpd. Jul 2018 MEG Oil Market Outlook 20

Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 million bpd U.A.E. Crude Oil Exports - last 24 months (source: OPEC/JODI; in million bpd ; July 2018) 4.0 3.5 3.0 2.5 2.0 1.5 1.0 Even with the OPEC production cut agreement in place, reductions in exports from U.A.E. have not been as obvious as they use a higher baseline for their output cut than the one stipulated in the agreement. However, the country had been slashing oil exports more in recent months to demonstrate their commitment. Jul 2018 MEG Oil Market Outlook 21

Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 usd per barrel MEG Crude Oil Prices - last 24 months (source: OPEC/JODI; in USD/bbl ; July 2018) 70 65 60 55 50 45 40 35 S Arabia Iraq Iran Kuwait Qatar Dubai During last 2 years global crude oil prices recorded a strong growth. Crude oil grades exported from the MEG, of course, followed a similar trende moving from under 40.0 USD/bbl to almost 70 USD/bbl in April. Jul 2018 MEG Oil Market Outlook 22

Refining Capacity (current and projected) Jul 2018 MEG Oil Market Outlook 23

Countries in the Middle East Gulf currently account for approximately 9 percent of global refining capacity. Refining capacity in the region totals approximately 9.0 million bpd, with the majority located in Saudi Arabia, Iran and the U.A.E. In 2017, Saudi Arabia and Iran accounted for 32.1 percent and 21.1 percent of refining capacity in the region respectively, followed by the United Arab Emirates with a further 12.5 percent. Countries in the region have significantly built up their refining capacity in recent years. Governments have been keen to invest in refining capacity in an attempt to extend down the value chain, reduce dependency on oil product imports, increase regional industrialization and create jobs. Saudi Arabia has experienced the largest increase in refining capacity in the region over the past few years due to significant investment in large scale refineries. Refining capacity in Saudi Arabia has increased on average 11.3 percent per year over the past four years to reach 2.9 million bpd in 2015. The largest new refineries in Saudi Arabia include the Satorp refinery of 400,000 bpd in Jubail and the Yasref refinery of 400,000 bpd in Yanbu. Significant refinery expansion has also occurred in Qatar and in the UAE. Refining capacity in the two countries has grown 13.6 percent and 5.8 percent respectively over the past ten years to 430,000 bpd and 1.1 million bpd. As a result of increased refining capacity in the region, refinery intake has also increased substantially. Refinery intake in the Arabian Gulf has increased 27 percent over the past ten years to reach over 8.5 million bod in 2017. In 2017, Saudi Arabia and Iran accounted for 33 percent and 21 percent of refinery intake in the MEG respectively, followed by the United Arab Emirates and Kuwait with further 12.3 percent and 8.4 percent respectively. In the end of 2015 the Ruwais refining complex in the United Arab Emirates came completely on stream increasing the global capacity of the country reaching 1,12 million bpd, but in January 2017 has been damaged by fire that caused the shut of part of the plants and plans to restart a gasoline-making secondary unit at the refinery have projected to be completed only into early 2019. In 2017 countries in the MEG produced mainly gasoline, accounting for 22 percent of the global refining output, folloqued by residual fuel oil at 20 percent and distillates like diesel and gasoil which account for a further 19 percent. Jul 2018 MEG Oil Market Outlook 24

World Refining Capacity by Region - 2017 (Source: OPEC ; in percent of total volume) Asia Pacific 32.9% North America 21.0% Latin America 8.9% Africa 3.7% Middle East 9.3% Western Europe 13.8% Eurasia 10.4% In 2017, the Asia Pacific accounted for 32.9 percent of global refining capacity, followed by North America and Western Europe which accounted for a further 21.0 percent and 13.8 percent respectively. MEG countries accounted for 9.3 percent. Jul 2018 MEG Oil Market Outlook 25

MEG Refining Capacity by Country - 2017 (Source: OPEC ; in percent of total volume) Others 13.8% Iran 21.1% UAE 12.5% Iraq 7.1% S.Arabia 32.1% Qatar 4.8% Kuwait 8.5% Saudi Arabia has the largest refining capacity in MEG accounting for 32.1 percent of the total, followed by Iran, UAE, and Kuwait accounting for further 21.1 percent, 12.5 percent and 8.5 percent respectively. Jul 2018 MEG Oil Market Outlook 26

million bpd MEG Refining Capacity by Country - last 10 years (source: OPEC ; in million bpd ; July 2018) 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Iran Iraq Kuwait Qatar S.Arabia UAE Others Refining output in the MEG has grown by around 27 percent over the past decade, registering a stronger increase after 2012 when several new refineries were completed in Saudi Arabia and UAE. In 2017, refining capacity fell slightly, partly as the aging 200,000 bpd Shuaiba refinery was shuttered in Kuwait. Jul 2018 MEG Oil Market Outlook 27

