摩根大通-高收益的能源-不得不改变之前改变0712

Agenda

Page

HighYieldEnergy

ChangeBeforeYouHaveTo

HighYieldEnergy

TarekHamidAC

(212)834-5468|tarek.x.hamid@

AaronRosenthal

(212)270-4584|aaron.rosenthal@

ElleBoyd

(212)270-7283|elle.boyd@

NevinMathew

(212)834-5714|nevin.mathew@July2024

Seeendpagesforanalystcertificationandimportantdisclosures,includinginvestmentbankingrelationships.J.P.Morgandoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasasinglefactorinmakingtheirinvestmentdecision.

J.PMorgan

ExecutiveSummary-ChangeBeforeYouHaveTo

nHighYieldEnergyhasperformedwellasadefensivesector

nLackofliabilitymanagement/majornegativetailriskshaveledinvestorstohideinEnergy

nBalancesheetsremainresilient,cashflowverystrong,M&Aextremelyactive

nWedowngradedtoNeutralinJuly2023,subsequentlyupgradedinMarch2024-franklydrivenmorebywhatwasgoingoninothersectors-andhavedowngradedbacktoNeutralinJuly2024

nCommoditystorybifurcatedheadinginto2025

nNaturalgasstoryrobustwithLNGdemandandincreasedpowerburn

nCrudeoilcomplicated-strongdemanddrivesdrawsin3Q24,stickyglobalcapacityadditionsdrivedownsidein2025

nKeythemesdrivingtheEnergycreditinvestmentnarrative

nM&Awavehasbeenmomentousandgenerallycreditsupportive

nCyclicalbullmarketinnaturalgasdrivenbyLNGandtoamuchlesserextentdatacenters

nGeopoliticsremainsverycomplexacrossconflictsandelections-historicallytherightanswerhasbeentofade

nValuationsatrelativedecadetights,butcreditqualityremainsstrong

nSuspectrelativeEnergyperformancein2H24hasmoretodowithliabilitymanagementinTMTthanactualEnergyfundamentals

nSometimesyouhavetoturntheshipalittleearly

nFundamentalsremainexcellent,butsecondaryopportunitieslimited

nPulltopartradesarefewandfarbetween,butrefinancingtradesremainanopportunity

nAtsectorlevelpreferMidstream/LNGoverE&P&Services2

WhatDidWeSayBackinDecember?

WhatWeSaid

nHighYieldEnergyremainswellpositionedoverall

nWedowngradedtoNeutralinJuly2023afteralongperiodofbeingOverweight;weremainNeutralheadinginto2024,butexpectaverytacticaltradingenvironment

nCommoditystoryhasbecomemuchmorecomplicated

nLiquidsdemandhasbeenstrong,butweareswimminginglobalnon-OPEC+liquidssupplygrowth

nOPEC+hasbeenheroictodate,butNovembermeetinghighlightstherisksandchallenges

nNaturalgasdemandcrushedbyweather,butdisciplinedsupplyresponseandLNGdemandbodewell

nValuationsatrelativedecadetights,butcreditqualityremainsstrong

nUnderourmarketbasecaseofwiderspreads,HighYieldEnergycreditqualityshouldoffsetyielddisadvantage

nHardtokeeppaceinaflatmarketorrallyfromherewithoutsingle-namecatalysts

nMajorfocusoncatalyst-drivenideas

nRelativelyrichopportunityintermsofacceleratedpulltoparopportunities

nSolidfundamentalsandampleappetiteforrefinancingaremajorpositives

nAtsubsectorlevelfavorMidstreamoverE&P,NeutralServices

andRefining

3

Right/Wrong

√√

√√

√

?

√

√√

?

