3 January 2018 HY Corporate Credit HY Multi Sector.Media. Cable & Satellite HY Energy Outlook Jared Weil, On market rebalancing on solid footing. but potential retracement in the cards En early 2018 After three consecutive years of oversupply, the global oil market will likely a see a deficit in 2017, although slight (-0.18 mmbbls/d). The OPEC decision last month to extend production quotas sets up for an ultimate rebalancing of the market - supply and demand is expected to be largely balanced in 2018 and 2019 though that would mean little progress in addressing the sizeable inventory surplus. That will come in 2020 when the market will see a meaningful supply deficit (- 0.75 mmbbls/d) as demand grows, US onshore supply slows down and non-OPEC production declines. While the current rally in oil prices is backed by an improving fundamental outlook, there is potential for a pullback. The key near-term swing factor is US onshore supply and the outlook for that sector is turning positive - drilling activity has bottomed while completions should pick up pace as significant new frac capacity (0.5-1.0 million hhp) is coming. Production from US onshore in Q1 18 should drive the market back to oversupply after two quarters of deficit. This could drive a modest pullback in oil prices during 1H 18. Longer term, falling breakeven levels of major prospective projects (non- OPEC. non-shale), especially deepwater, will likely keep a lid on oil prices. Between 04 16 and 03 17, breakeven Brent oil price (10% discounted) of major pre-FID projects have fallen from $53/bbl to $46/bbl. For new Canadian oil sands projects, 365 (Brent) could be a threshold for additional supply kicking in. US net gas normal winter key to absorb coming production surge For most of this year, the outlook for the 2018 gas market had been largely supportive of a $3 price - driven by two factors: first, the expectation that by the 2017-18 withdrawal season, the sizeable w