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 ...

Core Viewpoint - The content emphasizes the importance of conducting personal due diligence and consulting with competent advisors before making any financial decisions, particularly in relation to investments in cryptocurrencies and CFDs [1]. Group 1 - The website provides general news, personal analysis, and third-party materials intended for educational and research purposes [1]. - It explicitly states that the information should not be interpreted as a recommendation or advice for investment actions [1]. - The accuracy and reliability of the information are not guaranteed, and users are cautioned against relying solely on the content provided [1]. Group 2 - The website discusses the complexities and high risks associated with cryptocurrencies and CFDs, highlighting the potential for significant financial loss [1]. - It encourages users to conduct their own research and fully understand the instruments and risks involved before making investment decisions [1].

Core Insights - Oil prices have decreased by approximately 20% compared to the previous year, primarily due to oversupply concerns and increased production from the U.S. and OPEC [1][3] - The U.S. remains the largest oil producer globally, but consumption exceeds production, leading to reliance on imports, particularly for East Coast refiners [2][3] - Despite the current low oil prices, many U.S. producers can remain profitable at $50 per barrel, with current prices around $60 [2][3] - Energy stocks have underperformed the market in 2025, with companies like EOG Resources and Diamondback Energy seeing earnings decline by 37% and 41% respectively since early 2022 [3][4] - The geopolitical situation, particularly regarding Venezuela, could impact oil prices, but the U.S. only imports about 3-4% of its oil from Venezuela [6][7] - The renewable energy sector has faced challenges, including a pause on offshore wind projects and the expiration of federal incentives, but global investment in renewables continues to grow [9][10] Oil Market Dynamics - The oil industry experiences cyclical crises approximately every five years, with current prices down more than 55% from their peak in early 2022 [3][4] - U.S. shale producers have the ability to reduce expenses by allowing wells to decline, which is a favorable dynamic in the current oversupply situation [3][4] - The potential for a "lower for longer" oil price scenario exists, which could deter investment in the sector [5][6] Investment Opportunities - Companies like Diamondback Energy (FANG) and EOG Resources (EOG) are seen as attractive investments due to their operational efficiency despite lower oil prices [4][5] - Midstream companies such as Energy Transfer and Enterprise Products Partners are expected to benefit from increased demand for North American oil and potential infrastructure reforms [15][16] - Renewable energy stocks, while facing headwinds, may still present opportunities, particularly for companies like Enphase Energy and SolarEdge Technologies, as energy costs rise [10][11] Geopolitical Factors - The situation in Venezuela could lead to temporary impacts on U.S. oil prices due to psychological factors rather than significant supply changes [6][7] - Chevron, as the only major foreign oil company operating in Venezuela, may face risks from escalated conflicts in the region [7][8] Infrastructure and Policy Impacts - The passage of permitting reform bills could benefit utility companies and infrastructure-related stocks, such as Dominion Energy and Caterpillar [12][13] - The demand for energy infrastructure is expected to increase, particularly in regions with growing data center construction [13][14]

Core Viewpoint - Oil prices are stabilizing as traders assess geopolitical tensions alongside concerns of a global supply surplus [1][3]. Geopolitical Factors - The United Arab Emirates plans to withdraw forces from Yemen amid rising tensions with Saudi Arabia, which could impact oil dynamics in the region [2]. - President Trump's efforts to end the war in Ukraine face new challenges as Russia's President Putin indicates a shift in negotiation strategy [2]. Supply and Demand Dynamics - OPEC+ is expected to maintain its current supply levels despite evidence of a global oil surplus, as indicated by rising oil stocks and idle tankers [3]. - The U.S. crude stockpiles at the Cushing, Oklahoma hub experienced the largest weekly increase since late October, reflecting a broader trend of rising gasoline and distillate holdings nationwide [5]. Venezuela's Oil Production - Venezuela is facing production challenges due to a U.S. blockade, leading to well shutdowns and increased local storage, which poses risks to the country's economy [4].

Core Viewpoint - Oil prices are experiencing support due to escalating geopolitical tensions, despite a looming oversupply in the market, with Brent futures trading above $62 a barrel, marking a 6% increase from recent lows [1][2]. Group 1: Market Dynamics - The global oil benchmark is on track for its largest annual decline since 2020, with major oil traders anticipating a supply glut in the coming year due to increased production from OPEC+ and non-OPEC+ members [2]. - Concerns regarding potential disruptions in supply, particularly from OPEC+ members like Russia and Venezuela, are providing some price support [2][6]. - The US is actively pursuing oil tankers off the coast of Venezuela, with several tankers having already departed, indicating ongoing efforts to limit oil revenues for the Maduro regime [3]. Group 2: Supply and Inventory Trends - Russian crude oil volumes at sea have surged by 48% since the end of August, raising concerns among shippers and buyers about potential US actions targeting their shipments [4]. - In the US, crude oil stockpiles rose by 2.4 million barrels last week, alongside increases in gasoline and distillate inventories, indicating a growing supply situation [5]. - Official inventory data is delayed due to a federal holiday, which may impact market reactions [5]. Group 3: Analyst Insights - Analysts suggest that geopolitical premiums have not yet been fully accounted for, with various tensions from Venezuela to Russia influencing market sentiment [6]. - Despite the current price support, analysts warn that the anticipated supply glut could limit further price increases in the near future [6].

