Citi Research January 20, 2026 GCC Navigating Growth Amid Oil Oversupply and Geopolitical Uncertainty Ilker DomacAC Economist ilker.domac@citi.com +971-4509-9588 Gultekin IsiklarAC Economist gultekin.isiklar@citi.com +90-212-319-4915 See AppendixA-1 for AnalystCertification, Important Disclosures and ResearchAnalystAffiliations Citi Research is a division of Citigroup Global Markets Inc. (the "Firm"), which does and seeks to do business with companies covered in its research reports. As a result, investors ...

ab 21 January 2026 The IEA slightly increased its projections for global oil demand growth, by 12kb/d in 2025 to 0.9Mb/d (UBSe +0.9Mb/d) and by 70kb/d in 2026 to 0.9Mb/d (UBSe +1.2Mb/ d). Absolute demand revisions rose by 130kb/d for 2025 and 200kb/d for 2026, driven by an upward revision to the base (+114kb/d for 2024). China's demand growth forecast was raised by 60kb/d for 2025, but reduced by 15kb/d to 180kb/d for both years. Non-OPEC+ growth also up Global Research First Read Global Oil Fundamentals La ...

Summary of the Conference Call on Oil & Gas Industry Industry Overview - The conference call focused on the **Asia-Pacific Oil & Gas** industry, particularly discussing oil inventories and geopolitical factors affecting the market [1][7]. Key Points and Arguments 1. **OECD Inventories**: - OECD commercial inventories increased by **7 million barrels (MMbls)** in November, reaching **2,838 MMbls**, which provides a **60 days demand cover** [2][37]. - A net draw of **23 MMbls** was observed in 4Q, contrasting with IEA's estimates of a **2.7 MMbls/d** oversupply [2]. 2. **Global Inventory Trends**: - Global inventories rose by **66 MMbls month-over-month**, totaling **6,449 MMbls** in November, with non-OECD inventories contributing significantly [3]. - China’s inventories increased by **3 MMbls** in November, indicating ongoing stockpiling [3]. 3. **Supply and Demand Forecast**: - Global oil demand is projected to grow by nearly **1.0 MMbls/d** to **105 MMbls/d**, with non-OECD Asia being the largest contributor [4]. - Non-OPEC supply growth is expected to outpace demand growth, leading to continued inventory builds through **2026** [4][7]. 4. **OPEC Production Dynamics**: - Despite increased OPEC supply, the call on OPEC crude is anticipated to decline to **25.8 MMbls** in 2026, suggesting a need for production cuts rather than increases [5]. - The unwinding of OPEC production cuts is expected to exacerbate market oversupply, particularly in the first half of the year [5]. 5. **Investment Implications**: - The IEA report indicates an oversupplied oil market, with non-OPEC supply growth outpacing demand, leading to significant inventory gains [7]. - The risk-reward scenario for investors is shifting favorably as oil prices are currently below the marginal cost of **$70/bbl**, suggesting potential for price recovery [7]. 6. **Valuation Comparisons**: - A comparison of major oil companies shows varying P/E ratios, with PetroChina at **8.8**, Sinopec at **11.4**, and CNOOC at **7.2** for 2026 metrics [8]. Additional Important Insights - **Geopolitical Risks**: The potential for geopolitical disruptions, particularly involving Venezuela, Iran, and Russia, could impact supply dynamics unexpectedly [7]. - **Long-term Price Outlook**: Oil prices are expected to average just below **$65/bbl** in 2026 based on inventory forecasts, indicating a challenging environment for producers [25]. This summary encapsulates the critical insights from the conference call, highlighting the current state and future outlook of the oil and gas industry, particularly in the Asia-Pacific region.