Oil Products (production and trade) Jul 2018 MEG Oil Market Outlook 28

Despite being a major exporter of crude oil, the region has traditionally been a net importer of oil products. Large volumes of crude oil sold to Asia and Europe from countries in the Middle East Gulf are shipped straight back as oil products. However significant new refining capacity being built in the region is changing oil product trade flows. Oil product imports to the MEG have increased 2.2 percent on average per year over the past decades to reach over 1.75 million bpd in 2017. Oil product imports to the region are dominated by Saudi Arabia, which in 2017 accounted for approximately 28 percent of imports to the region. In 2017, gasoline accounted for almost half of oil product imports to the MEG, followed by residual fuel oils which accounted for a further 26.7 percent of product imports to the region and distillates like gasoil with a further 17.7 percent. Saudi Arabia imports large volumes of gasoline. However as the countries ramps up refining capacity, gasoline imports are expected to fall. Saudi Arabia is aiming to become self sufficient in gasoline over the next few years. The UAE relies heavily on oil product imports to meet domestic demand. It imports relatively large volumes of residual fuel oil and relatively limited volumes of motor gasoline and diesel fuel. Qatar, Iraq and Iran import relatively small volumes of oil products due to disparities between the oil products produced and domestic demand. Over 90 percent of the oil products imported to Iran are gasoline. Iran expects to become self sufficient in gasoline by the end of 2018, therefore oil product imports to the country are expected to fall substantially. Oil product exports from the Middle East Gulf have grown 5.5 percent per year on average over the past ten years. In 2017, Saudi Arabia, Iran, the U.A.E. and Qatar accounted for 32 percent, 22.1 percent, 14.6 percent and 14.2 percent of oil product exports from the region respectively. Refining output in Saudi Arabia during the last 24 months grew from 2.7 to over 2.9 million bpd. Refineries production topped in August 2017 at 3.1 million bpd. With substantial new refining capacity coming online in Saudi Arabia, oil product exports from the country are expected to continue to increase. Saudi Arabia will face competition for export markets in Europe and Asia and may need to look to markets in Africa and South America. However refineries in Saudi Arabia will benefit from cheap feedstock. Jul 2018 MEG Oil Market Outlook 29

MEG Oil Products Production by Country - 2017 (Source: OPEC/JODI ; in percent of total volume) UAE 12.3% Others 11.0% Iran 20.9% Iraq 5.7% Kuwait 8.4% Saudi Arabia 33.6% Qatar 8.2% The countries with the largest refining capacity are also the main oil product producers. Oil product output in the MEG came mainly from Saudi Arabia, Iran, and UAE in 2017, accounting for 33.6 percent, 20.9 percent, 12.3 percent respectively. Jul 2018 MEG Oil Market Outlook 30

million bpd MEG Oil Products Production by Country - last 10 years (source: OPEC/JODI; in million bpd ; July 2018) 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Iran Iraq Kuwait Qatar Saudi Arabia UAE Others Refining output in the MEG has grown from around 6 million bpd in 2007, to around 8.5 million bpd in 2017. Refinery production peaked in 2016 at 8.7 million bpd. Jul 2018 MEG Oil Market Outlook 31

Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 million bpd Saudi Arabia Oil Products Production - last 24 months (source: OPEC/JODI; in million bpd ; July 2018) 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Kerosenes Gasoil Gasoline Fuel Oil Others Refining output in Saudi Arabia over the last 24 months has remained fairly constant at around 2.8 million bpd. Refineries production peaked in August 2017 at 3.04 million bpd. Jul 2018 MEG Oil Market Outlook 32

Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 million bpd Iran Oil Products Production - last 24 months (source: OPEC/JODI; in million bpd ; July 2018) 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Kerosenes Gasoil Gasoline Fuel Oil Others Iran has seen a slight increase in refinery output over the past 2 years, from around 1.6 million bpd in 2016, to almost 1.7 million bpd in 2017. Jul 2018 MEG Oil Market Outlook 33

Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 million bpd UAE Oil Products Production - last 24 months (source: OPEC/JODI; in million bpd ; July 2018) 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 Kerosenes Gasoil Gasoline Fuel Oil Others Oil products output in the UAE showed a strong plunge in January 2017 due to a fire hitting Abu Dhabi National Oil Company 800,000 bpd refinery in Ruwais that had to shut half of its total capacity, with a particular impact on less refined products and petrolchemical products like propylene. Jul 2018 MEG Oil Market Outlook 34

