American Oil: GPR analysis shows oil price stickiness exceeds expectations.

Americas Oil: GPR analysis suggests oil price is stickier than We use the well-regarded Geopolitical Risk Index (GPR) as a proxy for geopolitical tensionsand compare it against Brent crude prices. Our analysis spans from 1988 through April2026, allowing for a consistent comparison of the severity and market impact across Bob Brackett, Ph.D.+1 917 344 8422bob.brackett@bernsteinsg.com Minnie Xu+1 917 344 8574minnie.xu@bernsteinsg.comAnshika Bajpai+1 917 344 8306anshika.bajpai@bernsteinsg.com Key conclusions - (1) key macro factors drive oil price, (2) geopolitical risk as avariable improves understanding, and (3) under this approach, oil could perhaps be ~ It is important to note that the GPR does not rely on direct, on-the-ground reporting.Instead, it is constructed based on the intensity of media coverage of geopolitical events.We view this as a feature rather than a limitation, as market participants often react quickly Linear regression of key macro variables (with and without GPR) points to a ~$120/bbl of GPR can spike for non-oil reasons (9-11 for example) and oil price can spike without aGPR signal (the 2008 spike) but generally oil conflicts drive up both GPR and price, drivingsupply shocks (Exhibit 2). Further, GPR and VIX correlate during supply shocks (Exhibit 3). Historical disruptions point to two categories of oil shocks (Exhibit 4). Supply shock events,such as the Kuwait invasion in August 1990 and the Russia /Ukraine war in early 2022 1). In past supply shock crisis, oil prices typicallytook around 30–50 days to peak afterthe initial shock, and then generally required a further 2–3 months to declineback 2).GPR is less sticky:The full “roller coaster” in GPR index play out overone month,evenwhen the underlying conflict lasted for years. While the market apparently insists in a return to normal, we continue to believe in a returnto “not normal” (Americas Integrated: Updating target prices in a world back to not normal)i.e., higher than normal. The analysis here implies the return may be slower than consensusexpects. While we don’t expect oil equities to significantly re-rate upwards significantly as BERNSTEIN TICKER TABLE INVESTMENT IMPLICATIONS We introduce a framework incorporating the geopolitical index. Under this approach, oil could be ~$120/bbl today. We like oilyE&Ps and integrated: FANG, DVN and XOM. DETAILS PUNCHLINE - OIL PRICE DRIVEN BY MARGINAL COST, INVENTORY, DOLLAR STRENGTH AND A Our equity models are driven by a more conventional oil price prediction, but if we perform linear regression of oil price againstkey variables and include/exclude geopolitical risk, we conclude: 1. key variables do in fact inform oil price 2. geopolitical risk improves the forecast 3. the simple model predicts prices today of ~$120/bbl Brent (above where forward curve sits). Real Brent ($/bbl, in 2026 dollars) = 121 + 0.75·MC − 0.04·Inventory − 1.33·DXY + 0.13·GPR + 2.3·FedFunds +0.003·SpareCap THE FOUR DRIVERS THAT ACTUALLY MATTER Ranking byeconomic impact— how much a one-standard-deviation move in each variable shifts the predicted Brent price: 1.Marginal Cost of Production:a $10 increase in marginal cost raises brent by ~$7.5 2.Strength of US Dollar:Every 1 pt. rise in the Dollar Index lowers real Brent by ~$1.3. 3.OECD Inventory:Every 100 mln bbl increase in OECD stocks lowers real Brent by ~$4. 4.GPR (Geopolitical Risk Index):Positive sign as expected (war and supply disruption fears lift prices). The market pricesthem in fast and then forgets within ~6 months. 5.(less significant) Fed Funds Rate 6.(less significant) OPEC Spare Capacity:more spare capacity = higher predicted price HERE ARE TWO TYPES OF CRISIS IN THE PAST 40 YEARS GPR can spike for non-oil reasons (9-11 for example) and oil price can spike without a GPR signal (the 2008 spike) but generallyoil conflicts drive up both GPR and price, driving supply shocks. EXHIBIT 2:GPR can spike for non-oil reasons (9-11 for example) and oil price can spike without a GPR signal (the2008 spike) but generally oil conflicts drive up both GPR and price, driving supply shocks Further, GPR and VIX correlate during supply shocks. This GPR event with a supply shock resembles previous ones (Kuwait invasion, Iraq War, Russia-Ukraine). Interestingly, from the chart below, we find that Brent prices typically flatten about 180 days before the onset of hostilities,which is often roughly two weeks prior to a formal announcement of the conflict. After one week, GPR declines ~28% while Brent declines 1%. Four months later, Brent still shows 89% of persistent while GPRis almost fully reverted (shown from the blue line below). PREVIOUS CASE STUDIES GPR captured headline, so does oil price. Even in severe supply shocks, the oil price premium quickly catches up to GPR in 5-8 weeks while wars last years. It took ~50 days for oil to peak in Kuwait war in 1990, and took ~20 days for oil to peak during Russia/Ukraine in 2022. SUPPLY-SH