Comment

nHighYieldEnergycontinuestotradetighttoHighYield

nUpgradedinMarchonbasisoftacticalopportunitiesvsothersectors

nLimitedUSgrowthsupplygrowthoffsetbyrestofworld,demandstrong

nLastOPECmeetingcreateduncertaintyfor2025

nNaturalgasresponsehasbeentextbook

nMarkettightened,butLMEfearsdroveinvestorsintoEnergy

nM&Acatalystsreallyhelpeddrivereturns

nDecentnumberofeventtradeshaveplayedoutwellinEnergy

nRefinancinghasbeenactivewithmoretocome

nE&PandMidstreameffectivelyinline

EnergyContinuestoTradeVeryTightRelativetoMarket&HistoricalNorms

HighYieldEnergyvs.HighYieldEx.EnergySTW

Differential(Rt.Axis)HighYieldEnergy

HiighYieldEx.Energy

2,500bp2,000bp1,500bp1,000bp500bp

0bp

Source:J.P.Morgan.

BBEnergyvs.BBEx.EnergySTW

Differential(Rt.Axis)BBEnergy

BBEx.Enenrgy

2,000bp1,500bp1,000bp500bp

0bp

Source:J.P.Morgan.

1,500bp1,000bp500bp0bp

-500bp

1,000bp800bp600bp400bp200bp0bp

-200bp

RatioofHighYieldEnergy/HighYieldEx.EnergySTW

300%260%220%180%140%100%60%

Source:J.P.Morgan.

Differential(Rt.Axis)Single-BEnergy

Single-BEx.Energy

Single-BEnergyvs.Single-BEx.EnergySTW

3,000bp2,500bp2,000bp1,500bp1,000bp500bp

0bp

Source:J.P.Morgan.

2,000bp1,600bp1,200bp800bp400bp0bp

-400bp

4

Agenda

Page

1

MarketTechnicals&Backdrop

5

2

OilMacroOverview

20

3

NaturalGasMacroOverview

28

4

SelectSubsectorViews

34

EnergyBondMarketSizeHasStabilized

AfterShrinkingDramaticallyin2021/2022,TotalAmountofDebtSteady

USCorporateBondOutstandingValue($mm)

$1,000,000

$900,000

$800,000

$700,000

$600,000

$500,000

$400,000

$300,000

$200,000

$100,000

$0

JULIEnergyHighGradeMarketValueHighYieldEnergyValue

4Q191Q202Q203Q204Q201Q212Q213Q214Q211Q222Q223Q224Q221Q232Q233Q234Q231Q242Q24

Source:J.P.Morgan.

5

RisingStarNarrativeHasReacceleratedin2024

PendingM&ACouldDriveaSubstantialAmountofUpgrades

Ticker

Issuer

TotalDebt

Outs.($mn)

Moody'sRtg

S&PRtg

FitchRtg

M&ADriven

CHK

ChesapeakeEnergy

$1,950

Ba2;P

BB;P

BB+;P

SWN

SouthwesternEnergy

$3,740

Ba2;P

BB+;P

BB+;P

HESM

HessMidstreamOperation

$2,500

Ba2;S

BB+;P

BB+;S

DTMINC

DTMidstreamInc

$2,100

Ba2;P

BB+;S

BB+;P

ENDENR

EndeavorEnergy

$1,000

Ba2;P

BB+;P

BBB-;P

EQMEQMMidstream$7,000Ba3;PBB-;PBB;P

Subtotal

$18,290

NotM&ADriven

AM

AnteroMidstream

$2,600

Ba3;S

BB+;P

-

RRC

RangeResources

$1,788

Ba3;P

BB;S

-

VENTGL

VentureGlobalCalcasieuPass

$4,750

Ba2;P

BB+;P

-

KNTKKinetik$1,000Ba1;SBB+;SBB+;P

Subtotal$10,138

Total$28,428

Source:J.P.Morgan.Debtlevelsaboveasof1Q24.Doesnotinclude$5.4billionofupgradesalreadyin2024(ENLK/ENLCandAR).

