Oil

As the summer holidays become a memory, central banks globally are mobilizing to fight mounting recession risks. More than 30 at last count are busily easing financial conditions to boost growth (Chart of the Week). Going into 4Q19, this monetary stimulus – coupled with fiscal stimulus globally – should allow growth ex-U.S. to revive, which will weaken the USD. This will be bullish for commodity demand in general, oil in particular. Fundamentally, the supply side of the oil market is in good shape. Production discipline by OPEC 2.0 will be maintained, while members of the coalition iterate on the level of output required to keep the rate of growth on the supply side below that of consumption.1 Capital discipline is being forced on U.S. shale-oil operators by markets. This will restrain their output growth rates to levels markets can absorb without inducing unintended inventory accumulation. A ceasefire in the Sino-U.S. trade war also could brighten short-term demand prospects and revive global trade volumes. This would indicate a recovery in manufacturing, given the heavy weight of manufactured goods in trade flows, and also in the the low-sulfur marine fuel markets. Going into 4Q19 and 1Q20, these supply-demand fundamentals will tighten markets, and force crude oil and refined product inventories lower. This will push Brent crude oil prices to our forecast levels of $66 and $75/bbl on average this year and next, with WTI trading $6.50 and $4/bbl under that. In addition, it would further backwardate crude oil forward curves. Chart of the WeekFinancial Conditions Continue Easing Financial Conditions Continue Easing Financial Conditions Continue Easing Among the risks to this view: Too-weak monetary/fiscal stimulus, leading to a failure to revive demand and stave off recession; a breakdown in OPEC 2.0’s production discipline; an expansion of the Sino-U.S. trade war; a disorderly Brexit; and, critically, a stubbornly strong USD, which raises the risk of direct intervention in FX markets by the U.S. central bank. Highlights Energy: Overweight. Saudi Aramco’s board of directors apparently has ruled out a listing of its IPO in New York, owing to legal risk in the U.S., according to Reuters news service.2 Riyadh and London reportedly are favored by board members. The Kingdom’s Crown Prince Mohammed bin Salman reportedly has the final say. Base Metals: Neutral. The nickel rally likely corrects over the short term, after a vertical shot that lifted the metal ~56.2% between early June and this week. This was partly fueled by speculation over commentary from an Indonesian official in July reinforcing the country’s stated goal of banning raw ore exports by 2022. Indonesia is the largest nickel ore producer in the world.3 Precious Metals: Neutral. Our tactical long platinum position is up 3.9% since it was recommended last week. We continue to expect platinum will draft in gold’s wake, benefiting from safe-haven demand for precious metals generally. Fundamentally, the risk of power outages in South Africa, which produces ~67% of the world’s platinum, remains high this month, putting platinum-group metal production at risk there. Technically, the metal held long-term support at $785/oz this year – a level that goes back to the Global Financial Crisis lows – and has since rallied ~ 18%. Ags/Softs: Underweight. Chinese tariffs on U.S. soybean imports went up 5% to a total of 30% September 1, coinciding with the imposition of additional tariffs on $300 billion of Chinese imports. Feature USD strength remains a headwind to stronger EM growth, which is keeping oil demand growth in check (Chart 2).4 Indeed, in local-currency terms, oil prices remain closer to their 2014 highs, when Brent and WTI were trading above $100/bbl (Chart 3). The persistently strong USD is one reason we lowered our oil-demand forecast four times this year, which puts it at 1.2mm b/d for 2019. Chart 2USD Strength Hinders Oil Demand Growth USD Strength Hinders Oil Demand Growth USD Strength Hinders Oil Demand Growth Chart 3USD Strength Keeps Local-Currency Costs High USD Strength Keeps Local-Currency Costs High USD Strength Keeps Local-Currency Costs High The slowdown in global oil demand began in 2H18 and picked up speed in 1H19. We believe this largely was the result of a global tightening in financial conditions – apparent in the Chart of the Week – led by the Fed, which, with near-singular determination, raised its policy rate four times last year. Fed policy kept USD-denominated assets well bid, but, equally importantly, it raised the costs of commodities and all goods and services invoiced in USD globally in local-currency terms. This reduced aggregate demand ex-U.S. as households’ and firms’ discretionary incomes fell.5 Commodity demand also was derailed by the extended de-leveraging campaign by Chinese policymakers, which ran from 2017-18 and succeeded in its goal of bringing down the country’s debt-to-GDP ratio and the growth rate of leverage. Central Banks Scramble To Revive Growth The Treasury may be forced to up the ante and directly intervene in FX markets to weaken the dollar. To reverse the tightening of monetary conditions worldwide, central banks this year started moving to more accommodative monetary-policy settings, which we expect will continue to support looser financial conditions around the globe. In addition, fiscal stimulus either is being deployed or readied in key EM economies like China and India, which, together, account for 36% of the 53.5mm b/d of EM oil consumption we estimate for 2019. These policy responses should revive GDP growth – particularly in EM economies – and, all else equal, oil demand in the process going into 4Q19. The performance of our leading indicators support this expectation (Chart 4). That said, with so many systematically important central banks weakening their currencies, the USD could remain strong in relative terms.6 If the dollar remains a safe-haven asset in uncertain markets, while serving as the world’s reserve/invoicing/funding currency, weakening the USD during a period of high financial stress could be difficult. In that case, the Treasury may be forced to up the ante and directly intervene in FX markets to weaken the dollar. Chart 4Global LEIs Bottomed And Are Moving Up Global LEIs Bottomed And Are Moving Up Global LEIs Bottomed And Are Moving Up   Managing Financial Conditions In A Trade War We do not expect the Sino-U.S. trade war to be resolved. National security, foreign policy and technology positions that have been advanced by both sides appear impossible to walk back (e.g., protecting 5G networks from spying, and safeguarding intellectual property). This suggests the Sino-U.S. relationship is in the early stages of a Cold War, which could go hot in the short run.7 Still, a short-term agreement or ceasefire this year or next is still possible. The basis for such a shift would be President Trump staging a retreat to try to clinch a deal and improve the economy prior to his re-election campaign. China might accept a temporary reprieve. This would allow both sides to retreat to re-group for the almost-certain renewed trade tension that will mark the Sino-U.S. relationship going forward. Over the short run, a