Core Insights - The Energy Sector (XLE) is projected to be among the three worst-performing sectors by the end of 2025 [1] Group 1: Analyst Background - The analyst has a background in IT and has been managing a family portfolio in the U.S. stock market for seven years [1] - Initial challenges in managing real money have been overcome through extensive fundamental analysis of public companies [1] - The analyst emphasizes a deep understanding of risk and reward, highlighting the balance between these two variables [1] Group 2: Contribution to Investor Community - The analyst aims to share insights and contribute to the investor community through articles on Seeking Alpha [1] - Articles will be crafted with clarity and precision, avoiding jargon to foster accessibility for investors of all experience levels [1] - The analyst's IT background provides a valuable perspective, especially in navigating technology stocks, while also exploring diverse sectors for promising investment opportunities [1] Group 3: Invitation to Investors - The analyst invites both seasoned and novice investors to join in an intellectual journey of market exploration and analysis [1] - The goal is to unlock market secrets and chart a path towards shared financial success through collaborative exploration [1]

Group 1 - Progress in talks to end the war in Ukraine has fueled optimism among traders [1] - A potential deal could lead to the lifting of U.S. sanctions on Russian oil companies [1]

Core Viewpoint - The content emphasizes the importance of conducting personal research and due diligence before making any financial decisions, particularly in the context of complex financial instruments like cryptocurrencies and CFDs [1]. Group 1 - The website provides general news, personal analysis, and third-party materials intended for educational and research purposes [1]. - It explicitly states that the information does not constitute a recommendation or advice for investment actions [1]. - The content is not tailored to individual financial situations, and users are encouraged to consult competent advisors [1]. Group 2 - The website highlights the high risk associated with cryptocurrencies and CFDs, noting that they are complex instruments that can lead to significant financial losses [1]. - Users are advised to carefully consider their understanding of these instruments and their ability to afford potential losses [1]. - The website encourages thorough research before engaging in any financial activities related to these instruments [1].

Core Viewpoint - The content emphasizes the importance of conducting personal due diligence and consulting competent advisors before making any financial decisions, particularly in relation to investments and financial instruments [1]. Group 1 - The website provides general news, personal analysis, and third-party content intended for educational and research purposes [1]. - It explicitly states that the information should not be interpreted as a recommendation or advice for any financial actions [1]. - The content is not tailored to individual financial situations or needs, highlighting the necessity for users to apply their own discretion [1]. Group 2 - The website includes information about complex financial instruments such as cryptocurrencies and contracts for difference (CFDs), which carry a high risk of losing money [1]. - Users are encouraged to perform their own research before making investment decisions, particularly regarding instruments they do not fully understand [1]. - The website does not provide real-time information and may not guarantee the accuracy of the data presented [1].

Core Viewpoint - OPEC+ is likely to continue increasing production next year despite expectations of oversupply in the crude market, as a significant portion of traders believe the group will maintain its output ramp-up [1][2]. Group 1: Production Trends - OPEC+ has been increasing production after two years of cuts due to depressed international oil prices, rising non-OPEC supply, and weak demand predictions [2]. - The group agreed to pause output additions in early 2026, indicating an acknowledgment of the oversupply situation [2]. - Next month, OPEC+ plans to add a modest 137,000 barrels per day (bpd) to its combined output [2]. Group 2: Supply and Demand Forecasts - The latest monthly oil market report from OPEC+ indicates that non-OPEC supply growth is expected to reach 1.3 million bpd next year, while global demand is projected to grow by 1.6 million bpd, totaling 106.2 million bpd by the end of the year [3]. - The revision of supply and demand expectations suggests that supply is outpacing earlier demand assumptions, with the International Energy Agency also reporting slower consumption growth [4]. Group 3: Market Reactions and Future Expectations - Traders believe that a reversal in OPEC+ policy to implement cuts would only occur if there is a visible collapse in demand, prices fall below $50, and a clear need for market management arises [4]. - Currently, there are no signs of such a trend, and lower prices may actually stimulate more demand, consistent with cyclical industry behavior [5].