6

MarketOverweightinEnergyIsVerySticky

ArguablyLessaboutEnergythanOtherSectors

HYFundEnergyMWDevelopedHYEnergyMW

16.5%

15.8%15.8%

14.8%14.8%

14.5%14.5%14.5%14.5%14.3%14.3%14.1%14.2%14.4%14.4%

13.8%

13.0%

12.5%12.6%12.8%12.8%12.6%12.5%12.8%12.6%

11.9%12.1%

10.5%

15.6%

12.7%

12.0%

14.7%

14.3%

12.7%

12.3%

11.7%

4Q134Q144Q154Q164Q174Q184Q194Q204Q211Q222Q223Q224Q221Q232Q233Q234Q231Q24

Source:J.P.Morgan.

7

InvestorsHaveHadtoOwnSomething

EffortstoReducetheEnergyOverweightatYE23WereStymiedbyRiskCuttinginTMT

HighYieldFundOverweight/Underweight

2.00%

1.50%

1.00%

0.50%

-0.14%

-0.30%

-0.23%

-0.26%

0.00%

-0.50%

-1.00%

1Q234Q231Q24

1.74%1.73%

-0.70%

1.55%

0.42%

0.14%

0.10%

-0.78%

Cable/Satellite

Energy

Telecom

Technology

Source:J.P.Morgan.

8

TheSectorHasChangedDuetoRisingStars&NewIssuance

MoreMidstream,LessE&PIsProbablyaGoodThing

HighYieldEnergySubsectorMixNovember2022HighYieldEnergySubsectorMixJune2024

Services&Refining24.6%

Midstream40.5%

E&P34.9%

Services&Refining,

E&P,41.0%21.0%

Midstream,

38.0%

Source:J.P.Morgan.Source:J.P.Morgan.

9

TheDefaultHistoryinThisSector“PutstheCycleinCyclical”

ZeroDefaultsinOver18Months!

HighYieldEnergyDefaultRates

DefaultRate20yrAverage

13.35%

19.42%

0.68%0.77%

0.00%0.00%

1.94%

0.87%

0.68%

0.47%

5.09%

2.09%

1.42%

11.14%

2011201220132014201520162017201820192020202120222023LTM

Source:J.P.Morgan.

10

ImpliedCumulativeDefaultRatesRemainVeryLowonaProspectiveBasis

AlmostThreeYearsofHighCommodityPricesandDisciplineHaveCuredaLotofIlls

MarketImpliedDefaultRates

Whattoday'sHigh-YieldBondspreadimpliesforfuturedefaults

ActualspreadExcessspreadDefaultlossRecovrateDefaultrateCumulativeDefaultrate

353bp

-309bp=

44bp

/

(100%-40%)

=

0.7%

2.7%

Whattoday'sEnergySectorspreadimpliesforfuturedefaults

Actualspread

Excessspread

Defaultloss

Recovrate

Defaultrate

CumulativeDefaultrate

264bp

-309bp=

-45bp

/

(100%-30%)

=

-0.6%

-2.3%

Whattoday'sExploration

andProductionSubsectorspread

impliesfor

future

defaults

Actualspread

Excessspread

Defaultloss

Recovrate

Defaultrate

CumulativeDefaultrate

244bp

-309bp=

-65bp

/

(100%-30%)

=

-0.9%

-3.3%

Whattoday'sEnergyServicesSubsectorspreadimpliesforfuturedefaults

Actualspread

Excessspread

Defaultloss

Recovrate

Defaultrate

CumulativeDefaultrate

342bp

-309bp=

33bp

/

(100%-30%)

=

0.5%

1.6%

Whattoday'sEnergySectorspreadimpliesforExcessSpread

AssumedDefaultRate

Recovrate

Defaultloss

ActualSpread

ImpliedExcessSpread

0.0%*(100%-30%)=0bp-264bp=264bp

1.0%

*

(100%-30%)

=

70bp

-

264bp

=

194bp

2.0%

*

(100%-30%)

=

140bp

-

264bp

=

124bp

3.0%

*

(100%-30%)

=

210bp

-

264bp

=

54bp

Source:J.P.Morgan.

