3 January 2018 HY Corporate Credit HY Multi Sector.Media. Cable & Satellite Oil Macro: Recovery gains stronger footing Excerpted from 201$ Outlook: Cash jaws sot to open published on December 4 2017 OPEC's US light Oil Round 3> • Falling US tight oil breakevens have not ruined OPEC's game plan. So far, it has been remarkably successful in managing the difficult task of both holding on to market share gains since 2014 and also establishing a floor under prices, all while facing a tight oil industry which is becoming ever more efficient. We expect that the abiding interest in maintaining market share will make OPEC's Dec- 18 extension the last. • One theory holds that Saudi Arabia's difficulty in further lowering its fiscal breakeven (USD 77/bbl, down from USD 107/bbl in 2014) means that it would prefer overshooting on the oil price. However, we believe the fear of re-incentivising another wave of strong supply growth in the US must factor equally into the calculus, especially since well productivity growth shows no signs of leveling off yet. Additionally, the risk of denting demand and driving consumers to purchase more fuel-efficient vehicles should also reduce the interest in deliberately sparking an overshoot. • Visibility on US supply growth remains poor. Analysts were asked to present on US tight oil to OPEC on 24 Nov and offered tight oil growth outlooks ranging from +500kb/d to +1.7mb/d in 2018. Our view on US supply growth tends towards the lower end of the range at +773kb/d tight oil and +940kb/d total liquids, although we have raised this by 100kb/d on expectation of a recovery in rig productivity. Sensitivities to the WTI price range from +539kb/d tight oil in the case of WTI averaging USD 45/bbl, and +1.113kb/d tight oil at USD 65/bbl. • Tight oil breakevens are likely to rise as long as the rate of completions is held back by insufficient capacity. We expect that the completion bottleneck will show signs