MEG Oil Products Exports by Country - 2017 (Source: OPEC/JODI ; in percent of total volume ; July 2018) UAE 14.6% Others 1.7% Bahrain 5.4% Iran 22.1% Iraq 0.4% Saudi Arabia 32.0% Qatar 14.2% Kuwait 9.5% In 2017, Saudi Arabia accounted for 32 percent of oil product exports from the MEG. Followed by Iran which accounted for a further 22.1 percent of product exports from the region. Jul 2018 MEG Oil Market Outlook 35

million bpd MEG Oil Products Exports by Country - last 10 years (source: OPEC/JODI; in million bpd ; July 2018) 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Bahrain Iran Iraq Kuwait Qatar Saudi Arabia UAE Others Oil product exports from the MEG have grown 5.5 percent per year on average over the past ten years reaching over 4.6 million bpd in 2016. In 2017 exports recorded a 3.1 percent slowdown y-o-y mainly due to changes in crude oil prices and the shut down of ADNOC refinery in January 2017. Jul 2018 MEG Oil Market Outlook 36

MEG Oil Products Exports by Product - 2017 (Source: OPEC/JODI ; in percent of total volume ; July 2018) Others 35.9% Gasoline 20.1% Kerosene 11.8% Residual Fuel Oils 19.2% Distillates 13.0% In 2017, MEG countries exported mainly gasoline and fuel oils, accounting respectively for 20.1 percent and 19.2 percent of the total exports from the area. Jul 2018 MEG Oil Market Outlook 37

MEG Oil Products Imports by Country - 2017 (Source: OPEC/JODI ; in percent of total volume ; July 2018) Iran 5.4% Iraq 6.6% Others 44.6% Saudi Arabia 27.6% UAE 15.7% Saudi Arabia accounted for around 27.6 percent of the global oil products imports in the MEG followed by the UAE with a further 15.7 percent. Iraq and Iran reached together another 12.0 percent. Jul 2018 MEG Oil Market Outlook 38

million bpd MEG Oil Products Imports by Country - last 10 years (source: OPEC/JODI; in million bpd ; July 2018) 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Iran Iraq Saudi Arabia UAE Others Oil product imports to Saudi Arabia have grown 10.2 percent per year over the past ten years topping at 590 million bpd in 2016. Also Iraq recorded a positive trend with imports increased by 7.1 percent per year during last decade. Jul 2018 MEG Oil Market Outlook 39

MEG Oil Products Imports by Product - 2017 (Source: OPEC/JODI ; in percent of total volume ; July 2018) Residuals Fuel Oils 26.7% Others 3.9% Gasoline 43.7% Distillates 17.7% Kerosene 7.9% Gasoline has been the most imported oil products in the MEG countries, accounting for around 43.7 percent of the global imports. Residual fuel oils and distillates like gasoil reached a further 26.7 percent and 17.7 percent respectively. Jul 2018 MEG Oil Market Outlook 40

Final Words (summary and conclusions) Jul 2018 MEG Oil Market Outlook 41

The Middle Eastern countries accounted for 53.3 percent of global proven oil reserves and over 34 percent of global crude production in 2017; making the Arabian Gulf the largest crude producing region globally. Looking at crude oil reserves in the MEG, Saudi Arabia holds 33.3 percent, followed by Iran and Iraq with an additional 19.5 percent and 18.4 percent respectively. In terms of output, the countries produced in total approximately 26.6 million barrels per day (bpd) in 2016 and, mainly due to OPEC cuts agreed in September 2016, dropped at around 25.7 million bpd in 2017. Saudi Arabia is by far the largest producer in the region accounting for 38.8 percent of the total. Iraq in 2017 was the second largest producer in the region accounting for 17.4 percent of the region s production remaining on similar levels of the previous year. In September 2016, in Algiers, OPEC members agreed the first oil cut in 8 years. OPEC will reduce output by about 1.2 million bpd by January cutting its production to 32.5 million barrels. The agreement has been extended for the following months until June 2018 when, mainly due to a good rebound in crude oil prices, OPEC members and Non-OPEC acceding countries were discussing to reduce these cuts. On 22 June 2018 major oil producers have agreed to pump more crude to help reduce prices and prevent a supply shortage changing the trend recorded in the previous 18 months and the countries seem to be ready to increase their global production of around 1 million bpd. Following this line, crude oil exports from Saudi Arabia surged to a 15-month high in June as the country ramped up its production. Countries in the Middle East Gulf currently account for approximately 9 percent of global refining capacity. Refining capacity in the region totals approximately 9.0 million bpd, with the majority located in Saudi Arabia, Iran and the U.A.E. In 2017, Saudi Arabia and Iran accounted for 32.1 percent and 21.1 percent of refining capacity in the region respectively, followed by the United Arab Emirates with a further 12.5 percent. Countries in the region have significantly built up their refining capacity in recent years. Governments have been keen to invest in refining capacity in an attempt to extend down the value chain, reduce dependency on oil product imports, increase regional industrialization and create jobs. Oil product exports from the Middle East Gulf have grown 5.5 percent per year on average over the past ten years. In 2017, Saudi Arabia, Iran, the U.A.E. and Qatar accounted for 32 percent, 22 percent, 15 percent and 14 percent of oil product exports from the region respectively. Jul 2018 MEG Oil Market Outlook 42

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