11

NewIssueVolumesHaveReboundedDrivenbyM&A&Infrastructure

MarketRemainsSomewhatStarvedforPaperinWhatIsNowDeemedaHigher-QualitySector

DebtCapitalMarketsAreAvailable

nSupplyhigherthanexpected,butstill“average”

nSectormaturityprofileispristinefollowingrecentrefinancing/debtreductioninitiatives

nCashflowisappropriatelyshiftingtoreturningcapitaltoshareholdersversusdebtrepayment

nM&Aandlargeinfrastructureprojectsaretheultimatedriveroftransactions

nMarketstandardsarguablyslippingwithdealsforlesscorebasins,butleverageandcoveragestandardsreasonable

HighYieldEnergyNewIssueVolumes($bn)

$77

$40

$36

$62

$57

$64

$31

$50

$56

$45

$53

$39

$27

$9

$24

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

YTD

Source:J.P.Morgan.

HighGradeEnergyNewIssueVolumes($bn)USOil&GasEquityNewIssueVolumes($bn)

$140

$60

$105$102

$96

$109

$65

$52

$62

$89

$43

$37

$56

$43

$71

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

YTD

Source:J.P.Morgan.

$66$67

$49

$43

$37

$32

$9

$3$3

$51$44

$12

$5

$5

$3

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

YTD

Source:J.P.Morgan.

12

KeyTheme1:TheM&AWaveHasBeenMomentous

UpstreamHasBeenExtremelyActive,Midstream&ServicesConsolidationAccelerating

SelectTransactions2020-2024($mm)

$67,995

$59,393

$25,897

$18,900

$12,676

$11,597$10,800$9,500

$12,681

$8,023$7,874$7,804$7,385

$6,482$6,400$6,128$5,700

$4,700$4,523$3,748$3,550$3,250

$12,881

Source:J.P.Morgan.Midstream/Servicestransactionsinblue,Upstreamtransactionsingrey.

13

KeyTheme1:TargetBondReactiontoM&AHasBeenModestlyPositive

NotaTonofTenders,ButaLotofAccretiveOutcomes

1-DayTargetBenchmarkBondPriceReactiontoSelectRecentTransactions

$5.00

$2.63

$4.75

$1.13

$0.50

$0.38

$1.13

$0.25

-$0.13-$0.25-$0.25

Source:J.P.Morgan.

14

KeyTheme2:BullishNaturalGas,LotsofDataCenterTalk,ButLNGMattersMore

LotofNaturalGasDemand,LotofNaturalGasintheGround

DebtCapitalMarketsAreAvailable

nStructural,stickydemandfornaturalgasgrowing

nIncrementalpowerburnfromdatacentergrowthmightadd3bcf/doverthenextthreeyears

nLNGshouldadd4bcf/doverthenext18months…withmorecomingin2026/2027

nEasytomisstheLNGforestforthedatacentertrees

nThesupplyargument–betweenPermianassociatednaturalgasandon-purposenaturalgasbasins,thereisalotofnaturalgasintheUSthatiseconomicat$3/50/mcf

nTheevenbettervaluecaptureopportunitiesmightbeinthestructuralinefficiencies–pipelines,processing,shippingandlogistics

USLNGExports

1Q24

2Q24

3Q24

4Q24

1Q25

2Q25

3Q25

4Q25

18-1614-12-10-8-6-42-0-

Source:J.P.MorganCommodityResearch.

PotentialUSDataCenterNaturalGasDemand

PerAnnum

Total

Delta

2024

2027

DemandGrowth/Power

GW16.841.624.88.3

GWh147,343364,539217,19572,398

FromNaturalGas

50%73,672182,269108,59836,199

75%110,507273,404162,89754,299

100%147,343364,539217,19572,398

Bcf/dNaturalGas

50%1.363.362.000.67

75%2.045.053.011.00

100%2.726.734.011.34

Source:J.P.Morgan..

$6.00$5.00$4.00$3.00$2.00$1.00$0.00

USShaleBreakevens

15%IRR25%IRR

Source:J.P.MorganEquityResearch.

