CS Commodites Street 03-10-13

7/27/2019 CS Commodites Street 03-10-13

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Commodities Forecasts: TheLong and Winding Road

Connection Series

Source: Credit Suisse

Modest 4Q Rally Before Supply Weighs in 2014The near-term outlook for many industrial commodities has brightened

since our last forecast update, with global economic growth finally beginning

to recover over recent months, after consistently disappointing for 2 years. We

expect better demand to see most industrial commodities rally a little

further in 4Q, although the gains are likely to be relatively modest.

Historically, demand growth (IP is the best proxy) has been the main driver ofnear-term pricing, while supply tends to have an impact over a longer time

period; the inventory cycle means that demand tends to be much more

volatile than supply, absent major weather events, etc.

Given this, it is a little surprising that the rebound in global IP in recent months

has not seen a bigger bounce in industrial commodity prices.

While prices may possible be lagging demand, we believe the disappointing

response primarily reflects EM growth that continues to underperform.

With global IP growth likely to peak in 4Q and Chinese growth unlikely to

improve further, it is likely that much of the bounce has already happened.

Following the near-term rebound, we expect increasing supply and a modest

slowdown in IP growth to see prices under pressure once again in early

2014, with prices for those commodities where supply is improving (e.g., iron oreand copper) likely falling further, while those where supply remains tight (e.g., oil)

likely to perform better. Despite the "no-taper" shock from the Fed, the "gold

bubble" is likely to continue to deflate once the US fiscal debacle is resolved.

03 October 2013Securities Research & Analytics

The Credit Suisse Connections Seriesleverages our exceptional breadth of macroand micro research to deliver incisive cross-asset and cross-border thematic insights forour clients.


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Commodities Forecasts: The Long and Winding Road 2

Table of Contents

Editors Summary: Its a Bounce Jim, but We Dont Expect it to Last ... 4IP growth still in the driving seat . ...................................................................... 4Recent data suggest near-term upside risks . ....................................................... 7So will the OECD recovery lift all ships? . ............................................................. 8

Summary of Individual Commodity Forecasts 10Price forecast summary tables . .......................................................................... 14

Macro Outlook: Recovery Finally at Hand? 16The slowdown looks to have come to an end at last . ......................................... 16The US post the Fed . .......................................................................................... 17China: As good as it gets? . ................................................................................. 18But won't policy continue to support? . ................................................................ 21Europe on the mend but 3Q data could disappoint . ........................................... 21Modest global recovery underway but EM is yet to bounce decisively . .............22

Petroleum: 23Balanced fundamentals and shifting tail-risks . ................................................... 23Overview: A near-term soft-patch leads to familiar terrain . ................................ 23Supply the bigger and less predictable deltas . ................................................ 26Demand: Global growth stays close to trend in 2013 . ........................................ 30Inventories and positioning . ................................................................................ 33

Natural Gas: 38Global LNG . ........................................................................................................ 38US Natural Gas ................................................................................................... 41The broader fundamental view . .......................................................................... 43UK (NBP) prices: too high to burn, too low to import . ......................................... 52

Steel: 55Out of sync . ......................................................................................................... 55

Bulk Commodities: 60Iron Ore: Freight accompli .

.................................................................................

60Metallurgical Coal: Better but not good . ............................................................. 67Thermal Coal Taking the low road . .................................................................. 73


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Base Metals: The Good, the Bad and the Ugly 80Macro influences mask fundamental differences . .......................................... 80Consumption growth better than we expected . .............................................. 80But supply continues to rise too . ..................................................................... 80Copper: Tipping the balance .

..............................................................................

81Aluminum: Reasons to be cheerful? Not really . ................................................. 90Alumina From bad to worse . ............................................................................ 97Zinc Light at the end of the tunnel? . .............................................................. 114Tin Managing supply in a constrained world . ................................................ 130

Gold & Silver: 134Gold: Downward pressure likely to resume soon . ............................................ 134Silver: equilibrium looks achievable if investors stay long . ............................... 140Forecasts: . ........................................................................................................ 144

PGMs: Addressing the inventory concerns 145Platinum: a long road uphill . ............................................................................. 146Palladium: hold on tight to your dreams . .......................................................... 149Forecasts: . ........................................................................................................ 153

Mineral Sands 154Both zircon and TiO2 feedstocks to strengthen in 2014 . .................................. 154High grade TiO2 feedstocks . ............................................................................ 154Chinese ilmenite market . .................................................................................. 158Zircon demand steadying at normalized level .

.................................................

158Normalized zircon sales volumes . .................................................................... 160Uranium: Spot-Term Price Dichotomy Reflects Inventory-Driven Factors . ...... 166

Financial Flows 1723Q 2013 summary of commodity-linked flows . ................................................. 172

Technical Analysis 175Precious metals stay bearish . ........................................................................... 175Base Metals remain range bound . .................................................................... 176Energy stays within broad multi-year ranges .

...................................................

177Contributors 178


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Editors Summary:Its a Bounce Jim, but WeDont Expect it to Last ...As outlined in The Setting of the Sun, we feel that the glory days of the commodity bull

market are well behind us, with prices likely to continue to revert to more normal levels

over coming years. However, while the complex is likely to remain under pressure, history

suggests that within secular bear markets there are still clear up-cycles.

As shown in Exhibits 1 and 2, despite trending down from 1980 to 2002, real prices

actually increased in nine of those 23 years.

Exhibit 1: Commodities appear to be at thebeginning of a secular bear market

Exhibit 2: But within structural bear markets, therewill still be cycles

Real CRB Index Real CRB Index, yoy change, monthly

100

150

200

250

300

350

400

450

500

1970 1975 1980 1985 1990 1995 2000 2005 2010-30%

-20%

-10%

0%

10%

20%

30%

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

Source: Credit Suisse, the BLOOMBERG PROFESSIONAL service Source: Credit Suisse, the BLOOMBERG PROFESSIONAL service

IP growth still in the driving seat

Unsurprisingly, during the last bear market, prices tracked broadly with changes in global

industrial production, with trend monthly changes in global IP exhibiting a strong

correlation with trend changes in the CRB from 1990 to 2002.

This of course suggests that despite the secular headwinds facing commodities,

developments in the global business cycle will continue to drive near-term

pricing.

While supply increases can push prices lower over time, the inflection points continue to

be driven by the industrial cycle.


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Exhibit 3: Industrial production growth drives the commodity cycle even duringsecular bear markets ...Percentage change

-30%

-20%

-10%

0%

10%

20%

30%

40%

-5%

0%

5%

10%

15%

1990 1992 1994 1996 1998 2000 2002

Global IP (annualised trend change) CRB (real annualised trend change, rhs)

Source: the BLOOMBERG PROFESSIONAL service, Credit Suisse

Commodities live in an EM world

Notably, however, it is also clear that there was a structural shift in the drivers of global

commodity prices in the early 2000s.

In the 1980s and 1990s global IP growth of an average 3.7% p.a. saw commodities fall

by an average of nearly 4% a year.

However, from the early 2000s commodity prices began to trend up (that is, the average

growth rate picked up), despite average IP growth remaining relatively stable (Exhibit 4).

Exhibit 4: There was a structural shift in the relationship between global IP andcommodity prices in the early 2000s

Percentage change

-60%

-40%

-20%

0%

20%

40%

60%

80%

-15%-10%

-5%

0%

5%

10%

15%

20%

25%

30%

1986 1990 1994 1998 2002 2006 2010

Global IP (annualised trend change) CRB (real annualised trend change, rhs)


Unsurprisingly, in large part this shift appears due to the increased importance (and

growth rates) of the EM economies. In addition, the increase in prices was due to the poor

response of supply to better demand note that after many years of low prices investment

had fallen to historically low levels.


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The relatively tight relationship between developed market IP and commodity prices

seen in previous decades broke down in early 2000.

Exhibit 5: Developed market IP growth has become less important forcommoditiesPercentage change

-60%

-40%

-20%

0%

20%

40%

60%

80%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

1986 1990 1994 1998 2002 2006 2010

DM IP (annualised trend change) CRB (real annualised trend change, rhs)


In contrast, it is clear that after showing a relatively poor fit up until the new millennium,

EM IP growth has correlated very well with changes in broad measures of commodity

prices over the past decade.

This relationship has held very well over the past couple of years, suggesting that the

dramatic slowdown in EM IP growth has been the main factor dragging commodity

prices lower in the past few years.

Exhibit 6: The emerging market business cycle seems to be driving industrialcommodity prices

Percentage change

-60%

-40%

-20%

0%

20%

40%

60%

80%

-10%-5%

0%

5%

10%

15%

20%

25%

30%

1986 1990 1994 1998 2002 2006 2010

EM IP (annualised trend change) CRB (real annualised trend change, rhs)


Notably, in trend growth rate terms EM appears to be the key driver for both basic

materials and oil, with Exhibits 7 and 8 showing that there has been little difference

between trend price changes for Brent Oil and Copper in recent years.


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Exhibit 7: EM IP moves very closely with copperprices

Exhibit 8: While it also explains much of the recentcycle in the price of oil

-15%

-10%

-5%

0%

5%

10%

15%

20%

-10%

-5%

0%

5%

10%

15%

20%

25%

1997 1999 2001 2003 2005 2007 2009 2011 2013

EM IP (annualised trend change) Copper (trend change, rhs)

-15%

-10%

-5%

0%

5%

10%

15%

20%

-10%

-5%

0%

5%

10%

15%

20%

25%

2000 2002 2004 2006 2008 2010 2012

EM IP (annualised trend change) Brent (t rend change, rhs)


Given this, the next near-term leg in the commodity cycle is once again likely to bedominated by the emerging market demand, while the "average level" of prices over

the coming 18 months or so will rely heavily on developments on the supply side.