ceasefire could brighten demand prospects and revive global trade volumes. This would be supportive of crude oil and refined-products markets, particularly the low-sulfur marine fuel market, which, on January 1, will be bound by IMO 2020 standards.8 In the medium to longer-run, however, neither the U.S. nor China will cede ground if it strengthens the hand of the other, particularly regarding national security and technology, which will continue to be the key concern for all national security issues. This complicates fiscal and monetary policy for both sides going forward, along with trade relationships for each. We do not believe either side has these issues sorted, and likely will need time and space to develop policies for the medium- and longer-term. It also means each side’s respective allies will have to make hard choices in deciding whose camp they will migrate toward. These considerations cloud the outlook for the medium- to long-term oil markets. We will be exploring them in greater depth in forthcoming Commodity & Energy Strategy reports. Investment Implications We remain broadly long in our exposure to oil markets, expecting the fundamentals outlined above to tighten supply, strengthen demand and draw down inventories. Given this view, we remain long WTI flat price, and long 4Q19 Brent futures vs. short 4Q20 Brent futures, expecting a steeper backwardation. We also remain long the S&P GSCI commodity index, given its relatively heavy exposure to energy markets. Bottom Line: Supply-demand fundamentals, coupled with a favorable fiscal and monetary backdrop, indicate oil prices will move higher from current levels toward our forecasts of $75/bbl and $71/bbl next year for Brent and WTI, respectively. This view is not without risk – chiefly around the Sino-U.S. trade war, and the risk that an expansion of tensions would stunt global demand for oil significantly. We continue to follow this closely.   Robert P. Ryan, Chief Commodity & Energy Strategist rryan@bcaresearch.com Footnotes 1      OPEC 2.0 is the name we coined for the producer coalition led by the Kingdom of Saudi Arabia (KSA) and Russia. It was formed in 2016 to manage production and reduce oil inventory levels globally. For a complete summary of our supply-demand expectations for this year and next, please see the August 22, 2019 Commodity & Energy Strategy Weekly Report, "USD Strength Slows Oil Demand Growth; 2020 Brent Forecast Remains At $75/bbl". 2      Please see Exclusive: Saudi Aramco board sees too many risks for New York IPO - sources, published by reuters.com August 30, 2019. 3      Please see Nickel price forecast revised up as speculative rally boosts tight market — report, published by mining.com August 29, 2019. 4      We have shown in previous research EM income growth accounts for most of the growth in oil demand globally. This year, for example, we expect EM demand growth to account for 87% of 2019’s 1.2mm b/d growth in oil consumption. Next year, EM is expected to account for 79% of the 1.5mm b/d of growth we expect. For this reason, oil prices – and base metals prices – are a good barometer of the of EM income growth. 5      Maurice Obstfeld noted at the Fed’s June 2019 Conference on Monetary Policy Strategy, Tools, and Communication Practices (A Fed Listens Event) that the USD is not only the world’s reserve currency, it also is the dominant invoicing and funding currency. “… the dollar’s invoice-currency role affects the international price mechanism by influencing how U.S. monetary policy will move real exchange rates, inflation, and export competitiveness throughout the world. … (The) dollar’s funding currency role mediates the transmission of U.S. monetary policy to global financing conditions. “Through both mechanisms, U.S. monetary policy has an outsized impact on global economic activity – consistent with the evidence on unconventional policy spillovers. … The Federal Reserve, more than other central banks, should therefore consider spillbacks from the global economy as a relevant transmission mechanism for its policies.” Prof. Obstfeld’s paper can be downloaded at the Fed website, Global Dimensions of U.S. Monetary Policy. 6      In the August 26, 2019, issue of BCA Research’s U.S. Investment Strategy, our colleague Doug Peta, chief U.S. investment strategist, notes, “No central bank wants a stronger currency while confronting a demand deficiency aggravated by trade tensions and a global manufacturing slowdown. The New York Times Business section put the prevailing policy winds into living color in a nearly full-page, four-column graphic spotlighting the 32 central banks that have cut their policy rate so far this year.” For further discussion, please see Market Messages, published August 26, 2019, by BCA Research’s U.S. Investment Strategy. It is available at usis.bcaresearch.com. 7      Our geopolitical strategists make the odds of a trade agreement 40%, perhaps a bit higher. Please see Big Trouble In Greater China, published August 23, 2019, by BCA Research’s Geopolitical Strategy, for an excellent discussion of the fraught Sino-U.S. relationship. It is available at gps.bcaresearch.com. 8      We expect global shipping-fuels market to tighten as UN-mandated fuel standards kick in next year. This will keep ship fuels, specifically Gasoil and ULSFO, and other distillate prices – e.g., diesel and jet fuel – elevated relative to other refined products like gasoline. This will boost demand for lighter, sweeter crudes – particularly Brent and similar grades – that allow refiners to raise distillate yields, as they scramble to meet higher demand for low-sulfur ship-fuel next year. For more information on IMO 2020, please see IMO 2020: The Greening Of The Ship-Fuel Market, published by BCA Research’s Commodity & Energy Strategy February 28, 2019. It is available at ces.bcaresearch.com.   Investment Views and Themes Recommendations Strategic Recommendations Tactical Trades TRADE RECOMMENDATION PERFORMANCE IN 2019 Q2 Central Bank Easing Key To Oil Prices Central Bank Easing Key To Oil Prices Commodity Prices and Plays Reference Table Trades Closed in 2019 Summary of Closed Trades Central Bank Easing Key To Oil Prices Central Bank Easing Key To Oil Prices