15

KeyTheme3:FadeGeopoliticsIsUsuallytheRightAnswer

“Thismaybethemostdangeroustimetheworldhasseenindecades”–JamieDimon

Theworldhopesandneedspeaceeventually

Butthepoliticizationofhydrocarbonscan’tbeundone;puttingPandorabackintheboxishard

Rapidelectrificationofvehiclefleetdrivingincreaseddemandforpower

Longertermgreatpowerdynamicsarelikelytobecomplexandfraughtwithpotentialpitfalls

Russia

EscalationofthealreadyhorribleandtragicconflictintheMiddleEastwouldcreatefurthercommodityvolatility

But…theStraitsofHormuzhaveneveractuallybeenshutinpriorconflicts

China

Saudihasbeenaremarkableleaderforthecartel

Fairquestionsaroundthedurabilityandsustainabilityofcurrentmarketsharedynamicsheadinginto2026rebasing

MiddleEast

TheUShasput30millionbarrelsbackintotheSPR…only280millionlefttogo

UseoftheSPRasapolitical/pricemanagementtoolcreateslonger-termuncertainties

OPEC

ElectionsacrossFrance,UKandUSalllikelytoactasreferendumsoncurrentpolicyregimes

Balancingenergysecurityandenergypovertywithenvironmentalobjectivesremainscomplex

SPR

Global

Elections

16

CreditSpreadsCareAboutCommodityPrices…Below$70

Spreadsrichvs.5yrregressionwithWTI

1700bp

1450bp

1200bp

950bp

700bp

450bp

200bp

$10.00$30.00$50.00$70.00$90.00$110.00$130.00

1yrregressionnotasstrong

400bpR²=2.1%

350bp

300bp

250bp

200bp

$60.00$70.00$80.00$90.00$100.00

Source:J.P.Morgan.

Source:J.P.Morgan.

XOPprettyfairvsoil

Spreadsrichvs.XOP

$175

400

R²=56.1%

bp

bp

bp

bp

bp

XOPIndex

350

$150

300

$125

250

$100

200

R²=28.1%

$60.00$70.00$80.00$90.00$100.00

$100.00$110.00$120.00$130.00$140.00$150.00$160.00$170.00

WTICrudeOil

Source:J.P.Morgan.

Source:J.P.Morgan.

17

SpreadsTendtoTrackCommodityVolatilityoverTime

SuppressedVolatilityDrivingSpreadsTighter

Jun-19

Oct-19

Feb-20

Jun-20

Oct-20

Feb-21

Jun-21

Oct-21

Feb-22

Jun-22

Oct-22

Feb-23

Jun-23

Oct-23

Feb-24

Jun-24

140

120

100

80

60

40

20

0

2,500bp2,000bp1,500bp1,000bp500bp

0bp

bpbpbpbpbpbp

1700

1450

1200

950

700

450

200

R²=28.6%

EnergySpreadsHistoricallyTrackedCommodityVolatility5yrRegressionWeakDueto2022UpsideVolatility

HYEnergySTW

3MImpliedATMWTICrudeOptionVolatility(Rt.Axis)

bp

405060708090100110120130140

2030

Source:J.P.Morgan.Source:J.P.Morgan.

VolatilityHasLedSpreadsovertheLastYear1yrRegressionVeryStrong,ArguesSpreadsCouldGoTighter

450bp

400bp

350bp

300bp

250bp

200bp

Jun-23

Jul-23

Aug-23

Sep-23

Oct-23

Nov-23

Dec-23

Jan-24

Feb-24

Mar-24

Apr-24

May-24

Jun-24

HYEnergySTW

3MImpliedATMWTICrudeOptionVolatility(Rt.Axis)

40

35

30

25

20

400bp

350bp

300bp

250bp

200bp

R²=71.5%

2025303540

Source:J.P.Morgan.Source:J.P.Morgan.