Exhibit 9: EM growth drives commodity prices...

-1.0

-0.8

-0.6

-0.4-0.2

0.0

0.2

0.4

0.6

0.8

1.0

93 95 97 99 01 03 05 07 09 11 13

24 month rolling correlation of changesin EM IP and Copper

24 month rolling correlation of changesin DM IP and Copper

Source: Credit Suisse , the BLOOMBERG PROFESSIONAL service

Recent data suggest near-term upside risks

With the survey data suggesting that global IP is in the process of rebounding, it is likely

that industrial commodities will rebound over coming months; however, despite the more

positive near-term prognosis, we expect the bounce to be relatively subdued similar tothat seen late last year rather than anything more substantive.

Historical relationships would have suggested that commodities should have already

rallied substantially, whereas after a bounce in August most basic materials (oil continues

to be driven by geopolitical issues) have actually fallen over recent weeks.

In large part this reflects the fact that the rebound in global IP has, to date, been very

much a developed world phenomenon, with the bounce in EM IP to date very modest.


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Exhibit 10: EM IP growth is lagging that in the developed worldIndex

40

45

50

55

60

65

2005 2006 2007 2008 2009 2010 2011 2012 2013

DM PMI NO EM PMI NO

Source: Markit, Credit Suisse

So will the OECD recovery lift all ships?For commodities, perhaps, the key near-term question is to what degree growth in the

emerging markets will benefit from the developed world rebound? While historically we

would assume that the rebound would quickly flow through to an EM rebound, it is notable

that the correlation between EM and DM growth has collapsed in recent years, as the

emerging countries deal with the structural issues caused by the large stimulus in 2009

and continued soft exports.

Exhibit 11: EM and DM IP have diverged Exhibit 12: With the correlation between the twofalling noticeably

-10%

-5%

0%

5%

10%

15%

20%

25%

-12%

-8%

-4%

0%

4%

8%

12%

2000 2002 2004 2006 2008 2010 2012

DM IP (annualised

trend change)EM IP (annualisedtrend change, rhs)

-30%

-10%

10%

30%

50%

70%

90%

1997 1999 2001 2003 2005 2007 2009 2011 2013

24 Month Rolling Correlation of Trend

Monthly Change in DM and EM IP

Source: Markit, Credit Suisse Source: Markit, Credit Suisse

While we expect EM growth to recover somewhat, we suspect the period of substantial

EM economic outperformance (led by the export and investment model) is behind us, with

these economies likely to have to rely more on domestic demand for some time.

While global trade looks to have troughed, we think it is highly unlikely that we return to

the heady growth rates seen in the early 2000s.


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We also suspect that the rebound in OECD IP is in large part an inventory adjustment,

with US final demand growth actually slowing in recent months, while the euro area is

flat at best (see macro section).

This suggests to us that although many industrial commodity prices are likely to

move modestly higher in 4Q, increasing supply, the ongoing struggles in the EM

world, and the peak in the developed world cycle will begin to weigh more heavily

as we move into 2014.


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Summary of Individual Commodity ForecastsWhile the commodity complex is likely to remain under pressure in 2014, as has been the

pattern in recent quarters, there is likely to be a substantial divergence among individual

commodities, with those that face increasing supply likely to fall, while those where prices

are already below long-run averages should see supply growth slow.

Over the coming year we expect three commodities to fall substantially (iron ore, copper,and gold), four commodities to be essentially flat (tin, silver, Brent and nickel), while eight

commodities should increase modestly, with the PGMs and lead leading the charge.

Exhibit 13: The commodity outlook remains mixed with substantial intra-commodity divergence likelyChange from current spot to 4Q 2014 forecast

-40%

-30%

-20%

-10%

0%

10%

20%

IronOre

Copper

Gold

Tin

Silver

WTI

Brent

Nickel

Aluminium

ThermalCoal

U.S.

NatGas

U.K.

NatGas

Zinc

Palladium

Lead

Platinum

Source: the BLOOMBERG PROFESSIONAL service, Credit Suisse Commodities Research

Crude Oil Balanced fundamentals

Oil markets should remain in balance, with most risks manageable in the near to mediumterm. We expect global benchmark Brent oil futures to keep on trading within a $100-$120

per barrel (b) range. Oil demand has been growing at a moderate 1% + pace, slightly

better than consensus expectations, but supply-side upsets drove most of the recent surge

in oil prices: third quarter Brent prices averaged $108.29/b, ~3% above our 3Q forecast.

Over the next couple of quarters, our base case is for the gradual return of a portion of the

~3.2 Mb/d of lost MENA barrels, loosening the global oil supply/demand balance and

helping to reduce the current call on Saudi Arabia by ~1.5 Mb/d. As such, we are revising

down our 4Q 2013 forecast to $105/b, but acknowledge that risks seem skewed to the

upside. Additionally, we are shifting our quarter averages for 2014, putting the years

$105/b low point into 1Q and the seasonal high of $115/b into 3Q.

Global Gas

Tight LNG supplies stay tied to oil and AsiaGlobal LNG prices remain fully oil-linked and at a large premium to both continental

European and North American gas markets. In North America, the ongoing "shale-

revolution" keeps a lid on prices, which remain the lowest of any large market. Meanwhile,

European natural gas prices continue to price at levels too high to spur local power sector

demand, but too low to attract LNG away from higher-priced Asian markets. With little new

supply expected until 2016 and beyond, any supply disruptions or demand surge can

tighten the LNG balance. And its price should stay historically high.


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US Natural Gas Revised prices down again

We revised our US natural gas price deck modestly lower, in large part because the

ongoing shale gas boon will keep on adding surplus supply. Aside from a little upside this

winter, most risk remains skewed to the downside.

While we expect quite significant growth in US natural gas demand in coming years, it

remains difficult to argue that at some point supply will fail to keep up or indeed overwhelm

those demand gains. In fact, the latest well results from the next exiting shale play, the

Utica, rival those of the best wells in the former most exiting play, the Marcellus.

Consequently, beyond the odd tactical or weather-driven upside risk for US gas prices, we

see mostly downside risk to the longer-term part of the curve as well.

UK Natural Gas NBP prices stay too high to burn, too low to import

UK NBP (National Balancing Point) natural gas prices have remained range bound (within

a 4 pence/therm range) since we last updated our forecast. Much of the supply-driven

bullish bias still prevails, particularly with storage levels trending near five-year lows. The

current supply mix is expected to remain mostly unchanged until Asian LNG price

premiums subside or the availability of uncommitted spot cargoes increases which we

think will not happen until 2016, at the earliest. We leave our outlook, which calls for slight

upside to the current futures curve through the forecast period, unchanged.

Iron Ore Starting to ease lower

After a strong run in 3Q, we expect iron ore to feel the drag of increased supply in the final

quarter of 2013, with prices easing back accordingly. Rio Tinto has begun its build-up

toward 290 Mt/y, FMGs efforts to reach 155 Mt/y continue apace and BHP Billiton should

also start up its 35 Mt/y Jimblebar expansion before the quarter is out. Furthermore,

seasonally stronger Brazilian volumes should add additional weight to the markets offer.

The usual host of 1Q supply disruptions, coupled with a likely move higher in steel

production run rates, should tighten the market briefly at the start of 2014 but, after that,

the completion of major Australian expansion projects will likely present the market with its

first period of more prominent seaborne surpluses.

Thermal Coal Downgrading pricesPrices have stagnated around $80/t, weighed down by a surfeit of supply. A continued lack

of producer discipline makes any material near-term recovery very unlikely and, with many

consumers also highly price sensitive, it is hard to see any immediate catalysts for a

turnaround. Over time, a slowing of supply growth should allow prices to edge higher but

thermal coal remains structurally challenged, particularly when one considers the long-run

competition from unconventional gas that should emerge more forcefully at the back end

of this decade. We downgrade our long-term real price to US$95/t.

Base Metals A very mixed bag

Base metals have been provided with a degree of stronger support than we originally

expected largely because of better-than-expected demand. Despite some concerns,

Chinas stabilization and reduced fears of a marked fade to growth in 2H have kept rises inapparent uses of industrial commodities in the country in the 7%-8% range for CY2013.

However, both cyclical and seasonal factors have also played a hand and this makes us

cautious about over-extending our projections. The boost is generally unlikely to create

lasting physical tightness.

Forcopper, we hold to our view that mine-through-refined supply expansion growth will

steadily eclipse demand, albeit this transition may not become apparent until 1H 2014.

Moreover, this years apparent tightness owes much to the way in which Chinese

smelters/refiners have reacted to growing supplies of concentrates; stocks have been


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accumulated, forcing up TCRCs at a critical point in the negotiation season; ultimately

these inventories will be converted into refined metal. Shortages of scrap have also

contributed to stronger demand for refined copper than at the semis level and this relative

strength will be more modest in 2014. We still expect copper prices to be US$1,000

cheaper at this time next year.

In contrast, we are cautiously a little more optimistic about zinc and lead (or at least less

pessimistic). The metals appear balanced to swing the other way and, after years ofsupply excess, market deficits could emerge in 2014. In the case of zinc, a hefty overhang

of inventory, for now largely tied up, may defer the point at which prices gain stronger

traction but 2013s lean levels are providing no incentive to invest in new supply, let alone

maintain existing production capability. In each instance too, uncertainty over Chinese

supply merits a degree of caution.