Hard-to-predict policy risks and trade-war uncertainty will continue to hinder oil-demand growth, as will USD strength. The cost of oil in local-currency terms remains close to highs not seen since Brent and WTI traded above $100/bbl in 2014 in key EM economies, which partly explains the fall-off in demand begun in 2H18 that carried into 1H19 (Chart of the Week). We continue to expect oil demand to revive on the back of global fiscal and monetary stimulus, which, along with continued production discipline by OPEC 2.0 and capital discipline by U.S. shale producers, keeps our 2020 Brent forecast at $75/bbl. For 2019, however, our Brent forecast falls to $66/bbl from $70/bbl, following a re-basing of estimated demand in 2017-18 to bring it in line with lower historical data, and the lingering impact of a stronger USD.1 We also are revising our WTI expectation, as markets price in the last bits of ~ 2mm b/d of new pipeline takeaway capacity coming online in the Permian Basin. For 2019, we expect WTI to trade $6.50/bbl under Brent, and $4/bbl under next year, vs. $7/bbl and $5/bbl we expected last month. Chart of the WeekUSD Strength Hinders Oil-Demand Rebound USD Strength Hinders Oil-Demand Rebound USD Strength Hinders Oil-Demand Rebound Highlights Energy: Overweight. Distillate fuel accounted for 29.6% of the product derived from refining crude oil in the U.S. during July, a record for the month, according to the Energy Information Administration (EIA). Refiners are gearing up for the global change-over to low-sulfur marine fuels ahead of the January 1, 2020, implementation of IMO 2020. Base Metals: Neutral. Increased infrastructure spending will add ~ $2 billion (14 billion RMB) to China’s total infrastructure spending of 524 billion RMB, according to a Fastmarkets MB analyst survey. Copper usage is expected to increase as 2H19 grid spending picks up. Precious Metals: Neutral. Gold and silver continue to mark time close to recent highs. USD strength could slow the metals’ rally. We remain long both metals as portfolio hedges. Ags/Softs: Underweight. This week’s USDA’s Crop Progress report showed 56% of the corn crop was in good or excellent condition, vs. 68% in 2018. For beans, 53% of the crop is in good or excellent condition, vs. 65% last year. Feature We expect global fiscal and monetary stimulus to lift demand in EM economies, which will be visible over the balance of this year and next. In this month’s assessment of supply-demand balances, we are lowering our 2019 Brent forecast to $66/bbl from $70/bbl, after re-basing our demand estimates so that they are more in line with EIA’s historical data (Chart 2). We lowered our historical demand estimates up to and including 2017, in line with the EIA data. This reduces the base level for 2018-20 demand. As a result, the level of our 2018 demand is down by 200k b/d to 100.1mm b/d, vs. last month’s estimate, and the level of our 2019 and 2020 demand estimates is down by 250k b/d to 101.3mm b/d and to 102.8mm b/d. The adjustments are mainly due to the revision of historical level of demand in 2017-2018. In addition, we lowered our growth estimate for 2019 slightly to 1.2mm b/d from 1.25mm b/d last month, but kept our 2020 growth rate expectation at 1.5mm b/d. Chart 2Lower 2019 Demand Estimate, Price; Keeping 2020 Unchanged Lower 2019 Demand Estimate, Price; Keeping 2020 Unchanged Lower 2019 Demand Estimate, Price; Keeping 2020 Unchanged As noted above, we expect global fiscal and monetary stimulus to lift demand in EM economies, which will be visible over the balance of this year and next. Continued production discipline by OPEC 2.0 and capital discipline by U.S. shale producers leaves our 2020 Brent forecast unchanged at $75/bbl. In addition, this combination of stronger demand and tighter supply will create a physical supply deficit (Chart 3). This deficit will force inventories lower, which remains OPEC 2.0’s paramount goal, and backwardate the Brent and WTI forward curves (Chart 4). Chart 3Stronger Demand, Tighter Supply Produces Physical Deficit Stronger Demand, Tighter Supply Produces Physical Deficit Stronger Demand, Tighter Supply Produces Physical Deficit Chart 4Inventory Draws Will Resume Inventory Draws Will Resume Inventory Draws Will Resume For WTI, we now expect it to trade $6.50/bbl under Brent in 2019 and $4/bbl under in 2020, vs. the $7/bbl and $5/bbl differentials we expected last month. This narrowing of the differential comes on the back of the build-out of takeaway pipeline capacity in the Permian Basin, which amounts to ~ 2mm b/d by the end of this year. The expansion of deep-water harbor capacity in the U.S. Gulf is being delayed by regulatory action, which means the Brent vs. WTI differential will not significantly contract further until later in 2020 or 2021 when we expect crude-oil export volumes to pick up sharply. Over the course of the coming year, we do expect exports to pick up before 2021, as they have done in 2018-2019. This trend likely continues. We calculated there is ~ 4.5 mm b/d of current export capacity in the Gulf, therefore exports still can increase before being fully constrained. In addition, small capacity expansion projects already are under construction, which will lift capacity next year. That said, any delays could pressure differentials (LLS-Brent, WTI-Brent). But, as long as shale-oil production keeps increasing and foreign demand remains strong, exports can increase – likely at a slower pace – while differentials hold around the $4/bbl level next year. Digging Into The Oil Demand Slow-Down This was a stealthy USD rally, overshadowed by the Sino-U.S. trade war, and exogenous foreign-policy shocks re U.S. Venezuela and Iran policy. For 2019, a grouping of negative demand-side effects have proven to be quite strong – uncertainty spawned by the Sino-U.S. trade-war, tightening financial conditions globally, and the strong USD. Over the past year, these effects have combined to lower actual demand, and forced us to lower our growth expectation for this year for a fourth time to 1.2mm b/d. In hindsight, it is apparent the strong USD has affected EM demand by raising the local-currency cost of oil in particular over the past year to levels not seen since crude was trading above $100/bbl in 2014 (Charts 5A and 5B). Chart 5AAs USD Strengthened Local-Currency Costs Skyrocketed As USD Strengthened Local-Currency Costs Skyrocketed As USD Strengthened Local-Currency Costs Skyrocketed Chart 5BAs USD Strengthened Local-Currency Costs Skyrocketed As USD Strengthened Local-Currency Costs Skyrocketed As USD Strengthened Local-Currency Costs Skyrocketed   This was a stealthy USD rally, overshadowed by the Sino-U.S. trade war, and exogenous foreign-policy shocks re U.S. Venezuela and Iran policy. In addition to raising the cost of commodities priced in USD, in local-currency terms, the stronger dollar lowered the cost of producing commodities for countries like Russia, whose currencies are not pegged to the USD. So, in one fell swoop, USD strength lowered demand via higher prices, and increased supply via lower costs of production. In addition, weaker local currencies catalyze capital outflow, which reduces the supply of savings available to EM economies for investment. At the margin, this also stunts income growth.2 The effects of USD strength could persist, and continue to have a deleterious influence on oil demand into next year, given the way in which monetary policy – and its effects on FX rates – can act with “long and variable lags.” Our BCA Commodity-Demand Nowcasting model continues to point toward a revival of demand as EM economic growth picks up (Chart 6).3 Given the dollar is a counter-cyclical currency vis-à-vis the rest of the world, we expect this will weaken the USD and be supportive of commodity prices. Chart 6BCA Commodity-Demand Nowcast Remains Upbeat BCA Commodity-Demand Nowcast Remains Upbeat BCA Commodity-Demand Nowcast Remains Upbeat Chart 7Expect Further Backwardation In Crude Oil Forward Curves Expect Further Backwardation In Crude Oil Forward Curves Expect Further Backwardation In Crude Oil Forward Curves Higher oil demand and lower supply likely will further backwardate Brent and WTI forward curves, which will diminish the impact of the