Deutsche Asset & Wealth Management (ti% CIO Flash Oil price outlook — a slow-burn situation January 12, 2015 +++ CIO FLASH +++ CIO FLASH +++ CIO FLASH +++ CIO FLASH +++ CIO FLASH +++ CIO FLASH ++- CIO FLASH ++- CIO FLASH +++ CIO FLASH OPEC is playing the long game — We expect' that the oil markets will remain under pressure in the first half of 2015 with OPEC happy to stand on the sidelines and not attempt to limit output. — Our view is that OPEC may be playing a long game. Remaining on the sidelines to encourage the market view that oil prices will stay low for a considerable period thus discouraging capital inflows into non-OPEC production which has accounted for around 80% of the growth in global oil output in recent years.2 The focus has been on the likely impact of the oil price on U.S. shale output. but OPEC may also want to discourage other potential players (e.g. Canadian oil sands and ultra deepwater projects). — This OPEC's strategy will take some time to pay off. Although there are now some indications that the U.S.'s horizontal (i.e. shale) rig count is declining. a significant reduction in U.S. shale output could take time to achieve and it is possible that technological advances reduce the price break-even point for shale producers, further delaying the reduction in output. — Little immediate relief is likely on the demand side of the equation as well. Lower prices are not likely to change demand substantially, with histo su estin• that demand for oil is relative! rice inelastic. So market adustment has to come from reduci • su• .1 . • Our oil forecast for 2015 — We believe that OPEC's strategy is likely to have an impact and that a lot less capital will be deployed in the oil sector in 2015. — On the assumption that capital investment into U.S. shale falls by -40% in 2015. we expect that U.S shale oil output may start to fall in H2 2015. Asa result we forecast oil prices (WTI) to move upwards from -USD50ilabl now to USD65.70ibbl