The prospects look anything but rosy foraluminium and nickel. For both, supply growth

looks set to swamp demand, principally at the hands of Chinese suppliers. We think these

two metals are structurally in the weakest shape; we see little scope for sustained price

rises over much of the course of the next 12-18 months. The caveat here is uncertainty

over Indonesias pending ban on ore shipments from next January, but we consider

downside prices risks to have grown in the absence of meaningful supply cuts.

Gold

Downward trend expected to resume, forecast unchanged

For gold, the main premise of our bearish outlook hasnt changed:

A slow improvement in global growth.

The ongoing gradual normalization of real interest rates.

A lack of inflationary pressure in developed markets.

Less investor demand for tail-risk protection in the form of zero-yielding gold.

The fiscal headlines generated in the US may provide a modicum of support to gold above

the key resistance level of $1,270 a little while longer. However, we do still expect the Fed

to begin withdrawing stimulus in the not-too-distant future, while key budget decisions are

likely to be deferred until after US mid-term elections in 4Q 2014. So with physical demand

out of Asia having moderated from the 1H surge and the Indian market still struggling to

get to grips with new import restrictions, we are comfortable in retaining our bearish

forward price deck, expecting the metal to average $1,150 in 12 months time. Of

course there will be rallies within the downward trend, but we continue to believe the

correct strategy is to sell those rather than buy dips.

Silver Equilibrium may be achievable, forecast unchanged

Our economists expect global IP to resume above-trend growth next year (5.0%) after two

years of below-trend expansion in 2012 and 2013. That is in line with their somewhat

cheerier global growth outlook for 2014: they forecast 3.8% global GDP growth for next

year, which would be a significant improvement from this years rather disappointing 3.0%

expected rate. Taken in isolation, that should spell good news for silver demand and po-

tentially prices.

However, the silver market is awash with inventory, and price gains depend primarily on

the metal being able to attract continued investor flows. ETF holders and the retail

segment of the market are still net buyers but institutions have been much less active on

the buy side via Comex futures since April.

Net/net we expect the effect of a lower gold price but more positive global outlook

and improving rate of industrial demand growth to be broadly neutral for silver

over the next 12 months. Consequently we have kept our 4Q 2014 average

unchanged at $21.30.


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Platinum Group Metals Patience is a virtue

We think platinum is a metal that is more likely to grind its way steadily higher over the

next several years than surge upwards in a repeat of 2008. The sector needs to see more

mining capacity taken off-line in South Africa and a clear turn in European economic

activity to become a more compellingly bullish story both may happen in 2H 2014. In the

interim we still think it is worth building a core long position when the metal is

trading close to or below $1,400. At those levels there is substantially more upside thandown for patient longs in our view and we retain our 4Q 2014 forecast of $1,630.

Are investors who are long palladium playing a risky game of the greater fool hoping

that the supply of fresh investment money is not yet exhausted on the back of flawed

supply/demand analysis? It is a question some in the market have begun to ask. On the

one hand we do not subscribe to the view common among a number of industry observers

that the palladium market is and has been running 1 million oz per year plus deficits. On

the other, we also recognize that there are substantial and in some cases rather opaque

above-ground inventories of metal. But we do think there are grounds to believe the

metal can get back to the 2011 highs around $850 over the next 18 months to 2

years.

That positive outlook depends on a benign growth outlook for the global automotive

industry, and Chinese car sales in particular an unforeseen macro shock (such as aChina credit event) would likely see a rush to the exits. For now, however, we are content

to retain our positive forward view of price and keep our 4Q 2014 average forecast of

$820/oz.


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Price forecast summary tables

Exhibit 14: Global commodities research price forecast summary

2015 2016 2017 LT

Yr Avg (f) Q1 (f) Q2 (f) Q3 (f) Q4 (f) Yr Avg (f) Q1 (f) Q2 (f) Q3 (f) Q4 (f) Yr Avg (f) Yr Avg (f) Yr Avg (f) Yr Avg (f) (real)

Energy

Brent (US$/bbl) 111.70 113 103 108 105 107 105 110 115 110 110 100 95 95 90

previous 111.70 113 103 105 110 108 115 110 110 105 110 100 95 95 90

WTI (US$/bbl) 94.20 94 94 104 101 98 101 106 107 102 104 92 87 87 82

previous 94.20 94 94 97 102 97 105 100 100 95 100 90 85 85 80

U.S. Natural Gas (US$/MMBtu) 2.83 3.35 4.09 3.60 3.75 3.70 4.10 3.80 4.00 3.75 3.90 4.20 4.40 4.50 4.50

previous 2.83 3.35 4.09 4.20 4.20 4.00 4.10 3.90 4.00 4.10 4.00 4.40 4.70 4.60 4.50

U. K. NBP (GBp/Therm) - 58.49 66 68 64 68 67 72 65 64 70 68 67 65.50 65.00 61.00

previous 58.49 67 68 62 68 66 72 65 64 70 68 67 66 65 61

Iron Ore

Iron ore fines - 62% (China CF R) US$/t 128 148 125 131 115 130 115 110 100 90 104 90 93 95 90

previous 128 148 125 105 100 120 105 95 95 90 96 90 90 90 90

Iron ore fines - (China CFR) US/dmtu 206 239 202 211 185 209 185 177 161 145 167 145 149 153 145

previous 206 239 202 169 161 193 169 153 153 145 155 145 145 145 145

Coking Coal (contract)

Hard coking coal (US$/t) 210 165 172 145 152 159 160 160 165 165 163 173 178 180 165

previous 210 165 172 147 150 159 160 160 165 165 163 173 180 185 165

Semi soft coal (US$/t) 139 116 120 105 105 111 112 112 116 116 114 121 124 126 115

previous 139 116 120 103 105 111 112 112 116 116 114 121 126 130 125

PCI coal (US$/t) 154 124 141 116 121 125 126 126 130 130 128 136 140 142 125

previous 154 124 141 110 113 122 120 120 124 124 122 129 135 139 130

Thermal Coal

Thermal Coal (Newcastle FOB) US$/t 95 91 87 77 80 84 85 85 85 85 85 88 95 100 95

previous 95 91 87 80 85 86 90 90 90 95 91 100 102 105 100

Thermal Coal (ARA CIF) US$/t 92 86 80 76 79 80 84 84 84 84 84 87 94 99 95

previous 92 86 80 77 82 81 89 89 89 94 90 99 101 104 100

Thermal Coal (RBCT FOB) US$/t 93 85 80 72 76 78 83 83 83 83 83 86 93 98 95

previous 93 85 80 78 82 81 88 88 88 93 89 98 100 103 100

UraniumUranium spot (US$/lb) 49 43 40 35 36 39 38 40 45 50 43 55 60 70 65

previous 49 43 40 43 45 43 48 52 56 60 54 65 70 65 65

201420132012

Source: Credit Suisse Commodities Research


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CommoditiesForecasts:TheLongandWindingRo

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Exhibit 15: Global commodities research price forecast summary2015 2,016 2,017 LT

Yr Avg (f) Q1 (f) Q2 (f) Q3 (f) Q4 (f) Yr Avg (f) Q1 (f) Q2 (f) Q3 (f) Q4 (f) Yr Avg (f) Yr Avg (f) Yr Avg (f) Yr Avg (f) (real)

Base MetalsCopper (US$/t) 7,971 7,958 7,200 7,070 7,400 7,407 7,000 6,750 6,500 6,250 6,625 6,750 7,250 7,750 6,600

previous 7,971 7 ,958 7 ,200 7 ,000 6,800 7,240 6,600 6,300 6,100 5,900 6,225 6,750 7,250 7,750 6,600

Aluminium (US$/t) 2,030 2,040 1,875 1,825 1,900 1,910 1,800 1,850 1,900 1,900 1,863 2,000 2,100 2,200 2,250

previous 2,030 2 ,040 1 ,875 1 ,800 1,750 1,866 1,800 1,850 1,900 1,900 1,863 2,000 2,100 2,200 2,250

Alumina spot (US$/t) 319 340 330 327 317 329 320 320 330 330 325 330 350 380 400

previous 319 340 330 340 340 338 350 350 350 350 350 360 400 400 400

Nickel (US$/t) 17,548 17,376 15,250 14,000 13,750 15,094 14,250 14,500 14,500 14,500 14,438 15,000 16,000 18,000 20,000

previous 17,548 17,376 15,250 14,500 14,000 15,282 14,500 15,000 15,500 16,000 15,250 17,000 18,000 20,000 20,000

Lead (US$/t) 2,064 2,307 2,050 2,100 2,150 2,152 2,200 2,250 2,300 2,350 2,275 2,400 2,500 2,750 2,000

previous 2,064 2 ,307 2 ,050 1 ,950 1,900 2,052 1,900 1,900 1,900 1,950 1,913 2,200 2,300 2,500 2,000

Zinc (US$/t) 1,954 2,054 1,850 1,880 1,950 1,934 1,900 1,950 2,000 2,050 1,975 2,250 2,500 2,650 1,900previous 1,954 2 ,054 1 ,850 1 ,800 1,750 1,864 1,800 1,800 1,750 1,700 1,763 1,900 2,000 2,200 1,900

Tin (US$/t) 21,047 23,230 20,500 21,150 23,500 22,095 21,000 21,500 22,000 22,500 21,750 23,000 25,000 25,000 20,000

previous 21,047 23,230 20,500 19,000 18,500 20,308 19,000 19,000 19,000 20,000 19,250 23,000 25,000 25,000 20,000

Precious MetalsGold (US$/oz) 1,670 1,630 1,410 1,310 1,250 1,400 1,220 1,190 1,150 1,150 1,180 1,200 1,250 1,340 1,300

previous 1,670 1 ,630 1 ,410 1 ,310 1,250 1,400 1,220 1,190 1,150 1,150 1,180 1,200 1,250 1,340 1,300