USD’s strength (Chart 7), and lead to higher volatility, as fundamentals once again dominate price formation (Chart 8). Still, the effects of USD strength could persist, and continue to have a deleterious influence on oil demand into next year, given the way in which monetary policy – and its effects on FX rates – can act with “long and variable lags," to borrow Milton Friedman's well-turned phrase.4 We will monitor this risk closely, and will be offering further research into it. Chart 8   Supply Concerns Persist E&P companies are using their accumulated inventory of excess Drilled-but-Uncompleted (DUC) wells to reach their production targets, while controlling capital expenditures (i.e. flat/lower rig count). We continue to expect OPEC 2.0 to manage production, and to keep a laser focus on reducing inventories. The producer coalition continues to get a huge assist in this effort from the U.S. sanctions against Iran, which, according to the American Secretary of State Mike Pompeo have taken almost all of that country’s oil exports – some 2.7mm b/d – out of the market (Chart 9).5 Chart 9 In our balances estimates, we show OPEC producing 29.8mm b/d of crude oil on average this year, and 29.7mm b/d next year. This is down sharply from the 32mm b/d we estimate the Cartel produced last year, which included a surge in 2H18 undertaken in response to pressure from the U.S. to build inventories ahead of oil-export sanctions being re-imposed against Iran (Table 1). Given the lower demand estimate OPEC is forecasting for this year and next – 99.9mm b/d, and 101.1mm b/d this year and next – we expect OPEC’s leader, KSA, to keep production closer to 10mm b/d vs. its 10.33mm b/d quota. We expect the other putative leader of OPEC 2.0, Russia, to produce 11.43mm b/d and 11.41mm b/d this year and next, versus 11.4mm b/d last year. Table 1BCA Global Oil Supply - Demand Balances (MMb/d, Base Case Balances) USD Strength Slows Oil Demand Growth; 2020 Brent Forecast Remains At $75/bbl USD Strength Slows Oil Demand Growth; 2020 Brent Forecast Remains At $75/bbl Once again, U.S. shale-oil output provides the largest increase in supply globally. That said, shale-oil producers are being forced to temper production growth, as investors’ demand higher profits or greater return of capital. We revised down our U.S. shale production growth to 8.2mm b/d in 2019 and 9.1mm b/d in 2020 (Chart 10). In 2018, we estimated U.S. shale production at 7.2mm b/d. Chart 10Shale Output Reduced Slightly Shale Output Reduced Slightly Shale Output Reduced Slightly Chart 11 Lower-than-expected WTI prices and capital discipline will limit U.S. shale production growth this year, and temper it next year. E&P companies are using their accumulated inventory of excess Drilled-but-Uncompleted (DUC) wells to reach their production targets, while controlling capital expenditures (i.e. flat/lower rig count).6 Year to date, DUC completions increased in the Big Five tight-oil basins, overtaking new wells drilled (Chart 11).7 However, the Permian’s excess DUC inventory increased in July despite the ongoing pipeline capacity expansion and falling rig count. The Permian’s completion rate will be important to monitor. At current oil prices, producers need to tap into their excess DUC inventories to reach both their free-cash-flow and production goals. Bottom Line: We are reducing our Brent price forecast for 2019 to $66/bbl, on the back of weaker demand. Our forecast for 2020 remains unchanged at $75/bbl. Our expectations are driven by our expectation fiscal and monetary stimulus to lift commodity demand – oil in particular – and that production discipline by OPEC 2.0 and capital discipline from U.S. shale-oil producers will tighten markets and lift prices from here.   Robert P. Ryan, Chief Commodity & Energy Strategist rryan@bcaresearch.com   Hugo Bélanger, Senior Analyst Commodity & Energy Strategy HugoB@bcaresearch.com   Footnotes 1      OPEC 2.0 is the name we coined for the producer coalition formed in late 2016 by the Kingdom of Saudi Arabia (KSA) and Russia. The producer coalition’s mission was – and remains – managing global supply so as to reduce inventories. We expect OPEC 2.0 production to be at or below quota levels agreed December 7, 2018, when KSA and Russia and their respective allies set about once again to drain global inventories of the 62-million-barrel overhang that resulted from the production ramp-up undertaken in response to demands from U.S. President Donald Trump. 2      The International Energy Agency (IEA) noted that, on the back of higher prices last year, oil once again was “the most heavily subsidized” energy source, expanding its share of the $400 billion provided consumers by their governments to 40%. Please see Commentary: Fossil fuel consumption subsidies bounced back strongly in 2018, published by the IEA June 13, 2019. 3      For a description of our nowcast model, please see Just In Time For Christmas! U.S. Tariff Delay Rocks Oil published last week by BCA Research’s Commodity & Energy Strategy. It is available at ces.bcaresearch.com. We noted last week that our expectation of stronger EM growth and a weaker USD is contrary to the view of BCA Research’s Emerging Markets Strategy, which expects continued weakness in EM GDP growth. Moreover, as mentioned in last week's report, our nowcast’s last data point was observed in July, which is before the latest escalation in trade tensions. We could see a move down in some of the indicators used as input in our nowcast model in the coming month. 4      Friedman, the 1976 Nobel Laureate in Economics, noted monetary policy operates with long and varying lags, which makes it difficult to be precise as to when its effects will be noticed in the macroeconomy. Please see Milton Friedman’s article, “The Lag in Effect of Monetary Policy,” Journal of Political Economy Vol. 69, No. 5 (Oct., 1961), pp. 447-466. 5      To date, OPEC and non-OPEC producers have had no apparent trouble replacing lost Iranian and Venezuelan barrels taken off the market as a result of U.S. sanctions. This indicates spare capacity remains sufficient to meet short-term supply disruptions and unplanned outages. Please see U.S. removed almost 2.7 million barrels of Iranian oil from market - Pompeo, published by uk.reuters.com August 20, 2019. 6      The process of drilling and completing wells produces a normal inventory of uncompleted wells, because of the time lag between the moment wells are drilled and the time they are completed. The development of multi-well pad drilling in U.S. shales structurally increased the time lag between drilling and completion to ~ 5 months. This implies a normal level of DUC inventory that corresponds to ~ 5 - 6 months’ worth of drilling activity. We define any DUC above our estimate of normal as an excess DUC well. On average, completion accounts for ~ 65% of the total well costs. 7      The Big Five shale basins are the Permian; the Eagle Ford; Niobrara; the Bakken, and the Anadarko. Investment Views and Themes Recommendations Strategic Recommendations Tactical Trades TRADE RECOMMENDATION PERFORMANCE IN 2019 Q2 Image Commodity Prices and Plays Reference Table Trades Closed in 2019 Summary of Closed Trades Image