18

SelectedTradeIdeas

RelativelyPoorOpportunityinSecondaries,PrimaryMayOfferMoreValue

MidstreamRefinancingTrades

nFGP5.375%Notesdue2026@$97.75(6.8%)

nRemarkableoperationalturnarounddrivingcashflow

nLowerpropanepricesreducedemandelasticityconcerns

nCompanylikelyneedstoredorevolverandpotentiallydealwithrestrictivebondcovenantstoaddressBridgerlawsuit

nLikelyplaysoutinveryneartermasrevolvergoescurrentthisquarter–currentcallpriceof$101.344

nSeehereforrisks

nNFE6.5%SecuredNotesdue2026@$91.00(11.1%)

nFirstFLNGproductionhasbeenverydelayed

nProjectisimportantforcredibility,lesssoforcapitalstructure

n2Q24likelyEBITDAlowtickasPuertoRicoseasonaldemandislowandconversionacceleratesin2H24

nRefinancingofremaining2025sandlikely2026simminentasvisibilityimproves;substantialflexibilityincapitalstructure/newdealspotentiallyincludedifferentcovenantpackagedependingonmarketconditions

nSeehereforrisks

OtherValueOpportunities

nASCRES9%Notesdue2027@$122.5(-0.6%)

nRapidlyimprovingnaturalgasenvironmentshoulddriveEBITDAandfreecashflowin2H2and2025

nHighervaluationmultiplesforpeercompaniesshouldsupportaliquidityeventforowners

nAttachedcontingentvaluerightpays$45pointsonpubliclistingevent

nSeehereforrisks

nRIG6.8%UnsecuredNotesdue2038@$83.875(8.9%)

nOffshoreandlongercycleexposureremainsfavoredtoOnshore

nPotentialforsecondrefinancingin2Htocleanupremaining‘27maturities

nExpectingoffshoreprojectsanctioningandcontractingpickupin2H24

nConvexityandtotalreturnattractiveatcurrentpricelevels

nSeehereforrisks

19

Agenda

Page

1

MarketTechnicals&Backdrop

5

2

OilMacroOverview

20

3

NaturalGasMacroOverview

28

4

SelectSubsectorViews

34

HouseCommodityViewRemainsConstructiveforCreditAssets

DifferentDirectionsofTravelforOil&Gasin2025

Brent($/bbl)

2024E

2025E

2018

2019

2022

2023

2020

2021

JPMCommodities$71.69$64.16$43.21$70.87$101.00$82.18$83.00$75.00

ForwardCurve------$84.16$79.49

WTI($/bbl)

2024E

2025E

2018

2019

2022

2023

2020

2021

JPMCommodities$64.90$57.04$39.34$68.00$97.00$77.62$79.00$71.00

ForwardCurve------$79.96$74.86

HenryHub($/mmbtu)

2024E

2025E

2018

2019

2022

2023

2020

2021

JPMCommodities

$3.07$2.53$2.13$3.59$6.33$2.68

$2.84

$4.30

ForwardCurve

------

$2.61

$3.55

TTF(€/Mwh)

2024E

2025E

2018

2019

2022

2023

2020

2021

JPMCommodities

€22.19€14.58

€9.61

€41.94

€132.61

€41.49

€41.00

€38.75

ForwardCurve

--

-

-

-

-

€33.98

€37.89

Source:J.P.Morgan.