Silver (US$/oz) 31.30 30.10 23.40 22.20 21.20 24.20 21.40 21.60 20.90 21.30 21.30 22.60 23.10 24.40 22.80

previous 31.30 3 0.10 2 3.40 2 2.20 21.20 24.20 21.40 21.60 20.90 21.30 21.30 22.60 23.10 24.40 22.80

Palladium (US$/oz) 640 745 730 720 750 740 760 780 780 820 790 850 870 850 850

previous 640 745 730 720 750 740 760 780 780 820 790 850 870 900 850

Platinum (US$/oz) 1,560 1,630 1,490 1,500 1,480 1,525 1,550 1,580 1,580 1,630 1,585 1,660 1,750 1,820 1,800

previous 1,560 1 ,630 1 ,490 1 ,500 1,540 1,540 1,550 1,580 1,580 1,630 1,585 1,700 1,770 1,850 1,800

Rhodium (US$/oz) 1,320 1,200 1,130 1,150 1,350 1,210 1,600 1,700 1,800 1,900 1,750 2,080 2,300 2,500 2,500

previous 1,320 1 ,200 1 ,130 1 ,150 1,350 1,210 1,600 1,700 1,800 1,900 1,750 2,080 2,300 2,500 2,500

MineralsZircon bulk (US$/t) 2,250 1,230 1,250 1,300 1,350 1,283 1,400 1,600 1,600 1,600 1,550 1,650 1,650 1,625 1,500

previous 2250 1 ,230 1 ,250 1 ,500 1,500 1,370 1,700 1,700 1,700 1,700 1,700 1,650 1,650 1,625 1,500

Rutile bulk (US$/t) 2,333 1,350 1,250 1,250 1,250 1,275 1,350 1,450 1,450 1,450 1,425 1,300 1,100 1,075 1,000

previous 2333 1 ,450 1 ,450 1 ,450 1,500 1,463 1,550 1,550 1,350 1,350 1,450 1,175 1,100 1,075 1,000

Synthetic Rutile (US$/t) 1,659 1,250 1,200 1,150 1,150 1,188 1,250 1,350 1,300 1,300 1,300 1,200 1,000 975 890

previous 1659 1 ,300 1 ,300 1 ,300 1,350 1,313 1,450 1,450 1,250 1,250 1,350 1,075 1,000 975 890

Ilmentite - sulphate 54% (US$/t) 313 255 230 200 200 221 250 250 250 250 250 225 225 225 200

previous 313 285 275 225 250 259 250 250 250 250 250 225 225 225 200

Titanium Slag - SA Chlor 86% (US$/t) 1,688 1,050 1,050 1,000 1,000 1,025 1,050 1,150 1,150 1,150 1,125 1,000 850 825 760

previous 1688 1 ,150 1 ,150 1 ,250 1,250 1,200 1,100 1,100 1,100 1,100 1,100 925 850 825 760

201420132012

Source: Credit Suisse Commodities Research


16/177

03 October 2013


Macro Outlook: Recovery Finally at Hand?The slowdown looks to have come to an end at last

Those forecasting the global economy have had their forecasting mettle tested over the

past couple of years, with activity at a global level consistently coming in weaker than

expected by the consensus of economic forecasters.

As an illustration of this phenomenon, after starting above 4.5% in early 2011, the latest

IMF forecast for global GDP growth in 2013 has now fallen to around 3.1%.

Exhibit 16: Global growth expectations have continually fallen for 2 years Percentage change

2.9%

3.1%

3.3%

3.5%

3.7%

3.9%

4.1%

4.3%

4.5%

4.7%

Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul

IMF's 2013 GDP growth forecast

2011 2012 2013Source: Credit Suisse, IMF

One of the techniques of macro forecasters is that updates are mainly motivated by the

mark to market of the past quarter (the one for which we have data), which then in turn

informs the chosen path back toward what is considered a long-run or trend growth rate.

With quarter-over-quarter saar global growth slowing consistently from nearly 6% saar in

early 2010 to around 2.3% in 1Q this year, it is little wonder in our opinion that those

calling a bottom were proven wrong.

Thankfully, however, it does appear that 2Q of 2013 was something of a turning point, with

global growth picking up noticeably for the first time in several years, suggesting that the

downward drift may have finally come to an end.

With growth returning to around normal in the middle of this year (c.3.5% saar) the

normal historical relationship suggests that the downward pressure on many commodity

prices should begin to abate.


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03 October 2013


Exhibit 17: But in 2Q growth finally started to reboundPercentage change

-4%

-2%

0%

2%

4%

6%

8%

2005 2006 2007 2008 2009 2010 2011 2012 2013

Global GDP QoQ SAAR Average Since 1970 = 3.6%


The US post the FedThe US remains the bedrock of the global recovery. However, over recent months higher

interest rates and tight fiscal policy have seen the pace of growth moderate a little, forcing

the FOMC to delay its much-anticipated tapering of asset purchases.

Housing (the epicenter of the recovery) has slowed as higher interest rates "bite,"

although as rates have recently dipped on the new dovish Fed, it is likely that this

important sector will resume its rebound through year-end.

Exhibit 18: US monetary conditions have tightened,despite the Fed's no taper decision

Exhibit 19: With housing beginning to show theimpact

Percentage change Thousand homes

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

2010 2011 2012 2013200

400

600

800

1000

1200

1400

2005 2007 2009 2011 2013

New Home Sales (k)


Similarly final domestic demand growth has slowed in recent months.

Business investment appears to have stalled.

Real consumption growth has slowed.

The pace of growth in payroll employment has moderated.


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03 October 2013


Exhibit 20: Business investment has stalled Exhibit 21: And consumption is slowingPercentage change Percentage change

-40%

-30%

-20%

-10%

0%

10%

20%

2006 2007 2008 2009 2010 2011 2012 2013

Core Capex Shipments,qoq annualised

-6%

-4%

-2%

0%

2%

4%

6%

2005 2006 2007 2008 2009 2010 2011 2012 2013

US Personal Consumption Expendituresa, annualised trend mom


Thankfully, industrial production looks to be recovering strongly. While weaker domesticdemand should put a cap on this rebound (it was notable that the ISM and PMI

suggested that the pace of growth has already peaked), the inventory rebound

underway should see IP momentum remain solid over the coming month or two before

beginning to moderate around the turn of the year.

Exhibit 22: The labor market has also softenedExhibit 23: Thankfully IP is rebounding but, withdemand soft, this is likely to prove transitory

Thousand jobs Percentage change (lhs), Index (rhs)

-100

0

100

200

300

400

2010 2011 2012 2013

NFPs 3MMA

QE 3 announced:

Sep'12

QE 2 announced:

Nov'10

40

45

50

55

60

65

70

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2008 2009 2010 2011 2012 2013

US IP 3MMA Average Markit and ISM new orders (rhs)


China: As good as it gets?

Listening for clear signals through the China noise

As our economists and global strategists have shown in recent weeks, interpreting the

Chinese data is becoming increasingly difficult.

For a long time part of the challenge with China was the fact that it did not release

sequential data for either IP or for GDP.


19/177

03 October 2013


When the government began to release data in this form back in February 2011, we felt

that it would be a boost to our ability to study the higher frequency movements in the

business cycle.

Unfortunately, after over two years of releasing monthly IP data it has become clear

that this official series is highly misleading, with the volatility in the monthly print

too low to be credible.

As our strategy team showed in Global Strategy: China accelerates, the standarddeviation of the monthly release in China is dramatically lower than seen in even the

most advanced nations, and far below that suggested by the year-on-year releases.

Exhibit 24: Reported IP exceptionally smooth Exhibit 25: in contrast to other major economies

Percentage change, mom annualized, 3mma Basis points, 18-month standard deviation of mom IP

-5%

0%

5%

10%

15%

20%

25%

30%

35%

2005 2006 2007 2008 2009 2010 2011 2012 2013

China Industrial Produc tion Pre-2008 Average

0

20

40

60

80

100

120

140

160

180

China US Japan Euro Area

Source: Credit Suisse, China NBS, the BLOOMBERG PROFESSIONAL service Source: Credit Suisse, the BLOOMBERG PROFESSIONAL service

And as illustrated in China: Growth has bottomed, when we back out a monthly growth

rate from the year-on-year official releases it gives us a much more volatile series, with the

new data lining up well with the HSBC PMI and our strategists' growth measure that takes

the first principal component of 13 of the key partial indicators of Chinese growth. Noticeably both these series line up well with the HSBC-Markit PMI, but not so well with

the official PMI.

Exhibit 26: The HSBC PMI appears to provide the best snapshot of the Chineseindustrial cycle

Percentage change, mom annualized, 3mma (lhs); 3m/3m PCA Z-Scores

40

45

50

55

60

65

-5%

0%

5%

10%

15%

20%

25%

30%

2005 2006 2007 2008 2009 2010 2011 2012 2013

CS China IP Indicator Markit PMI NO (rhs)

Source: Credit Suisse, China NBS, the BLOOMBERG PROFESSIONAL service


20/177

03 October 2013


So how are things tracking?

As seen in Exhibit 26 the recovery in Chinese IP looks to have continued in September,

although the HSBC PMI is beginning to show signs of reaching a near-term peak.

This is a positive, but we note that the components of the PMI continue to suggest that

much of the recovery has once again been driven by domestic stimulus, which we

believe will prove relatively short lived now that growth has stabilized.