Summary of Key Points from Conference Call Records Industry Overview - **Industry Focus**: Energy, Utilities & Mining, specifically discussing sectors such as Oil, Gas, Nuclear, Power, and Steel [1] Key Insights and Arguments E&P (Exploration and Production) - **Natural Gas Volatility**: Recent cold weather has led to a sharp increase in natural gas prices, with investors balancing global supply risks against strong long-term US demand [1] - **Investor Sentiment**: While bullish on natural gas prices for most of 2025, investors have recently become cautious due to potential global supply risks by 2028 and warmer winter forecasts [1] - **Storage Levels**: Increased heating degree days (HDDs) from colder weather are expected to draw down storage levels more than previously anticipated, positively impacting natural gas producers [1] - **Valuation**: Companies like EXE and EQT are highlighted for their compelling risk-reward profiles, with expected price targets showing 19% and 20% upside respectively [1] Majors & Refiners - **Economic Outlook**: GDP expectations have surprised positively, positioning large-cap refining stocks favorably for potential economic reacceleration [2][4] - **Refining Performance**: Refining equities outperformed the XLE index significantly in 2025, driven by supply disruptions and increased global demand [4] - **Stock Recommendations**: Valero Energy (VLO) and HF Sinclair (DINO) are recommended due to their strong operational positions and expected capital returns [4] Midstream - **LNG Market Sentiment**: Cheniere (LNG) has seen a modest rebound, but investor focus remains on growth plans and global gas margin exposure [5] - **Growth Catalysts**: Cheniere is expected to execute additional brownfield expansions and deliver significant shareholder returns, with a contracted footprint mitigating global gas price fluctuations [5] Utilities - **Affordability Concerns**: Rising utility bills (up 17% over three years) have become a major focus, particularly in the PJM region, with upcoming elections potentially impacting utility policies [6][7] - **Investor Strategy**: Investors are screening for utilities with lower rates and diversified operations to mitigate election-related risks [7] Energy Services - **International Recovery**: Signs of recovery in international markets are noted, with increased activity expected in regions like the Middle East and Latin America [8] - **Stock Recommendations**: SLB and HAL are highlighted as best positioned to benefit from this recovery [8] Clean Technology - **Nuclear Investment**: CCJ is recommended as a key player in the nuclear sector, with potential upside from new reactor deployments and supportive uranium market dynamics [9][11] - **Valuation Risks**: Despite high valuations, positive catalysts are expected to support growth in the medium term [11] Metals & Mining - **Steel Pricing**: HRC prices have firmed up significantly, driven by favorable trade policies and steady demand from key markets [12][45] - **Stock Preference**: CMC is preferred due to its competitive valuation and strong market position in rebar production [12] Additional Important Insights - **Investor Conversations**: Ongoing discussions with investors highlight concerns about the macroeconomic environment, commodity price volatility, and specific company strategies [27][28][30][31] - **Regulatory Environment**: Changes in utility regulations and potential impacts from state elections are creating uncertainty in the utilities sector [36][37] This summary encapsulates the key points discussed in the conference call records, providing a comprehensive overview of the current state and outlook of various sectors within the energy and utilities landscape.

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the oil industry, particularly the disruptions in Kazakhstan's oil production and the implications for global oil prices and stock levels [1][5][11]. Core Insights and Arguments - **Crude Prices Stability**: Crude prices have remained stable as attention shifted from Iranian supply risks to disruptions in Kazakhstan production and CPC pipeline flows [1]. - **CPC Pipeline Exports**: Oil flows via the CPC pipeline have decreased significantly, dropping below 0.7 million barrels per day (mb/d), the lowest level in over nine years. Month-to-date average CPC exports are nearly 1 mb/d lower than the initial loading program due to delays in mooring repairs and production halts in Kazakhstan [1][3]. - **Kazakhstan Production Disruption**: An estimated disruption of 0.5 mb/d in Kazakhstan's January production is noted, which is 0.3 mb/d below the baseline expectations [1]. - **Global Stock Builds**: Global visible stock builds have slowed to 0.7 mb/d over the last two weeks, down from 1.7 mb/d over the previous four weeks, attributed to Kazakhstan disruptions and higher heating demand [1][11]. - **OECD Stocks**: OECD commercial stocks accounted for nearly all of the global visible builds in the last two weeks, indicating a negative price impact [1][11]. - **Oil on Water**: The volume of oil on water peaked in early January but remains at the 94th percentile of its historical distribution. Sanctioned suppliers (Russia, Iran, Venezuela) now account for two-thirds of current storage on water [1][6]. - **Venezuela Production Decline**: Venezuela's oil production from the Orinoco Belt decreased by 120 kb/d (23%) in early January, but disruptions are expected to be short-lived due to potential easing of US sanctions [1][2]. Additional Important Insights - **Brent Spot Prices**: Spot Brent is trading at $64-65, which is $4-5 per barrel above January expectations. Disruptions in Kazakhstan production account for about half of this price increase [5]. - **Geopolitical Risk Premium**: The remaining price increase is attributed to a rise in geopolitical risk, particularly related to Iran [5]. - **Market Sentiment**: The options market indicates an 18% probability that Brent futures will expire above $70 per barrel, reflecting ongoing geopolitical concerns [8]. - **Refining Margins**: US diesel margins increased by $8 last week due to cold weather, while average crude tanker freight rates jumped by 35% ($1.4/bbl) over the last two weeks [13][51]. - **Production Forecasts**: The report includes forecasts for new supply projects expected to come online through the summer, with significant contributions from Brazil and Saudi Arabia [25]. Conclusion - The oil industry is currently facing significant disruptions, particularly from Kazakhstan and Venezuela, which are impacting global supply and prices. The geopolitical landscape remains a critical factor influencing market dynamics, with potential implications for future production and stock levels.