How important is the potential thawing of the Sino-U.S. trade war to oil markets?  On a scale of 1 – 10, this goes up to 11 (Chart of the Week). Brent’s and WTI’s one-day rally of ~ 5% on Tuesday, followed by a 4.5% sell-off on Wednesday, is a testimony to the importance these markets place on the evolution of the Sino-U.S. trade war, and anything that suggests a change in the status quo.1 The rally was an almost-immediate response to the announcement the U.S. would delay until December 15 the imposition of tariffs on ~ $160 billion of $300 billion of goods that become effective September 1. The tariffs were announced August 1 by President Trump. Wednesday's sell-off was triggered by weak global economic data and building U.S. crude stocks. It also was a wake-up that nothing substantive was advanced to resolve the Sino-U.S. trade war. The rally indicates pent-up demand awaits a resolution of trade uncertainties. In this report, we introduce our new proprietary Nowcast model of EM commodity demand.2 We also look at the overall macro backdrop for commodity markets, which is largely supportive, with most of the world’s central banks moving to a recession-fighting mode.3   In addition, we could get a deal between the U.S. and China following the resumption of tariff negotiations in Washington come September, which allows some resumption of trade. We have little doubt markets would welcome such an outcome. However, we remain skeptical of the deeper issues separating the two sides – e.g., IP protection, an end to forced technology transfers – will be resolved in the near future. Highlights Energy: Overweight. Saudi Aramco held its first-ever investor call this week, disclosing it earned close to $50 billion in 1H19. Earnings were down ~ 12% in the period, according to the company, partly as a result of a 4% decline in realized prices for crude oil vs. 1H18. This is a relatively small decline vs. the 7% and 12% 1H19 y/y declines in Brent and WTI, over the same period, reflecting the Kingdom’s premier position as the largest exporter of medium and heavy crudes in the world. These streams are in short supply relative to the light-sweet crude being produced in the U.S. shales. Base Metals: Neutral. Copper also got a lift from renewed trade-talk hopes, rising 2.3% on the back of the unexpected trade news from the Trump administration earlier in the week. Many of the products exempted by the Office of the U.S. Trade Representative are electronics – cell phones, laptop computers, video game consoles, and computer monitors – which will marginally support copper prices, and Christmas retail sales. Copper held on to most of its gains Wednesday. Precious Metals: Neutral. Gold and silver sold off following the U.S. trade representative’s announcement, but recovered later in the trading day, and Wednesday. Gold continues to trade above $1,500/oz, while silver trades over $17/oz. We remain long both metals as portfolio hedges against policy risk. Ags/Softs: Underweight. With the exception of corn, grains and beans mostly rallied on the trade news, with soybeans ending the day up 1.2% Tuesday. Corn traded down 6.1% Monday and a further 5.0% Tuesday, following the USDA’s WASDE report, which indicated acres planted would fall by less than analysts estimated going into the Monday morning release of the department’s supply-demand estimates, according to agriculture.com. Feature Commodity markets are noted for their ability to cover a year’s worth of price movement in a matter of days. The past two weeks in the oil markets have not disappointed, as the Chart of the Week attests. Chart 1 Despite the volatility introduced by exogenous policy shocks, we remain constructive on crude oil. The underlying resilience in the growth of EM economies, which drives commodity demand generally, is apparent in various gauges we’ve developed to track something close to current conditions in markets. In addition, as noted above, fiscal and monetary policy globally remains supportive of commodity demand. While growth may not match the halcyon pre-GFC days shown in the top panel of Chart 2, growth still is strong and, importantly for commodities, is coming off a higher base level.4 Broader indicators – e.g., global and country-specific LEIs – support our expectation for improved EM growth, which, ultimately is what drives commodity demand. We are compelled to note considerable uncertainty around the prospects for global growth – particularly for EM GDP growth – exists in markets and within BCA Research. Our Special Report on these divergent views elegantly presents these differences, and we highly recommend it to our readers. Fundamentally, we align with the bulls, who argue global growth can be expected to rebound this year, for reasons we cite above. The bears in BCA, which include our Emerging Market strategists, have a different view to ours, particularly on EM domestic demand. The bears expect a further deterioration in global economic activity or a delayed recovery. As a result, they expect additional downside in stocks and risk assets – including commodities – and outperformance of defensives relative to cyclicals, low safe-haven yields, and a generally stronger dollar.5  EM GDP Resilience Our BCA EM Commodity-Demand Nowcast model points to an underlying recovery in oil demand, despite the continued policy-induced volatility in prices (Chart 2). This model is a weighted index of our Global Commodity Factor (GCF), Global Industrial Activity (GIA) Index, and EM Import Volume (EMIV) models (Chart 3).6  Chart 2BCA EM Commodity-Demand Nowcast Suggests Oil Demand Rebounding BCA EM Commodity-Demand Nowcast Suggests Oil Demand Rebounding BCA EM Commodity-Demand Nowcast Suggests Oil Demand Rebounding Chart 3BCA EM Commodity-Demand Nowcast Components BCA EM Commodity-Demand Nowcast Components BCA EM Commodity-Demand Nowcast Components   Chart 4Global Growth Poised To Resume Global Growth Poised To Resume Global Growth Poised To Resume The GCF uses principal component analysis to distill the primary driver of 28 different commodity prices traded globally. The GIA index uses trade data, FX rates, manufacturing data and Chinese industrial activity statistics, which can be updated monthly. Lastly, the EMIV model is driven by EM import volumes reported with a two-month lag by the CPB in the Netherlands, which can be updated to current time using FX rates of economies highly sensitive to EM trade. Our BCA EM Commodity-Demand Nowcast is strongly correlated with y/y growth in nominal EM GDP and non-OECD oil consumption, as Chart 2 shows. This highlights the strong connection between EM GDP growth and oil demand growth. This also is critical to price formation – indeed,  our Nowcast is highly correlated with crude oil prices, which explains why EM GDP is our principal demand variable in forecasting oil prices (Chart 2, bottom panel). Other, broader indicators – e.g., global and country-specific LEIs – support our expectation for improved EM growth, which, ultimately is what drives commodity demand (Chart 4). However, these can change as local economic activity changes.7 One important thing to note, however: While China’s nominal import volumes are weaker y/y, its volume of crude oil imports (Chart 4, top