China's export performance also appears to have stabilized; however, we do not expect a

large uptick in coming months. Indeed, partly because a large part of the current growth in

the US is housing (which is not import intensive) it is noticeable that imports to the North

Atlantic remain very weak.

Exhibit 27: Exports have recovered after the post-HK distortion crack down

Exhibit 28: While also benefitting modestly from animproving external environment

Real natural log, monthly, sa USD billions, monthly, sa

3.0

3.2

3.4

3.6

3.8

4.0

4.2

4.4

4.6

4.8

5.0

2002 2004 2006 2008 2010 2012

CAGR: 18% CAGR: 8%

CAGR: 38%

HK export distortion

5

10

15

20

25

30

35

2005 2006 2007 2008 2009 2010 2011 2012 2013

Exports to US Exports to EU Exports to JPN

Source: Credit Suisse, China Customs Source: Credit Suisse, China Customs

Exhibit 29: North Atlantic imports remain very weakPercentage change

-2%

-1%

0%

1%

2%

3%

4%

08 09 10 11 12 13

EA27 non-oil imports,trend monthly change

US non-oil imports,trend monthly change

Source: Credit Suisse, the BLOOMBERG PROFESSIONAL service


21/177

03 October 2013


But won't policy continue to support?

Events of the past couple of months have shown that the Chinese authorities retain the

capacity to quickly boost growth. From here on, however, we do not expect a further

stimulus.

As shown in Exhibit 30, the authorities remain highly focused on the labor market (a

proxy for the much discussed "social stability," with their tolerance for weaker growthcoming to an end in June as the labor market softened noticeably.

In GDP terms this looks to correlate with around 7%.

With growth now back between 7% and 8% and the labor market recovering, we feel

that the authorities will once again begin to focus on structural issues and that they will

be very reluctant to boost growth further.

Note that despite all of the talk, to date, there has been very little "rebalancing," with

the latest stimulus once again boosting housing and investment.

Exhibit 30: China's leadership still mainly cares about the labor market the dipin June-July was beyond its near-term toleranceIndex, Employment component of HSBC-Markit PMI

46

47

48

49

50

51

52

53

54

55

56

2005 2006 2007 2008 2009 2010 2011 2012 2013

July 2013


Europe on the mend but 3Q data could disappoint

Perhaps the largest positive to emerge over the past couple of months has been in

Europe, where the long recession appears to have finally ended. Most importantly, after

contracting substantially over recent years, final domestic demand in Europe has finally

stabilized, suggesting that the drag from Europe on the rest of the world may now be

fading.

While the outlook for Europe is slowly improving, we caution that recently the surveys

have diverged substantially from the hard economic data, suggesting some caution inextrapolating the 2Q recovery into 3Q IP is currently falling heavily.


22/177

03 October 2013


Exhibit 31: European IP Is currently falling Exhibit 32: Demand has finally stabilizedIndex (lhs), percentage change (rhs) Index

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

30

35

40

45

50

55

60

65

70

05 06 07 08 09 10 11 12 13

Eurozone IP mom (rhs)Eurozone Manufacturing PMI NOIP mom 3mma, annualised (rhs)

94

95

96

97

98

99

100

101

102

103

104

2008 2009 2010 2011 2012 2013

Euro area

US

Japan


Modest global recovery underway but EM is yet tobounce decisively

Notwithstanding the recent divergence between the surveys and the hard data, it does

appear that global IP growth is rebounding as we enter 4Q, which should support industrial

commodity prices. That said, to date, the rebound is very much centered on the developed

world with the all-important EM countries continuing to lag (see Editor's Summary).

Exhibit 33: Global IP is recovering Exhibit 34: But with EM lagging the DM reboundMonthly. percentage change, 3MMA (lhs); index (rhs) Index

40

45

50

55

60

65

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2005 2006 2007 2008 2009 2010 2011 2012 2013

Global IP MoM 3MMA

Global PMI New Orders (rhs)

40

45

50

55

60

65

2005 2006 2007 2008 2009 2010 2011 2012 2013

DM PMI NO EM PMI NO


It is also notable that the most recent PMIs suggest that global IP growth may be in

the process of peaking as we enter 4Q.


23/177

03 October 2013


Petroleum:Balanced fundamentals and shifting tail-risksWe still think the characterization of manageable uncertainty best describes the current

and near-term state of oil markets. Oil supply and demand seem relatively well balanced,

but there was far more tension this summer than most had anticipated. Nearly all of that

pressure emanated from the supply side, which is also where we believe most near-termrisks reside. That said, in our view, most s/d balance swings should remain manageable.

From a forecasting perspective all this means that we are keeping our forecast for global

oil benchmark Brent futures within the range that it has traveled in for the last two or so

years i.e., between $100 and $120 dollars per barrel.

Our full year 2014 forecast for Brent is unchanged at $110/b. We see a marginal

increase in prices, compared to our 2013 forecast, which would make it the fourth year

in a row with prices averaging less than +/- 2% from $110/b. Our view remains more

bullish than consensus, we maintain that prices will turn in 2015 and, thus, have left our

FY2015 target of $100/b in place. That being said, we do see more upside risk building

around that 2015 target.

Within this price range we have

really only tinkered with ourquarter average price forecasts

and tweaked our view of the

WTI Brent spread.

Marking to market, the third

quarter, Brent spot futures

averaged $108.29, or 3% above

our forecast. Similarly WTI

averaged $106.0, 8% higher

than expected.

Shifting around quarter

averages for 2014: We put the

years low watermark (of $105/bBrent) in the first quarter, and

the seasonal high ($115/b), in

3Q 2014.

Lastly, we halved the projected

discount of WTI to Brent from

-$8/b to -$4/b through the first

half of 2014, after which that

spread should widen to

approximately -$8/b, reflecting

growing surpluses in the US

Gulf Coast refining centers, and

the cost of transport to othercoastal markets.

Overview: A near-term soft-patch leads to familiar terrainAnother quarter (and year) of historically high oil prices, set against the fundamental disruption

of many MENA societies, including Syria and Libya, has underscored that the shale revolution

playing out in the US has had an only limited impact on global oil markets, thus far; this is in

sharp contrast to the enormous changes that this supply revolution is driving in natural gas as

well as in other sectors in the US and elsewhere.

Exhibit 35: Credit Suisse oil price view (Brent)Actual, forecast, futures and "consensus"

Period

Actuals &

CS Forecast

Previous

Fcst Futures

BBG

Consensus*

FY11 (a) 109.97$

1Q12 (a) 118.28$

2Q12 (a) 108.99$

3Q12 (a) 109.42$

4Q12 (a) 110.11$

FY12 (a) 111.70$

1Q13 (a) 112.57$

2Q13 (a) 103.35$

3Q13 (a) 108.29$ 105.00$

4Q13 105.00$ 110.00$ 106.63$ 106.47$

FY13E 107.30$ 107.73$ 107.71$ 107.67$

1Q14 105.00$ 115.00$ 104.42$ 106.47$

2Q14 110.00$ 110.00$ 102.78$ 104.43$

3Q14 115.00$ 110.00$ 101.31$ 105.90$

4Q14 110.00$ 105.00$ 100.00$ 105.73$

FY14E 110.00$ 110.00$ 102.13$ 105.64$

1Q15 105.00$ 105.00$ 98.73$

2Q15 100.00$ 100.00$ 97.40$

3Q15 100.00$ 100.00$ 96.26$

4Q15 95.00$ 95.00$ 95.22$

FY15E 100.00$ 100.00$ 96.90$ 106.51$

FY16E 95.00$ 95.00$ 93.26$ 103.30$

FY17E 95.00$ 95.00$ 90.98$ 96.73$

Long-Term 90.00$ 90.00$

Source: Credit Suisse Commodities Research, the BLOOMBERG PROFESSIONALservice

The commodity priceforecasts mentioned in thissection have been provided

by the CommoditiesResearch analysts above.


24/177

03 October 2013


To be sure, in our view the very near-term global oil supply and demand balance looks

decidedly looser this winter than it has recently (Exhibit 41). But when looking at 2014 as a

whole, we once again find ourselves in a familiar position, relative to the consensus,

represented by the International Energy Agency (IEA), which sees at once more demand

growth and less supply growth than we do.

In our view, the call on Opec and inventories should not shrink materially, if at all, next

year (Exhibits 36 and 37).

Exhibit 36: Fundamental demand shifts in 2014, theCS view versus consensus

Exhibit 37: Once again we see no large changes inthe "Call on Opec," while most expect a deep cut

Yoy, Mb/d Yoy, Mb/d

(0.5)

0.0

0.5

1.0

1.5

2.0

2014 Global OECD Non-OECD

Credit Suisse Consensus (IEA)

(1.0)

(0.5)

0.0

0.5

1.0

1.5

2.0

Non-Opec Call on Opec crude + inventory

Credit Suisse Consensus (IEA)

Source: Credit Suisse, IEA Source: Credit Suisse, IEA

Below we will highlight the latest data and the degree to which it mostly confirms our 2013

forecast for modestly growing oil demand (~1.3-1.5%, yoy) and US centric below

consensus non-Opec supply growth (less than 1 million barrels per day, Mb/d).

Additionally, we outline supply risks in MENA, all within the context of what we expect to

change (or not) in 2014 and touch upon some of the work we are doing on longer-term

demand trends in emerging markets. Lastly we outline the state of inventories, positioning

of speculators and other risks to our outlook.

In the shorter term relaxing some tensions on the supply-chain

As we have discussed repeatedly, much of the outperformance of oil prices in 3Q had a lot

to do with a host of planned and unplanned supply outages (e.g., Libya, Nigeria, extended

field maintenance in the North Sea, etc.), which coincided with seasonal peaks for both

refiner demand for crude oil as well as end-user demand for gasoline (in the US) and

middle distillates (Mideast, Latam).