Summary of Global Oil Services Conference Call Industry Overview - The focus is on the **Global Oil Services** industry, with a specific outlook for **2026** highlighted in the report [1][2]. Core Insights and Arguments - The report suggests that the oil services sector may be at an **inflection point**, primarily driven by changing investor perceptions rather than fundamental economic shifts [2][3]. - Investor interest has been historically low, but there are signs of a shift as the sector's valuation improved from **1.3x EV/Revenue** in October 2025 to **1.44x** in December 2025, following positive earnings calls from major companies [3][19]. - **Thirteen relevant themes** have been identified for the oil services sector, with five expected to gain momentum in 2026: 1. Investor interest 2. The Middle East 3. OCTG (Oil Country Tubular Goods) 4. Exploration 5. Digital advancements [4][23]. Key Themes and Trends - The **Middle East** is expected to see a significant increase in capital expenditures, particularly with **Adnoc** launching a **$150 billion** capex plan for 2026-2030 [4][24]. - **OCTG** volumes are anticipated to rise in the second half of 2026, with potential price increases due to steel tariffs and improved pricing power [4][24]. - **Exploration** spending is set to increase, with companies like **Chevron** planning to boost exploration capex by approximately **50%** [4][24]. - The **Digital** sector is highlighted as a growth area, with companies like **SLB** and **Adnoc** investing in AI tools to enhance operational efficiency [4][25]. Financial Strength and Valuation - The oil services industry is reported to be in a stronger financial position compared to previous cycles, with a **CFO-to-revenue ratio** of **15%**, a **net-debt-to-assets ratio** of **14%**, and a **ROIC** of **9%** [26][27]. - Despite a supportive macro environment, investor engagement in the sector has not met expectations, indicating potential for future growth [7][26]. Investment Recommendations - The report lists preferred stocks for 2026: - **Tenaris** (Target Price: €21) - **SLB** (Target Price: $52.3) - **Vallourec** (Target Price: €22.6) - **Saipem** (Target Price: €3.54) - **Subsea 7** (Target Price: NOK240) [5][41]. - Short-term trading opportunities are identified in **Technip Energies**, **GTT**, **Viridien**, **SBM Offshore**, and **Rubis** [5][41]. - Long-term value is seen in **Adnoc Drilling** and **Adnoc L&S** [5][41]. Additional Insights - The oil services sector has largely **decorrelated from oil prices** since 2022, indicating a shift in how the sector's performance is influenced by oil market fluctuations [32][36]. - The **free cash flow** for the industry reached **$26 billion** in 3Q25, surpassing the previous peak of **$15.5 billion** in 2015, reflecting strong cash generation capabilities [37][39]. Conclusion - The Global Oil Services industry is poised for potential growth in 2026, driven by improved investor sentiment, strategic capital investments in the Middle East, and advancements in digital technology. The financial health of the sector supports a positive outlook, with several companies identified as key investment opportunities.