panel) are growing. Partly this is the result of strong refinery margins; but there is a risk too much product will be produced, which could saturate Asian refined-product markets.8 Bullish Crude Oil Term Structure While price levels have been hammered lower by trade policy uncertainty and weekly pivots in direction, the Brent and WTI forward curves remain backwardated (Chart 5). This normally indicates market tightness – i.e., refiners are willing to pay more for prompt-delivered crude than for deferred delivery. Crude oil markets continue to be buffeted by policy shocks – particularly in regard to the Sino-U.S. trade war. Chart 5Crude Oil Forwards Remain Backwardated Crude Oil Forwards Remain Backwardated Crude Oil Forwards Remain Backwardated This is consistent with our reading of the underlying supply-demand dynamics of the crude market. It is important to note the backwardation in these forward curves weakened almost every month since the beginning of the year. This suggests demand slowed – the market is tight, but closer to balanced, and not in as large a supply deficit as it was expected earlier in the year. We expect OPEC 2.0 to continue to maintain production discipline, and for demand to turn up in 2H19.9 In addition, we continue to expect strong demand in 2H19 and in 2020 as we’ve noted above, given the supportive fiscal and monetary backdrop globally. Bottom Line: Crude oil markets continue to be buffeted by policy shocks – particularly in regard to the Sino-U.S. trade war. Despite these shocks, demand for crude is holding up, although it still is lower than what we expected previously – along with the EIA and IEA, we’ve been revising demand lower in our last three monthly Global Oil Balance assessments. Demand is now supported by monetary and fiscal policy easing globally. However, escalation in trade tensions could bring demand down again. Indeed, an escalation in Sino-U.S. trade tensions could push this to a lower equilibrium. It is important to point out our Nowcast is a coincident indicator, and that most of our series' last data points were observed in July, which is before the latest escalation in trade tensions. We could see a move down in some of our indicators next month. To be clear, we are not sounding an all-clear on the trade front, although we are seeing signs of recovery from relatively high base levels of EM GDP activity.   Robert P. Ryan, Chief Commodity & Energy Strategist rryan@bcaresearch.com   Hugo Bélanger, Senior Analyst Commodity & Energy Strategy HugoB@bcaresearch.com   Footnotes 1      Please see USTR Announces Next Steps on Proposed 10 Percent Tariff on Imports from China, issued by the Office of the United States Trade Representative August 13, 2019. The USTR’s press release appears to be something of an olive branch, noting, “On May 17, 2019, USTR published a list of products imported from China that would be potentially subject to an additional 10 percent tariff.  This new tariff will go into effect on September 1 as announced by President Trump on August 1.”  This suggests the opening of a possible compromise ahead of trade talks set to resume next month. 2      As discussed below, our BCA EM Commodity-Demand Nowcast combines three of our proprietary models gauging EM commodity demand.  Please see Getting Long Silver, To Hedge Exogenous Shocks, published by BCA Research’s Commodity & Energy Strategy August 8, 2019.  It is available at ces.bcaresearch.com. 3    Our prior remains it is highly unlikely the PBOC or the Fed will let their economies weaken substantially without deploying additional monetary stimulus.  In addition, we believe Chinese policymakers will hold off on major stimulus in the next couple of months to get thru National Day, which will allow them to deploy further fiscal stimulus after October and next year, in the event the trade war and currency war worsens.  We also draw attention to the fact that, globally, central banks all are acting as if they’re already fighting a recession – last week, three central banks announced further easing (India, New Zealand, Thailand), following similar action by the Fed and Asian central banks (South Korea and Indonesia).  A full-blown trade war between the U.S. and China would be tumultuous, but, after the dust settles, global supply chains would have to be rebuilt or augmented, as trading blocs centered on the respective antagonists regrouped and reorganized their trading relationships and supply lines. 4     Using World Bank quarterly GDP figures, we calculate Emerging and Developing markets’ GDP will be up close to 74% between 2007 and 2019, averaging $7.24 trillion in constant 2010 USD this year. 5      We urge our clients to read this Special Report, What Goes On Between Those Walls? BCA’s Diverging Views In The Open, published by BCA Research July 19, 2019. 6       The nowcasting index uses the weighted average of each component’s coefficient of determination that falls out of a regression against EM GDP growth. Our analysis indicates EM oil demand is driven by EM GDP growth.  For additional information on the separate gauges, please see Getting Long Silver, To Hedge Exogenous Shocks, Expanded Sino – U.S. Trade War Could Be Bullish For Base Metals published by BCA Research’s Commodity & Energy Strategy August 8 and May 9, 2019.  Both are available at ces.bcaresearch.com. 7      We note Indian economic activity is slowing due to strains on the shadow-banking system in that country.  This bears watching, as India is the second largest EM economy we track in our oil-demand estimates.  Please see India's passenger vehicle sales drop at steepest pace in nearly two decades, published by in.reuters.com August 13, 2019. Auto industry representatives are pushing for government support to address the sales downturn.  S&P’s BSE index measuring the health of Indian banks is down 23% ytd.  8     Please see UPDATE 1-China's July crude oil imports rise as refiners ramp up output published by reuters.com August 8, 2019. 9      We are updating our supply-demand balances and prices forecasts for Brent and WTI next week. For our most recent forecast, please see Weak 1H19 Oil Demand Data Fuels Market Uncertainty published by BCA Research’s Commodity & Energy Strategy July 18, 2019.  It is available at ces.bcaresearch.com.   Investment Views and Themes Recommendations Strategic Recommendations Tactical Trades TRADE RECOMMENDATION PERFORMANCE IN 2019 Q2 Image Commodity Prices and Plays Reference Table Trades Closed in 2019 Summary of Closed Trades Image