In our view, it is commercial actors ongoing positioning around real, near-term shifting

supply/demand risks that has driven recent market shifts, as opposed to just Syrian

headline risks driving paper "speculators" to buy insurance.

Within this context, our monthly global supply and demand model indicated that the call on

Saudi crude oil and global inventories rose to a new five-year high last quarter (Exhibit 41)

and that this peak coincided with a rally in Brent oil prices and a fierce steepening of its

futures curve (Exhibits 38 and 39).


25/177

03 October 2013


Exhibit 38: Recent Brent price rally in context Exhibit 39: Brent time-spread backwardation spiked$/b CO1 CO6 ($/b)

$80

$90

$100

$110

$120

$130

$140

J-12 M-12 S-12 J-13 M-13 S-13

Breaking through the~$105/b then ,

temporarily, the ~110/bceiling on lost Libyan

barrels

$(4)

$(2)

$-

$2

$4

$6

$8

Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13

Backwardation = spot shortage = bullish

Contango = spot surplus = bearish


Its also interesting to us that early/preliminary data show that Saudi production rose tonew highs not seen since the late-1970s/early-1980s, while crude oil inventories in

China, Europe, Japan and the US trended lower.

Exhibit 40: Saudi Arabia continues to play the roleof swing producer

Exhibit 41: Call on Saudi + inventories, our near-term base case and two plausible scenarios

$/b (lhs); kb/d (rhs) Kb/d, Call on Saudi + inventories = Global Demand Non-Opec SupplyProcessing Gains Opec ex-Saudi Arabia Saudi Arabian non-crudeproduction

7,000

7,500

8,000

8,500

9,000

9,500

10,000

10,500

$60

$70

$80

$90

$100

$110

$120

$130

$140

$150

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13

Saud i Produc ti on (kb/ d, r ight axi s) Bren t f ront mont h ($/ b)

Increased output tocompensate for disruptions

from first Libya and then Iran... and when Brent price

Lowerproduction in thewake of the GFC

Lots ofroom tocut backfrom thiswinter

8,000

8,500

9,000

9,500

10,000

10,500

11,000

11,500

12,000

J-13 M-13 M-13 J-13 S-13 N-13 J-14 M-14

Base Case

Lower Demand

Extended SupplyDisruptions

Source: Credit Suisse, the BLOOMBERG PROFESSIONAL service Source: Credit Suisse Commodities Research

Why a softer balance this winter

Normal seasonal demand patterns, set against leading indicators, supply-sidemaintenance data, new field start-ups and assumptions about events in MENA, drive our

projections. In our base case, the call on Saudi oil plus inventories should decline by some

2.5 Mb/d and reach a trough low early next year.

While this decline is fairly large and somewhat steep, it is also eminently manageable for

Saudi Arabia which last winter cut production and prevented global inventories from

ballooning, driven by a very similar dynamic in underlying fundamentals.

This years required Saudi production cut is bigger, but comes from a higher base.;


26/177

03 October 2013


We therefore expect only a modest retracing of benchmark Brent prices, quarter over

quarter of ~5%, to a ~ $105/b winter average.

At the same time we expect Brent and WTI futures curves to remain backwardated.

As for price direction on WTI; we expect that the longer-dated part (six-months plus) of

its futures curve to remain neatly aligned with Brent.

Prompt WTI prices, however, should prove quite volatile and occasionally at odds withBrent, as more infrastructure segments connecting the inland delivery hub to Gulf Coast

import markets are completed in the next several months and as important shifts in

demand in the US mid-continent materialize, perhaps as early as December.

In general, we expect risks around the near-term part of our forecast to be roughly in

balance: on the supply side significant disruptions (e.g., Libya, Iraq) could persist;

conversely, non-Opec growth may accelerate faster than we assume. Furthermore, there

is obviously risk to either side of the macro-view driving our demand outlook, but more on

those risks later.

Supply the bigger and less predictable deltas

If nothing else events in 2013 underscore that production growth outside of the UnitedStates still matters. As we keep emphasizing, the North American shale-oil revolution

alone cannot change the global oil balance as quickly as many want to believe. Outside of

the US key supply-side themes remain the pace and success of investments as well as

instability across MENA.

Failure to grow: Time and again we project that non-Opec oil production (outside the US)

should grow, and equally often since 2011 those projections have proven too optimistic. At

its root, the cause is simply an underappreciation of what we loosely call decline rates on

aging fields. In addition, we tend to take company development plans at close to face

value, not factoring in the cost and time overruns that typically accompany such large

capital investments.

Exhibit 42: Outside the US, which grows very fastindeed, non-Opec growth lags expectations

Exhibit 43: Non-Opec oil production (ex-US and exMENA) trends sideways at best

Non-Opec, ex-US, oil production deltas, by quarter yoy, in kb/d All liquids, outside Opec, US, Syria, Yemen, Sudan and Egypt. Monthly in Kb/d,single month sa + t-13 Henderson trended and its forecast.

-1200

-800

-400

0

400

800

1200

1600

(1200)

(800)

(400)

0

400

800

1200

1600

Q1-'12 Q2-'12 Q3-'12 Q4-'12 Q1-'13 Q2-'13E Q3-'13E Q4-'13E

Non-Opec ex . USA expectat ions Non-Opec ex. USA Non-Opec

kb/d kb/d

Non-Opec (ex-US)production disappoints,

yet again.

38000

39000

40000

41000

42000

J-08 J-09 J-10 J-11 J-12 J-13 J-14

Source: Credit Suisse, IEA, EIA, JODI Source: Credit Suisse, IEA, EIA, JODI

This years story illustrates that once again the bump in other non-Opec growth has

been pushed into the future (Exhibit 42).


27/177

03 October 2013


In fact, strip out the US as well as MENA instability, related non-Opec supply disruptions

and growth have been flat for approximately three years running (Exhibit 43).

Of course the old advice offollow the money helps explain some of the problem. In big

broad figures, every year more than $750 billion of capex is invested on oil and gas related

industry. Of that global capex, ~$200 billion is currently spent in the US, with another

~$250 billion on LNG. That leaves a mere ~$300 billion of capex to be spread across the

rest of the world, including the mid- and down-stream. Thus, it shouldnt be a mystery as towhy the US, and secondarily Canada, are outperforming the rest of non-Opec.

Exhibit 44: Yoy supply growth by key producing regions and countriesKb/d

Base

2012 1Q13 2Q13E 3Q13E 4Q13E 1Q14 2Q14E 3Q14E 4Q14E 2010 2011 2012 2013E 2014E

Global Oil 91,130 -250 190 820 810 1,380 1,430 2,400 1,870 2,555 990 2,100 390 1,775

Opec all oil 37,690 -860 -1,050 -570 -140 -120 -50 880 870 1,230 695 1,490 -655 400

Non Opec 50,970 560 1,190 1,340 900 1,420 1,430 1,470 950 1,230 200 560 995 1,320

North America 17,380 1,140 1,170 1,370 1,040 1,090 1,170 1,210 1,010 640 605 1,275 1,175 1,125

US 10,090 860 1,120 1,160 900 1,100 1,020 1,060 850 505 405 1,050 1,010 1,010

Canada 3,760 280 100 250 200 20 220 230 240 130 195 235 205 175

Mexico 2,910 -10 -70 -60 -70 -50 -80 -90 -90 -20 -20 -20 -50 -80

South America 8,090 -260 50 160 140 340 270 140 60 115 55 -40 25 200

Venezuela 2,750 -100 10 -30 40 90 70 70 60 -130 -25 -5 -20 70

Brazil 2,530 -210 -10 90 30 180 160 50 -40 120 -20 -40 -25 85

Argentina 680 -30 -10 0 0 -10 -10 -20 -20 -10 -40 -15 -15 -15

Europe 4,440 -370 -290 -110 -280 -190 -200 -170 -170 -310 -330 -245 -260 -185

Norw ay 1,920 -250 -160 -10 -160 -90 -110 -110 -100 -220 -105 -100 -145 -105

United Kingdom 920 -140 -130 -100 -100 -110 -100 -80 -90 -105 -240 -170 -115 -95

FSU 13,820 180 320 110 200 200 190 240 170 335 195 85 200 200

Russia 10,640 140 210 80 90 160 40 40 40 315 270 110 130 75

Kazakhstan 1,630 60 90 80 30 60 170 190 150 60 10 -20 65 140

Azerbaijan 880 -40 0 -60 70 -30 -20 10 -10 -20 -100 -45 -5 -15

Middle East 28,440 -700 -940 500 510 350 210 0 130 1,170 2,070 155 -160 175

Saudi Arabia 11,570 -490 -720 440 -140 -720 -710 -870 -350 725 860 280 -225 -660

Iran 3,540 -640 -230 40 100 280 390 610 490 15 35 -735 -180 445

UAE 3,390 340 170 190 240 140 80 -40 -110 65 405 120 235 15

Kuw ait 3,210 -170 -30 60 240 260 70 20 -40 75 365 300 25 75

Iraq 3,120 300 40 -150 60 270 210 230 150 30 350 280 60 215

Africa 9,980 -290 -260 -1,120 -680 -400 -140 930 700 235 -1,475 760 -585 275

Nigeria 2,670 -30 -180 -360 -160 -130 -80 50 10 340 -80 20 -185 -35

Algeria 1,760 -240 -90 60 90 170 0 -50 -60 -145 65 20 -45 15

Libya 1,510 220 -50 -870 -740 -690 -230 770 620 60 -1,285 1,030 -360 120

Angola 1,770 0 50 10 40 60 50 70 60 -35 -125 80 25 60

Asia 8,990 40 140 -100 -120 -10 -80 50 -30 370 -130 110 -10 -15Indonesia 890 -40 -30 -30 0 0 -10 0 -10 -5 -40 -45 -30 -5

China 4,150 110 160 -40 -80 -20 -60 50 0 285 -5 45 40 -10

India 890 -10 -20 0 10 30 30 10 20 80 20 0 -5 20

Y-o-Y GrowthY-o-Y Grow th by quarter ('000 b/d)

Source: Credit Suisse, EIA, IEA, Jodi, Petrologistics

Not much is changing in broad investment terms:

The US still has very good rocks (geology) and its investment climate is the friendliest,

and among the most stable in the world.

