EFTA Document EFTA01761884

From: Ens, Amanda Sent: Thursday, Apri To: Jeffrey Epstein ([email protected]) Cc: Barrett, Paul 5; Weissend, Renee E Subject: Brent vs WTI =OA =effrey, <=:p> Plea=e find follow-up points below as promised; let us know if you have any que=tions. =o:p> &nb=p; Term structure of brent (backwardation) vs WTI (contango) m=re attractive to go long brent • Supply story more favorable for hi=her brent than WTI prices. Seaway pipeline likely not enough to balance =he supply of WTI in Cushing • Supplies of WTI remain very healthy. North Am=rica retains its primary role in expanding non-OPEC supply, accounting for=82% of the total increase over the last two years. • Flows from the Keystone XL pipeline leading out of Cushing into the G=lf Coast have been delayed, but should start in late 2013 and allow =n additional 700kb/d to leave Cushing. With Seaway currently pumping —30=kb/d from Cushing to the Gulf Coast, Keystone would represent a significan= increase in pipeline capacity. • The Seaway =ipeline in combination with the Keystone XL pipeline will help allev=ate some of the supply building up in Cushing. However, we donR=7;t believe these projects will be sufficient to completely resolve the WT= supply overhang. =OD Brent supply/demand =alances remain tight with OPEC production slowing and Chinese demand growi=g 12 =onth price target: $120/bbl Brent & $105/bbl WTI • = Brent crude prices hav= softened from their February highs, as the global market balance eased on=the back of seasonally weaker product demand, and a diminished pull =n crude as refineries approach a short-term peak in planned maintenance.=o:p> • =0ALooking forward we expect = healthy appetite for crude as refineries return from maintenance, and as =lobal growth continues to improve. Specifically, we see an ongoing=recovery in the U.S., as well as continued structural demand growth fr=m emerging markets. =0A•= = Whil= demand looks supportive, supplies are also seeing a slight improvement wh=ch will keep the market roughly balanced. North American shale productio= alone cannot compensate for the global growth in demand. However =he return of volumes from Sudan and better output from Angola is likely, w=ich would help balance the market. EFTA_R1_00066943 EFTA01761884 •=nbsp; Geopolitical risk remains a critical variable in the supply eq=ation. Iran's production has decreased by roughly 25% from its 201= peak and Nigerian output has also dropped to 3 year lows with unres= in the Niger River Delta hampering production. <=p> • =/span>Given the supply/demand dynamics for crude,=the Brent crude futures curve remains in backwardation further out on the =utures curve. The differential between the prompt month future androne year forward is $2.34, which can provide attractive roll-yield if ma=ket conditions remain as tight as we expect. =OD Brent Supply • = We project 2013 =on-OPEC production growth will be 1.2mb/d (2%), driven largely by North =merican contributions from US and Canadian oil sands production. =span style="font-size:11.0pt;font-family:"Aria)","sans-=erif"'>• =0AOur projection for OPEC pr=duction is expected to decline from 31.3mb/d in 2012 to 30.9 mb/d in 2=13. The projections include a more cautious view for Libya, where =eclining supplies on the back of recent social tensions have reduced growt= expectations to almost zero for 2013. Similarly, security concerns and = reappraisal of the timing around infrastructure reconstruction lowers Ira=i growth to just 0.2 mb/d yoy, with most project start-ups now con=entrated in the 2nd half of 2013. Lastly, Saudi Arabian produ=tion has declined notably, from peak levels just below 10mb/d to current l=vels of 9mb/d. Brent Demandaspan> • </=pan>For full year 2013, we expect global d=mand to grow by 0.9 mb/d to 91.1 mb/d, with the most significant growt= coming from China, while Europe experiences another year of mild co=traction. =!lif !supportlistsj>• &n=sp; China&#=217;s total oil demand is expected to expand by 4.3% yoy to 10.3mb/d, =ith Chinese imports accounting for more than half of their demand. Some =stimates suggest that China has surpassed the United states as the l=rgest crude importer in the world. •=nbsp; While the United States and Europe will not contribute to grow=h in oil demand, the contractions we have seen in past years will slow dra=atically. The US is expected to see demand growth contract by 0.=%, from -2% in 2012 and Europe is expected to see demand contract by 1.4=, from -3.7% in 2012. 2013 Key Pipeline Projects <=:p> A=anda Ens I Vice President I Global Investment =0AOpportunities 1.P.Morgan I NMLS ID: 853443 320 Park Ave, 14th Floor, New York, NY 10022 2 EFTA_R1_00066944 EFTA01761885 This email is confidential and subject=to important disclaimers and conditions including on offers for the purcha=e or sale of securities, accuracy and completeness of information, v=ruses, confidentiality, legal privilege, and legal entity disclaimers, avarlable at http://www.jpmorgan.com/pages/disclosure=/email <http://www.jpmorgan.com/pages/disdosures/emat . =OD =OAThis email is confidential and subject to important disclaimers and cond=tions including on offers for the purchase or sale of securities, accuracy=and completeness of information, viruses, confidentiality, legal privilege= and legal entity disclaimers, available at http://www.jpmorgan.com/pa=es/disclosures/email. 3 EFTA_R1_00066945 EFTA01761886