Much like the rest of the global economy, oil markets await the lift in demand that fiscal and monetary stimulus have delivered in the past. As the debate among BCA Research’s strategists demonstrated, this is not a given. Uncertainty over the effectiveness of these policy responses will remain elevated as 2H19 evolves.1 For our part, we expect global stimulus – led by easing financial conditions in the U.S. and China – will reboot demand. On the supply side, we expect OPEC 2.0 production discipline and capital-constrained U.S. shale-oil production to keep output growth just below demand growth for the next year (Chart of the Week, top panel).2 Markets arguably have not been on the same page as us for the past two months or so, and appear to be pricing in supply-demand assumptions similar to those contained in the U.S. EIA’s latest Short-term Energy Outlook (STEO).3 These generate lower forecasts – $61/bbl and $57/bbl – than the $75/bbl and $70/bbl we expect for Brent and WTI next year, when we run them through our fundamental econometric model (Chart 2). Chart of the WeekOil Supply - Demand Balance Will Continue To Tighten Oil Supply - Demand Balance Will Continue To Tighten Oil Supply - Demand Balance Will Continue To Tighten We argue below the EIA’s assumptions are consistent with current price levels, but inconsistent with current Brent and WTI forward curves. We remain long September – December 2019 Brent vs. short September – December 2020 Brent, which is up 76% since inception February 28, 2019, and long 1Q20 vs. 1Q21 Brent, which is up 39% since inception July 18, 2019, in anticipation of steeper backwardations. We also expect the combination of global fiscal and monetary stimulus, along with the aforementioned production constraints, will lift price levels in line with our forecasts. Highlights Energy: Overweight. In line with our expectation, U.S. crude oil inventories drew 8.5mm barrels last week, posting a record seventh consecutive draw. Last week’s inventory drawdown follows a massive draw in crude oil of close to 11mm barrels the previous week. Base Metals: Neutral. Spot treatment and refining charges (TC/RC) for copper fell to $51.20/MT last week, the lowest reading since the launch of Fastmarkets MB’s Asia-Pacific index in 2013. This is consistent with tighter spot supplies – low TC/RC levels mean demand for spot refining services is weak due to low concentrate supply. Our long Dec19 $3.00/lb calls vs. short Dec19 $3.30/lb call on the COMEX was stopped out after hitting our -15% stop-loss limit. We remain bullish and will re-visit this recommendation in the near future. Precious Metals: Neutral. Gold prices remain well supported by global monetary accommodation, as seen this week following the Fed’s decision to lower its policy rate by 25bps to 2.25%. We expect another “insurance cut” later this year, and remain long gold, which is up 12% this year as central banks scramble to redress tightening financial conditions globally. Ags/Softs: Underweight. 54% of the U.S. soybean crop was rated in good or excellent condition in states accounting for 95% of bean acreage. Last year at this time, 70% of the crop was rated good or excellent, according to the USDA’s Crop Progress Report. Feature The oil market presently is pricing to a weaker set of fundamentals, which are very close to those assumed by the U.S. EIA in its monthly STEO forecast. Easing financial conditions in the U.S. and China, along with higher fiscal outlays globally, are necessary and likely sufficient to reboot global oil demand, in our assessment of fundamentals.4 On the supply side, our modeling assumes OPEC 2.0’s production discipline and capital-constrained U.S. shale-oil production will be sufficient to keep output growth just below demand growth for the next year.5 Chart 2Oil Markets Pricing Weaker Fundamentals Than BCA Expects Oil Markets Pricing Weaker Fundamentals Than BCA Expects Oil Markets Pricing Weaker Fundamentals Than BCA Expects In our modeling, these supply-demand effects combine to lift prices, and to further backwardate the Brent and WTI forward curves as global storage levels fall, as the top panel of Chart 2 shows. However, as the bottom panel of Chart 2 illustrates, the oil market presently is pricing to a weaker set of fundamentals, which are very close to those assumed by the U.S. EIA in its monthly STEO forecast. The EIA assumes demand growth of 1.1mm b/d this year, versus our assumption of 1.25mm b/d, and 1.4mm b/d next year, versus our 1.5mm b/d assumption. When we push the EIA’s assumptions through our fundamental supply-demand-inventory model, we get average Brent prices of $64/bbl this year and $61/bbl in 2020, versus our expectations of $70/bbl this year and $75/bbl next year for Brent.6 For WTI, the EIA’s fundamentals produce prices of $57/bbl in 2019 and $57/bbl in 2020, versus our expectation of $63/bbl and $70/bbl. Whither Storage? The EIA’s supply-demand fundamentals produce price levels closer to where the market is trading currently, when we run them through our fundamental model. However, they are not consistent with forward-curve dynamics, which presently are backwardated. Using the EIA’s supply and demand assumptions for this year and next in our econometric model produces an increase in oil inventories, which grows next year, as opposed to our expectation inventories will shrink over the course of the next year (Chart 3, bottom panel). If the EIA’s expectation for inventories was shared by market participants, Brent and WTI forward curves would be in contango, not backwardation as they are presently. In this respect, our estimates are more consistent with current forward-curve dynamics (Chart 3, top panel). Chart 3Inventories Swell Assuming EIA's Supply-Demand Fundamentals Inventories Swell Assuming EIA's Supply-Demand Fundamentals Inventories Swell Assuming EIA's Supply-Demand Fundamentals Chart 4Crude Inventories' Days-Forward-Cover Crude Inventories' Days-Forward-Cover Crude Inventories' Days-Forward-Cover This also can be seen in an analysis of days-forward-cover (DFC) dynamics, in which we compare deviations from the five-year average (trend) number of days’ worth of demand that can be covered by current inventory levels (Chart 4). Our assumptions produce deviations that align with the differentials between prompt and deferred futures contracts, which measures the backwardation and contango in Brent and WTI markets. The implied DFC ratio that falls out of running the EIA’s supply-demand assumptions in our fundamental model shows inventories in 2020 level out, even as market participants continue to price in a backwardated forward curve for Brent and WTI.7 If we are correct in our assessment of inventories, Brent volatility will increase next year as inventories and DFC fall (Chart 5). Chart 5   Whither Global Trade, Manufacturing? As we’ve noted above, the next few months will provide important information to markets and policymakers alike, as both wait to see whether the concerted monetary policy efforts aimed at reviving the real economy – manufacturing, in particular – will be effective. As an aside, uncertainty regarding the effectiveness of what, in the not-too-distant past, was considered standard macroeconomic stimulus is not restricted to market participants and practitioners. Central banks, and the economics profession itself are in the midst of a fundamental rethink of its foundational assumptions and models, and will be dialed in on this entire process.8 We continue to expect demand to revive on the back of global monetary and fiscal stimulus, and for supplies to be constrained this year and next. The global manufacturing slowdown in 1H19 is confirmed in EM trade data (Chart 6). This has the potential to continue if the Sino-U.S. trade war retards capex and durable-goods spending. The IMF notes the linkage between manufacturing and global trade exists because trade includes a lot of durables, which are