We also do not think that oil prices will rally suddenly to produce a significantly larger

pool of investments.

While there is a large slug of projects, delayed and others, in the pipeline we dont

expect that operations will suddenly become easier and/or less prone to "unplanned"

events.

In our base case we expect non-Opec oil production to grow by 1.3 Mb/d, roughly 30%

more than last year. IEA and other balances, however, project growth of 1.6 Mb/d, which

we think is an un-realistic 60% acceleration. Despite the fact that our base-case non-Opec

forecast may appear a little too pessimistic, recent history (three years and counting)

suggests that we have tended to be too optimistic.

The largest differences between our base-case and other forecasts involve Canada,

Norway and the UK; for all production deltas in the section below please see Exhibit 44.


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03 October 2013


Canadas production, other forecasts say, "should" grow by as much as 450 kb/d, on

the assumption that in 2014, surely, operators manage to run to capacity and install

new kit on time. We observe, however, that this projected average annual increment is

fully two times as large as the largest annual increment in any of the past nine years.

In our base case, we allow for some improvement, including a large 10% qoq surge

in the fourth quarter of this year. Our projected growth for 2014 is roughly 2x the nine-

year average and very close to the average per annum (pa) pace achieved since 2010.But we stick to our view that downtime this year was not exceptional in the context of

the industrys performance over the last three to five years. In addition , we see still

more downside risk if pipeline capacity constraints hinder activity.

The biggest single delta is Norway consensus projects actual growth, after 12

years of consecutive declines averaging 6% pa. Weve seen projections of as much

as 12% growth in Norways oil production next year. New fields, and, we assume, the

absence of exceptional, extended and unplanned outages, help underpin this hoped

for U-turn.

In our base case, however,we assume that like super-tankers, an oil province with

some 60+ mature fields and only a smattering of significant developments due on line

in 2014 cannot turn around that quickly. In our base case we project a -6.0% decline

in 2014 after a fall of -7.5% in 2013.

UK offshore confronts a situation similar to Norway. There are ~120 mature

offshore UK fields, which in aggregate have not grown since 1999. Our current

forecast is for an -11.9% yoy production decline in 2014, roughly in line with the five-

year average of approximately -11.7%.

Exhibit 45: Our base-case reflects low expectationsfor yoy supply growth from non-Opec

Exhibit 46: MENA oil supply disruptions spiked in3Q, but will likely roll going forward

Yoy, Mb/d Production losses relative to pre-crisis base-lines, kb/d

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14

CS Base Case Consensus (IEA)

0

500

1000

1500

2000

2500

3000

3500

Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep t-13EJan-14E May-14E

Libya Iran Sudan Egypt Syria Yemen

Forecast

through 2Q14

Too

optimistic?

Source: Credit Suisse, IEA Source: Credit Suisse, IEA, Petrologistics

Dealing with MENA instability

Ongoing political instability and sanctions across MENA have led to numerous supply

outages, most recently peaking at a ~3.2 Mb/d average production loss for the month of

August. Going forward, we again risk being too optimistic. Since we cannot get around

applying some version of a rational actor model to the many issues at play in the region,

in our base case we assume some return of volumes to markets in the short and long term,

including next year (Exhibit 46). The assumptions and observed trends in four of the more

critical countries are as follows:


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03 October 2013


Iran Biting sanctions have lowered Iranian exports by over 1 Mb/d. Going into 1H 2014

our base case is for a certain amount of slippage in the sanctions regime, leading to a

~300 kb/d increase in Iranian crude exports. Though generally, we are skeptical that

negotiations will lead to an unwinding of those parts of sanctions that matter for oil flows,

in the foreseeable future. In fact, there is a strong possibility that we are still too

optimistic.

Oil markets could sell off in a limited way on any sign of rapprochement between theUS and Iran, but such a market move would likely be moderate, as it would only stem

from speculative flows.

Iraq This is mostly a story of unfulfilled promise. Production was down sharply in

September, by ~400 kb/d, due to significant maintenance in southern Iraq. However, the

real problem has been a flat lining of overall supply growth. As of now, production

peaked at ~3.37 Mb/d in September 2012 and has been moving sideways ever since.

To date, the only real progress has been in northern Iraq, where tangible headway is

being made toward developing and exporting volumes from territory administered by the

Kurdish Regional Government (KRG).

As the political and security situation remains uncertain, at best, we worry that even

our below-consensus forecast for 200kb/d of growth in 2014 may prove too bullish.

Libya Mounting "labor actions" and civil unrest have held the countrys oil

infrastructure hostage since mid-summer, causing supply to plunge by ~1.12 Mb/d. As

weve written previously, the governments inability to consolidate power, particularly in

the east of the country, and to ensure order has become manifest.

Consequently, while exports have resumed around Zawiya, close to Tripoli, we have

little confidence that resolving disputes in western Libya in a sustainable manner will

be as easy.

Syria While it is not a major oil exporter, and the majority of what little production it did

have has been offline for quite some time, there does continue to be a degree of

headline risk associated with the Syrian conflict.

While US strikes no longer appear likely, the danger remains that the conflict might

escalate or spread in such a way as to destabilize production in the greater region.


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03 October 2013


Demand: Global growth stays close to trend in 2013

Exhibit 47: Global oil demand, SA Exhibit 48: Global oil demand, SA, momentumLn scale Mom and yoy 3 mma % change

11.25

11.30

11.35

11.40

11.45

J-08 J-09 J-10 J-11 J-12 J-13 J-14

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

-1%

0%

1%

2%

3%

4%

5%

J-11 M-11 S-11 J-12 M-12 S-12 J-13 M-13

3 mma mom % change 3 mma yoy % change

Source: Credit Suisse, IEA, EIA, Jodi Source: Credit Suisse, IEA, EIA, Jodi

Data confirm oil demand growth well north of consensus again

Global oil demand is on trend for ~1.4% yoy growth in 2013, materially higher than

consensus expectations and in line with our end 2012 forecast (Exhibit 47).

That said, there was a marked 2Q slowdown in EM, which judging from the July data is

slow to recover though the same data also suggest that decline rates have bottomed.

In the OECD, it was tempting to put too much significance into the 2Q improvement. But

we are glad that we did not, as July data indicate much of the European 2Q upswing was

weather driven, not a structural or cyclical improvement (Exhibit 49).

Demand momentum, rolled in July, after turning up in April/June (Exhibit 50). As of now,we expect that 3Q oil demand growth will remain flattish, at around 0.2% yoy.

Exhibit 49: OECD oil demand, SA Exhibit 50: OECD oil demand, SA, momentumLn scale Mom and yoy 3 mma % change

10.65

10.70

10.75

10.80

10.85

10.90

J-08 J-09 J-10 J-11 J-12 J-13 J-14

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

-3%

-2%

-1%

0%

1%

2%

3%

J-11 M-11 S-11 J-12 M-12 S-12 J-13 M-13


Source: Credit Suisse, IEA Source: Credit Suisse, IEA


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03 October 2013


Weaker growth across EM, particularly in key oil-consuming economies, pulled down non-

OECD oil demand momentum in 2Q (Exhibit 52). Thus far, while some EM economies

appear to be bottoming out, notably China, at only 2.1% yoy in July, demand growth

remains somewhat tepid.

Exhibit 51: Non-OECD oil demand, SA Exhibit 52: Non-OECD oil demand, SA, momentumLn scale Mom vs. yoy 3 mma % change

10.40

10.45

10.50

10.55

10.60

10.65

10.70

10.75

10.80

J-08 J-09 J-10 J-11 J-12 J-13 J-14

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

0%

1%

2%

3%

4%

5%

6%

7%

J-11 M-11 S-11 J-12 M-12 S-12 J-13 M-13


Source: Credit Suisse, JODI, NBS, ANP Source: Credit Suisse, JODI, NBS, ANP

If we eliminate China from the EM Asia picture, the continents oil demand growth

momentum profile still appears to be flagging, year-over-year demand is growing, but at an

incrementally slower rate (Exhibits 53 and 54).

Exhibit 53: Non-OECD Asia ex-China oil demand, SA Exhibit 54:EM Asia ex-China demand SA momentumLn scale Mom and yoy 3 mma % change

9.1

9.2

9.3

9.4

9.5

J-08 J-09 J-10 J-11 J-12 J-13 J-14 -1.5%

-0.5%

0.5%

1.5%

2.5%

3.5%

-3%

-1%

1%

3%

5%

7%

J-11 M-11 S-11 J-12 M-12 S-12 J-13 M-13


Source: Credit Suisse, JODI Source: Credit Suisse, JODI

Looking out into 2014We are not making grand assumptions in our forecast. In our base case, oil demand

continues to grow by ~1.3 Mb/d yoy, in line with 2013 (Exhibit 47).

Drilling down, our current expectation is for a continued, slight, trend decline of OECD oil

demand on the order of ~0.3 Mb/d; a hair more than in 2013, but slightly less than 2011-

2012.