20

LiquidsGrowthOutpacingBlackOilGrowth

IfThereIsaProblem,ItIsCondensate&NGLs

GlobalCrudeOil&LiquidsProduction

GlobalCrudeOilGlobalLiquids

98.298.2100.3100.5

101.4

101.7102.0102.8101.9102.7

102.9103.5104.2104.5105.4105.6

74.4

75.3

73.6

75.9

75.7

75.1

75.0

75.7

75.4

75.3

75.0

75.8

76.7

76.4

76.9

77.4

1Q222Q223Q224Q22

1Q23

2Q233Q234Q231Q242Q24E

3Q24E4Q24E1Q25E2Q25E3Q25E4Q25E

Source:J.P.MorganCommoditiesResearch

USCrudeOil&LiquidsProduction

uUSCrudeOilaUSLiquids

19.219.619.919.520.2

20.320.620.820.820.921.0

11.1

10.8

10.5

17.117.618.118.2

11.3

18.6

11.2

11.8

11.6

11.3

11.8

11.5

11.9

12.0

12.1

12.1

12.2

12.2

1Q222Q223Q224Q221Q232Q233Q234Q231Q242Q24E3Q24E4Q24E1Q25E2Q25E3Q25E4Q25E

Source:J.P.MorganCommoditiesResearch

21

CrudeOptionsShowtheExtentofSkewinMarkets

Option-DerivedConfidenceIntervals

FuturesPrice90%ConfidenceLowerBound90%ConfidenceUpperBound

$140.00

$120.00

$115.00

$110.00

$105.00

$99.50

$100.00

$80.00

$60.00

$40.00

$20.00

$0.00

$79.03

$62.50

$73.59

$48.00

$70.00$67.71

$40.00

$40.00

December-24December-25December-26December-27

Source:J.P.Morgan.

22

Russia–RefinedProductFlowsTrumpCrudeImpact

ProductExportMarketShare2xCrudeExportMarketShare

GlobalShareofOilProduction

Others

29%

US

15%

Russia13%

Iran3%

UAE

4%

SaudiArabia

14%

China

5%

Kuwait

4%

CanadaIraq6%

7%

Source:J.P.MorganCommodityStrategy.

GlobalShareofOilExports

MiddleEast

Other36%

ex.Saudi

21%

US12%

SaudiArabia

Canada

12%

Russia12%

7%

Source:BPStatisticalReview,2021.

GlobalShareofRefinedProductThroughput

US

19%

Others50%

China18%

Russia

India7%

6%

Source:BPStatisticalReview,2021.

GlobalShareofRefinedProductNetExports

US22%

Others44%

Russia20%

India4%

SaudiArabia10%

Source:IEA,2021.

23

GeopoliticalEventsHighlightCrudeOilSupplyRisks

TheStraitsofHormuzHaveNeverActuallyBeenClosedinFiftyYearsofConflicts

nApproximately15%ofglobalcrudeproductionflowsviatheStraitsofHormuzeveryday

nOneescalationpathofthecurrentconflictwouldbetothreatentheStraits

nDespiterepeatedtensions,theStraitshaveneveractuallybeenclosed

nContemplatingtheprobabilityofsomethingthathas

neveractuallyhappenedbeforeisimportantbutdifficult

OilExportsViaStraitsOfHormuz

Crude

Products

Total

UAE

2,001

952

2,953

SaudiArabia

5,860

466

6,326

Kuwait

1,638

807

2,446

Iran

1,366

226

1,591

Qatar

795

375

1,170

Iraq

3,489

458

3,947

Bahrain

0

286

286

Oman

0

0

0

StraitofHormuz

15,149

3,569

18,718

Source:J.P.MorganCommodityStrategy,Kpler.

StraitsofHormuzGeography

Source:EncyclopediaBritannica.

24

DemandHasBeenVeryStrongfortheLastYearforOil

$225

$200

$175

$150

$125

$100

$75

$50

$25

$0

USOil&GasolinePriceperBarrel

WTICrudeOil

USRetailGasolineNationalAverage

Spread(Rt.Axis)

Source:BloombergFinanceL.P.,J.P.Morgan.

$100

$90

$80

$70

$60

$50

$40

$30

$20

$10

$0

MonthlyGlobalOilDemand(mbd)

105

100

95

90

85

80

75

70

Jan20

Mar20

May20

Jul20

Sep20

Nov20

Jan21

Mar21

May21

Jul21

Sep21

Nov21

Jan22

Mar22

May22

Jul22

Sep22

Nov22

Jan23

Mar23

May23

Jul23

Sep23

Nov23

Jan24

Mar24

May24

Demand%Changevs.2019

Source:J.P.MorganCommodityStrategy.

5%

0%

-5%

-10%

-15%

-20%

-25%

25

USDUCsDeclinedRapidly,NowStable

OpenDebatearoundMagnitudeofSustainableEfficiencyGains

USDrillingRigsvsDUCs

USDUCs

USDrillingRigs

9,000