energy-intensive in their production and transportation.9 Again, the big unknown here is whether the fiscal and monetary stimulus in systematically important economies will be sufficient to revive manufacturing globally and commodity demand, particularly for energy. There is enough cognitive dissonance around the effectiveness of monetary policy – and the channels through which it operates – to give even a hardened monetarist pause. If, as we expect, U.S. monetary stimulus succeeds in weakening the USD, global trade and EM GDP levels can be expected to increase.10 This will be supportive of commodity demand generally, oil demand in particular. In a simulation of oil prices as a function of the broad trade-weighted USD, we found Brent prices could rally sharply on a 10% depreciation between now and end-2020 (Chart 7). Chart 6Fiscal and Monetary Stimulus Will Lift Global Trade and Manufacturing Fiscal and Monetary Stimulus Will Lift Global Trade and Manufacturing Fiscal and Monetary Stimulus Will Lift Global Trade and Manufacturing Chart 7Fed Policy Should Weaken USD, Boost Oil Demand Fed Policy Should Weaken USD, Boost Oil Demand Fed Policy Should Weaken USD, Boost Oil Demand Such a rally is unlikely to occur due to USD weakness alone, given the mitigating factors observed in recent excursions above $80 Brent. OPEC 2.0 likely would raise production as prices moved through $80/bbl, and we expect demand destruction in EM economies would quickly follow, due to the removal of fuel subsidies in many EM economies. These supply-demand responses would push prices lower after a few months. However, this exercise is worthwhile in forming an expectation around successful Fed stimulus, given the long-term equilibrium between the broad USD TWIB and oil prices since 2000. This analysis also suggests there is a role for OPEC 2.0 in increasing production, if systematically important central banks succeed in reviving global demand, and the Fed can lower the USD TWIB. Keeping production too low at that point would be self-defeating for the coalition. Successfully managing this balance would support EM GDP growth and, in so doing, lift commodity demand. Bottom Line: Oil prices are trading to lower expected levels of demand and higher supply than we currently are using in our forecasts. However, we continue to expect demand to revive on the back of global monetary and fiscal stimulus, and for supplies to be constrained this year and next. As such, we are maintaining our expectation Brent crude will average $70 and $75/bbl this year and next, with WTI trading $7 and $5/bbl lower, respectively. We also expect these forces to steepen the backwardation in Brent and WTI forward curves this year and next. Big policy issues – the Sino-U.S. trade war, U.S.- Iran tensions in the Persian Gulf, uncertainty around how the crisis in Venezuela is resolved – still dog markets, as do persistent doubts re the effectiveness of monetary policy.   Robert P. Ryan, Chief Commodity & Energy Strategist rryan@bcaresearch.com Hugo Bélanger, Senior Analyst Commodity & Energy Strategy HugoB@bcaresearch.com   Footnotes 1      Please see What Goes On Between Those Walls? BCA’s Diverging Views In The Open, a Special Report published by BCA Research July 19, 2019. It is available at bca.bcaresearch.com. 2      OPEC 2.0 is the producer coalition led by the Kingdom of Saudi Arabia (KSA) and Russia, which was founded in 2016 to reduce global oil inventory levels bloated by a market-share war launched by the original OPEC cartel in 2014. Backwardation is a term of art in commodity markets, which describes a forward curve in which prompt prices exceed deferred prices. The opposite of backwardation is contango. 3      The U.S. Energy Information Administration’s Short-term Energy Outlook is published monthly. 4      Please see Weak 1H19 Oil Demand Data Fuels Market Uncertainty, published July 18, 2019, for our latest forecast. 5      NB: Our forecast for U.S. shale-oil production includes the drawdown of excess drilled-but-uncompleted (DUC) wells, especially in the Permian as pipeline constraints are removed this year. Recent reports have suggested DUC excess inventory is over-estimated in EIA data we use in our models, and that more wells than actually are reported by the EIA are required to produce the volumes reported for the Permian Basin. Please see Analytics Firm: Permian Fracturing Work Underreported by 21% in 2018 published by the Journal of Petroleum Engineering July 24, 2019. 6      The EIA’s forecast calls for Brent to average $67/bbl in 2H19 and for all of 2020, and for WTI to trade $5/bbl and $4/bbl under Brent in 2H19 and 2020, respectively. For 2H19, we expect Brent to trade at $74/bbl; we expect WTI to trade $7/bbl below Brent in 2H19 and $5/bbl lower in 2020. 7      We assume OPEC 2.0 will need to increase production in 2H20, to keep inventories from falling so low that Brent prices risk breaching $80 - $85/bbl, which we view as the no-go zone the producer coalition is most sensitive to. 8      Please see Rebuilding macroeconomic theory Volume 34, Issue 1-2 of the Spring-Summer 2018 issue of the Oxford Economic Policy Review for an excellent treatment of this effort. The Fed also is examining how it conducts monetary policy, in an effort led by Vice Chair Richard Clarida. The initial research goals were laid out in November 2018, when the Fed announced it would be conducting a comprehensive review of its monetary policy strategy, tools, and communication practices. In June of this year, the Fed followed through with a two-day symposium to discuss many of the topics we routinely address in our publications. Prof. Maurice Obstfeld of Berkeley’s Global Dimensions of U.S. Monetary Policy was an insightful paper re how U.S. monetary policy affects global growth; Prof. Kristin Forbes of MIT’s discussion also was excellent, and highlighted the role of commodity markets in this framework. 9      Please see Still Sluggish Global Growth in the IMF’s World Economic Outlook Update, published July 23, 2019. The Fund lowered its global growth forecast slightly, and cautioned, "GDP releases so far this year, together with generally softening inflation, point to weaker-than-anticipated global activity. Investment and demand for consumer durables have been subdued across advanced and emerging market economies as firms and households continue to hold back on long-term spending. Accordingly, global trade, which is intensive in machinery and consumer durables, remains sluggish. The projected growth pickup in 2020 is precarious, presuming stabilization in currently stressed emerging market and developing economies and progress toward resolving trade policy differences." 10     These variables are intimately connected. Please see Third Quarter 2019 Strategy Outlook: The Long Hurrah published by BCA Research’s Global Investment Strategy June 28, 2019, for our House view on global growth, interest rates and the expected evolution of the USD. It is available at gis.bcaresearch.com. Investment Views and Themes Recommendations Strategic Recommendations Tactical Trades TRADE RECOMMENDATION PERFORMANCE IN 2019 Q2 Image Commodity Prices and Plays Reference Table Trades Closed in 2019 Summary of Closed Trades Image