At the same time non-OECD oil demand, the engine of global growth, should increase

by ~1.6 Mb/d, within recent trends.


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03 October 2013


Exhibit 55: Global oil demand 2012 base and yoy change by key economykb/d and yoy % change

1,000 b/d Base by year (2010-14)

2012 1Q13 2Q13E 3Q13E 4Q13E 1Q14E 2Q14E 3Q14E 4Q14E 2010 2011 2012 2013E 2014E 2008-12

Glo bal 90,550 1.8% 1.4% 1.9% 1.2% 1.4% 1.1% 1.6% 1.9% 4.1% 1.1% 1.1% 1.6% 1.5% 0.9%

OECD 46,190 -0.9% 0.0% 0.4% -0.2% 0.0% -1.1% -0.5% 0.0% 1.4% -0.9% -0.8% -0.2% -0.4% -1.6%

Emerging M arkets 44,350 4.7% 2.8% 3.4% 2.6% 2.8% 3.4% 3.8% 3.7% 7.3% 3.5% 3.2% 3.4% 3.4% 4.0%

OEC D A mericas 23,650 1.4% 0.6% 1.5% 0.9% 0.7% -0.6% -0.5% 0.3% 2.0% -0.8% -1.3% 1.1% 0.0% -1.7%Canada 2,290 4.1% 1.2% 0.3% -1.9% -0.7% -1.5% -1.0% -0.8% 4.7% 0.1% 0.9% 0.9% -1.0% 0.1%

M exico 2,140 0.8% 0.5% -1.1% -3.2% -0.7% -2.2% -0.4% 0.4% 0.5% 1.6% 1.5% -0.8% -0.7% -0.2%

USA 18,560 1.3% 0.3% 1.8% 1.9% 1.0% -0.3% -0.4% 0.4% 2.2% -1.2% -2.1% 1.3% 0.1% -2.1%

So uth A merica 6,610 3.5% 3.3% 3.1% 2.7% 2.1% 2.2% 2.9% 2.5% 7.3% 3.7% 3.0% 3.1% 2.4% 4.0%

Brazil 3,160 4.1% 3.3% 4.4% 3.5% 2.3% 2.6% 3.8% 3.0% 9.7% 3.8% 4.4% 3.8% 2.9% 5.3%

Venezuela 820 2.0% 2.1% 2.1% 2.1% 2.1% 2.1% 2.1% 2.1% 9.9% 2.6% 3.4% 2.1% 2.1% 6.2%

Argentina 740 8.3% 7.0% 4.0% 3.8% 3.6% 3.8% 4.2% 4.0% 7.5% 2.4% 3.3% 5.7% 3.9% 3.7%

Euro pe 14,680 -4.0% -0.4% -0.5% -0.9% 0.2% -2.0% -0.3% 0.0% -0.3% -2.6% -3.3% -1.4% -0.5% -2.3%

France 1,740 -3.3% 2.3% -0.3% -0.9% 1.1% -3.1% -1.6% -0.8% -1.9% -2.2% -2.9% -0.6% -1.1% -2.5%

Germany 2,390 -0.8% 5.3% 3.3% -1.3% 1.7% -6.5% 0.1% 2.0% 0.7% -3.0% -0.3% 1.6% -0.7% -0.2%

Italy 1,350 -4.6% -6.1% -1.4% -0.1% 0.2% -0.1% -0.1% 0.0% 0.0% -3.3% -9.4% -3.0% 0.0% -4.7%

UK 1,500 -3.0% 2.1% -1.4% -0.9% -0.9% -1.2% -0.8% -0.8% -0.9% -2.3% -5.1% -0.8% -0.9% -3.0%

Oth Europe 7,700 -5.3% -2.2% -1.4% -0.9% -0.3% -0.8% -0.1% -0.3% -0.1% -2.6% -2.8% -2.4% -0.4% -2.3%

F SU 4,300 2.6% -2.7% 3.1% 3.1% 3.1% 3.1% 3.1% 3.1% 2.5% 3.6% 0.4% 1.5% 3.1% 0.9%

M ideast 7,380 4.5% 1.6% 4.5% 4.1% 4.7% 4.8% 5.0% 4.9% 5.2% 2.5% 3.0% 3.7% 4.9% 4.0%

Saudi Arabia 2,980 7.1% 0.8% 5.7% 6.1% 6.2% 6.1% 5.9% 6.1% 7.8% 5.0% 4.9% 4.9% 6.1% 7.1%

Iran 1,750 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -1.4% -2.4% -0.1% 0.0% 0.0% -1.7%

Iraq 619 4.5% 7.1% 8.4% 5.0% 5.0% 5.0% 5.0% 5.0% 11.3% 9.2% 9.6% 6.3% 5.0% 13.2%

A frica 3,600 6.5% 4.2% 0.1% 1.0% 1.1% 1.2% 0.9% 1.1% 4.4% -1.6% 2.8% 2.9% 1.1% 3.6%

A sia-P ac 30,330 3.2% 2.7% 2.4% 1.1% 1.4% 2.6% 2.8% 2.9% 7.8% 4.0% 4.5% 2.3% 2.4% 3.5%

China 10,120 5.6% 4.2% 4.7% 1.7% 2.2% 4.5% 4.8% 4.8% 14.0% 4.9% 3.9% 4.0% 4.1% 6.4%

India 3,530 4.4% 0.9% 0.5% 0.5% 0.6% 1.5% 3.0% 3.1% 5.7% 4.7% 4.8% 1.6% 2.0% 4.3%

Indonesia 1,660 2.6% 1.9% 1.3% 2.4% 2.5% 2.5% 2.0% 2.3% 4.7% 9.4% 2.3% 2.0% 2.3% 4.7%

Japan 4,930 -3.2% -3.4% -2.1% -3.7% -3.6% -1.4% -2.4% -2.0% 1.5% 2.6% 8.0% -3.1% -2.4% -0.3%

South Korea 2,300 -1.1% 2.1% 0.3% 0.3% 0.3% -1.1% 0.2% 0.2% 3.7% -0.5% 1.9% 0.4% -0.1% 0.6%

Aust ralia 1,130 1.5% 1.1% -2.0% -3.0% 0.5% 0.5% 0.5% 0.5% 1.7% 4.2% 1.9% -0.6% 0.5% 1.4%

Thailand 1,230 8.8% 3.5% 1.2% 1.2% 1.2% 3.3% 4.6% 4.6% 6.4% 4.8% 7.0% 3.6% 3.4% 3.7%

by quarter (2013 - 2014)

Source: Credit Suisse, IEA, EIA, Jodi, NBP, ANP

Longer-term trends in emerging markets

The effect of non-OECD demand has become increasingly dominant within oil markets. As

such, we begin looking at the many drivers of EM oil demand.

Here are just a couple of intriguing observations that have begun to raise our confidence in

the notion that existing growth trends may indeed prove much more resilient than what iscommonly assumed.

Exhibit 56: EM oil demand has drawn level with thatof the OECD, but on a per capita basis there is a lotof room to grow

Exhibit 57: As non OECD nations becomewealthier, the growth in vehicle ownership will beone factor driving increased oil demand

Level oil demand in kb/d (lhs); per capita oil demand in gallons/year (rhs) Vehicles per 1000 people (x-axis) vs. per capita GDP (y-axis) by country

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

1995 2013E

Non OECD OECD

-

100

200

300

400

500

600

kb/d gal/yr

Maximum

per capita

consumption

growth

potential ?

2013E

Algeria

Australia

Chile

China

Czech

Estonia

Germany

Greece

Hungary

Israel

Italy

Japan

Kenya

Korea

Kuwait

MalaysiaMex.

Netherlands

New Zealand

Pakistan

Poland

S. Africa

Spain

Thailand

Turkey

Ukraine

US

0

10

20

30

40

50

60

0 100 200 300 400 500 600 700 800

GDPpercapita(2010current'000s$)

Vehicles per 1000 people (2010)

?

?

Source: Credit Suisse, IEA, World Bank Group, EIA, Jodi Source: Credit Suisse, World Bank Group


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03 October 2013


DM and EM oil demand are now roughly equal, but not on a per-capita basis. While this

is an obvious statement it is not often understood how much room demand in emerging

market countries has to grow (Exhibit 56).

As oil has become primarily a transportation fuel, the link between per capita vehicle

ownership and fuel demand is clear. By this measure, the non-OECD market for fuel

demand still lags the OECD, but the likely growth trends are clear, Exhibit 57.

Granted, much of the expected non-OECD demand increase depends on the wealth-effectand as such requires ongoing global economic growth (north of ~3% pa).

Inventories and positioningBack to more near-term concerns, a few brief comments about inventories and futures

market positioning.

Inventory levels and recent trends are supportive of our above-consensus oil price views.

On-land OECD crude oil inventories fell significantly since May, and shifted to the lower

end of the five-year range. At end August, the ~950 million barrels (Mbs) in commercial

storage was still modestly short of the five-year average (Exhibit 58).

It is interesting to us that reported crude oil inventory actually fell during the last few

months, even as Saudi produced at 30-year record highs, as that supports our

observation that tight markets more so than headlines about Syria, drove late-summerprice strength.

Further downstream, the middle distillate complex (mostly diesel and jet fuel) remains

quite tight. At last count its inventories remain some 50 Mbs (~-10%) below their five-

year average (Exhibit 59).

Exhibit 58: OECD crude oil inventories Exhibit 59: M. distillate inventories vs. five-year meanMb Mb

880

910

94

Documents

CS Commodites Street 03-10-13