Summary of Key Points from the Conference Call Industry Overview - The document discusses the oil industry, specifically focusing on the International Energy Agency (IEA) and Goldman Sachs (GS) forecasts for global oil supply and demand from 2024 to 2027 [3][5][6]. Core Insights and Arguments - **Global Oil Demand Forecasts**: - The IEA upgraded its forecast for global oil demand in 2026 by 194 thousand barrels per day (kb/d), marking the third consecutive upgrade [3][18]. - Demand upgrades were primarily in non-OECD Americas (+105 kb/d) and China (+66 kb/d), with OECD Europe contributing +51 kb/d [3][5]. - Specific product demand changes include an increase for gasoline (+169 kb/d) and gas/diesel oil (+104 kb/d), while naphtha demand was revised down (-102 kb/d) [20]. - **Global Oil Supply Forecasts**: - The IEA slightly increased its forecast for global oil supply growth in 2026 by 0.1 mb/d to 2.5 mb/d, while maintaining 2025 growth at 3.1 mb/d [3][5]. - A notable decline in global oil supply was observed in December, attributed to weaker production in Kazakhstan and the Middle East, despite a rebound in Russian production [3][5]. - Supply forecasts for Canada (+76 kb/d) and Brazil (+62 kb/d) were revised up, while Kazakhstan's supply forecast was downgraded (-106 kb/d) [3][5]. - **Price Forecasts**: - Goldman Sachs expects Brent prices to trend down to an average of $56 per barrel in 2026, primarily due to a sizable surplus [3][5]. - The report highlights two-sided risks to the price forecast: upside risks from low OECD commercial stock levels and potential geopolitical supply disruptions, and downside risks from ongoing supply increases outside OPEC [3][5]. Additional Important Information - **Global Stock Trends**: - Global oil stocks are building rapidly, with a 2.5 mb/d increase in November, although OECD commercial stocks only increased by 0.2 mb/d [6][24]. - The January OECD commercial stocks nowcast was revised up by 11 million barrels to 2,830 million barrels [6][24]. - **Refinery Runs**: - A 0.7 mb/d increase in December refinery runs was noted, driven by Russian and Mexican production, leading to an upgrade in the 2026 crude runs forecast by 0.2 mb/d [4][6]. - **Imbalance in Supply and Demand**: - The document indicates an imbalance in supply and demand, with a projected surplus of 2.3 mb/d in 2026, which is a significant factor influencing price forecasts [5][7]. This summary encapsulates the key points from the conference call, providing insights into the oil industry's current state and future projections based on the IEA and Goldman Sachs analyses.

Summary of Key Points from the Conference Call Industry Overview - **Industry**: Oil Services - **Focus**: Implications of the political situation in Venezuela on global oil services companies Core Insights and Arguments - **Venezuela's Oil Production Recovery**: - Production may increase slightly in the short term, potentially reaching several hundred thousand barrels per day over the next 2-3 years if a US-supported government is established and sanctions are lifted [2][10] - Historical peak production was approximately 3 million barrels per day in the mid-2000s, with Venezuela holding about 20% of global proven oil reserves [2][11] - **Investment Requirements**: - Any recovery in production will be gradual and necessitate substantial investment [2] - Companies like Chevron, ENI, and Repsol currently have operations in Venezuela, with Chevron being the only US oil major still active [17] - **OCTG Market Potential**: - Demand for Oil Country Tubular Goods (OCTG) in Venezuela could reach 140,000 to 240,000 tons by 2030, translating to a market size of $0.6 to $1 billion [4][30] - The current addressable OCTG market for Tenaris and Vallourec is estimated at 5.7 million tons and approximately $18 billion, indicating that the Venezuelan market could add 3-4% in volume and 3-5% in dollar terms [36] - **Tenaris and Vallourec's Position**: - Tenaris has a long-standing presence in Venezuela and supplies Chevron's OCTG needs, benefiting from logistical advantages due to local operations [3][27] - Vallourec, while currently absent from Venezuela, could supply the market from its Brazilian plant, leveraging a competitive cost base [28] - **US Oil Services Companies**: - Companies like SLB, Halliburton, and Weatherford International are positioned to benefit from increased activity in Venezuela [8][44] - SLB has indicated its ability to scale operations in Venezuela if activity increases, while Halliburton and Weatherford have historical ties and expertise that could be advantageous [8][45][46] Additional Important Insights - **Long-term Oil Price Implications**: - A recovery in Venezuelan production to 2 million barrels per day by 2030 could pose significant downside risks to long-term oil prices, potentially reducing Brent oil price forecasts by $4 per barrel [11] - Current estimates suggest that Brent prices could average $58 per barrel if production declines, and $54 per barrel if production increases [10] - **Technical Requirements for OCTG**: - The extraction of heavy crude from the Orinoco Oil Belt requires complex, high-performance OCTG solutions due to the challenging conditions [29] - The majority of Venezuela's proven reserves are high-sulfur and heavy crude, necessitating robust materials and testing protocols for well integrity [29] - **Rig Count and Well Drilling**: - The estimated rig count needed to support a production level of 2 million barrels per day by 2030 is between 40 to 50 active rigs, with an annual drilling of 480 to 600 new wells [31][32] This summary encapsulates the critical insights and potential implications for the oil services industry stemming from the evolving situation in Venezuela, highlighting both opportunities and risks for companies involved in this sector.

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the global crude oil market, specifically the impacts of potential disruptions in oil production from Iran and Venezuela [5][9]. Core Insights and Arguments - A permanent decline of 1 million barrels per day (mb/d) in oil production is expected to increase prices by approximately $8 per barrel within 12 months, assuming OPEC does not compensate for the shortfall [2]. - Venezuela's crude production is projected to rise from 0.83 mb/d in December 2025 to 1.07 mb/d in December 2026, attributed to easing sanctions and increased investments in existing assets [2]. - The Polymarket prediction market indicates a 13% probability of the Iranian regime falling by January 31, and a 70% probability of the US striking Iran by the end of the month [5][9]. - Brent crude prices have increased year-to-date to above $66 per barrel, reflecting a nearly $6 per barrel rise, consistent with a forecasted 0.7 mb/d disruption in Iranian oil production over the next 12 months [5]. - Options markets show a significant increase in the probability of Brent futures expiring in the $70s, rising from below 7% to 15% in two weeks, while the probability of prices exceeding $80 remains modest at 5% [10]. Production and Tariff Implications - The forecast for Iranian crude production in 2026 remains stable at 3.5 mb/d despite the announcement of a 25% tariff on Iranian oil [5][17]. - A similar 25% tariff on Venezuelan oil buyers was threatened but did not materialize in March 2025 [5]. - China, as the main importer of Iranian crude, holds significant bargaining power due to its dominance in rare earth supply chains [5]. - Russian oil flows to India have continued despite a similar tariff imposed on India for importing Russian crude [5][17]. Market Reactions - Energy equity markets and regional crude markets are adjusting to the anticipated increase in Venezuelan crude supply, with equities of US oil majors, US Gulf Coast refineries, and international services operators experiencing a rally [20][21]. - The quality differential between heavy and light crude has widened by approximately $2 per barrel, aligning with expectations of a 0.3 mb/d increase in Venezuelan heavy crude production by year-end [25]. Additional Considerations - Refining coking margins, which are profits from processing heavy crude into high-value products like diesel, are favorable for US Gulf Coast refineries designed to process heavier Latin American crudes [7]. - The report emphasizes that investors should consider this analysis as one of many factors in their investment decisions [4]. This summary encapsulates the critical insights and data points from the conference call, providing a comprehensive overview of the current state and expectations for the crude oil market, particularly concerning Iran and Venezuela.

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the global crude oil market, specifically the impacts of potential disruptions in oil production from Iran and Venezuela [5][8]. Core Insights and Arguments - A permanent decline of 1 million barrels per day (mb/d) in oil production is projected to increase prices by $8 per barrel within 12 months, assuming OPEC does not compensate for the shortfall [2]. - Venezuela's crude production is expected to rise from 0.83 mb/d in December 2025 to 1.07 mb/d in December 2026 due to easing sanctions and increased investments [2]. - The Polymarket prediction indicates a 70% probability of the U.S. striking Iran by the end of the month, which is contributing to market volatility [5][8]. - Brent crude prices have increased by nearly $6 per barrel year-to-date, surpassing $66 per barrel, reflecting concerns over a potential 0.7 mb/d disruption in Iranian oil production over the next year [5]. - The probability of Brent futures expiring in the $70s has risen from below 7% to 15% in two weeks, indicating increased market speculation [9]. Production and Tariff Implications - Iran's crude production is forecasted to remain stable at approximately 3.5 mb/d in 2026, despite the announcement of a 25% tariff on Iranian oil [5][16]. - The U.S. previously threatened a similar tariff on Venezuelan oil buyers, which did not materialize, indicating potential for market fluctuations based on geopolitical developments [5][16]. - China, as the main importer of Iranian crude, holds significant bargaining power due to its dominance in rare earth supply chains [5]. Market Reactions - Energy equity markets are responding positively to the anticipated increase in Venezuelan crude supply, with equities of U.S. oil majors and Gulf Coast refineries rallying [19][20]. - The quality differential between heavy and light crude has widened by approximately $2 per barrel, aligning with expectations of a 0.3 mb/d increase in Venezuelan heavy crude production by year-end [24]. Refining Margins - U.S. Gulf Coast refineries, designed to process heavier Latin American crudes, are expected to benefit from higher coking margins, which are profits from processing heavy crude into high-value products like diesel [6]. Additional Considerations - The report emphasizes that investors should consider this analysis as one of many factors in their investment decisions [4]. - The potential for geopolitical events, such as U.S. military actions or sanctions, remains a significant risk factor for oil prices and production levels [5][8].