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1/31/13
THE OUTLOOK OF FUEL

Featuring: Tom Kloza, Oil Price Information Service (OPIS)
SPONSORED BY
SHOW 2013
NATSO
www.opisnet.com tkloza@opisnet.com
Feb. 2 6, 2013 Savannah International Trade & Convention Center Westin Savannah Harbor Golf Resort & Spa Savannah, Ga.
THE
FEB 3-7 SAVANNAH, GA.
1/31/13
Presentation By: Tom Kloza OPIS, Chief Oil Analyst

732-730-2558 E-Mail: tkloza@opisnet.com Website: www.opisnet.com
Various Goldman Sachs Utterances

OPIS 1/14/2013
Who are you, and what have you done to all the bullish researchers at Goldman Sachs? A version of that question is being asked today after the latest Goldman research report observed that we continue to believe that the oil price has peaked and expect Brent to trade in a range of $110-$100 bbl in the next three years.
But just three days later . . .

FRANKFURT--The price of oil could reach as much as $150 per barrel this summer, Goldman Sachs chief commodities strategist Jeff Currie said Thursday. At this year's global strategy conference in Frankfurt, Mr. Currie said that he thinks it possible the price may reach $150 a barrel for Brent oil. He said he wouldn't be surprised "if we woke up in summer and oil cost $150" per barrel.
1/31/13
Spot Diesel And Spot Gasoline Pricing Extremes In 2012

DIESEL
Low (date) NY Harbor Gulf Coast Group 3 Chicago High (date)
GASOLINE
Low (date) High (date)
$2.63 (6/21) $3.38(10/11) $2.61(12/10) $3.50(4/3) $2.58 (6/21) $3.33(3/16) $2.61 (6/21) $3.69(10/9) $2.24(6/27) $3.25(3/23)
$2.35(12/13) $3.32(9/11)
$2.50 (6/21) $3.41(10/11) $2.22(12/18) $3.72(3/20) $2.43 (12/13) $4.29(10/4) $2.37 (12/13) $4.22(10/4) $2.36 (12/6) $3.79(5/23)
Los Angeles $2.56 (6/21) $3.47(8/30) S.F. Pac NW $2.54 (6/21) $3.52(8/31) $2.62 (6/21) $3.63 (4/3)
Go With the Flow!
1/31/13
The Variability & Volatility in Crude

Prices for late-October 2012
ANS - $103/bbl
WCS Hardisty, Alberta - $56/bbl SynCrude Hardisty, Alberta - $86/bbl
Bakken - $85/bbl
WTI West Texas - $82/bbl

WTI Cushing, OK- $86/bbl WTS West Texas - $81/bbl
West African - $113/bbl
Light Sweet Crude - $107.15/bbl
Source: Lipow Oil Associates
1/31/13
1/31/13
TMC Forecasts
Total US/Canada increase of 4.6 MMBPD by 2020(from 2011 levels)
U.S. growth of 3.1 MMBPD (to 8.8 MMBPD) Canadian growth of 1.5 MMBPD (to 4.5 MMBPD) U.S. growth mostly in PADDs 2 and 3 Declines in Alaska/California to continue Canadian growth primarily in the West Revision in upward direction is more likely
Forecast assumptions
Crude prices (LLS/Brent) remain in $90 to $120 range Assumes some limitations (manpower, materials, regulatory, etc.) Limited production from some high potential prospects Logistical assets are built to move crude to markets in a timely fashion
Source: Turner Mason Company Feb. 2 6, 2013 Savannah International Trade & Convention Center Westin Savannah Harbor Golf Resort & Spa Savannah, Ga.
Fiscal Break-Even Numbers
Source: Citi Research
1/31/13
U.S. Crude Production Change by PADD 2011 to 2020
Source: Turner Mason Company
U.S. Change in Crude Production by Grade 2011 to 2020
Source: Turner Mason Company
1/31/13
Change in U.S. Product Yields 2011 to 2020
Source: Turner Mason Company Feb. 2 6, 2013 Savannah International Trade & Convention Center Westin Savannah Harbor Golf Resort & Spa Savannah, Ga.
But There Is Also The Super Light

PADD 3 Crude Quality 2011
PADD 3 Crude Quality 2020
Light Sour 12%
Light Sweet 44%
Light 0% Sour 16% Super Light 12% Medium Sour 26%
Light Sweet 39%
Super Light 20%
Medium Sour 27%
Heavy 2%
Heavy 2%
1/31/13
North Dakota versus West Africa

NORTH DAKOTA Crude Price Gravity Sulfur LPG Volume Gasoline Volume DisSllate Volume $98/bbl 41.0 API 0.20% 3.5% 30.7% 34.5% WEST AFRICA $116/bbl 33.5 API 0.24% 1.3% 17.9% 45.8%
What does this mean? Bakken and similar U.S. crudes are cheap versus offshore blends, but they come with some unwanted friends. Propane grills and butane lighters should be well supplied. Well make more of those unwanted liquids, even though prices are well below break-even for crude processors. The most highly prized molecule -- diesel -- wont be as easy to manufacture, at least until refineries invest in some additional equipment.
Observations on U.S. Refining Trends

Was the flurry of refinery troubles in 2012 a statistical cluster, or a sign of things to come? Private Equity money is intrigued by the U.S. refining story. Only a few U.S. North American refineries are candidates for closure. More small refiners could go into Master Limited Partnership structures. Watch out for what consultants call the dumb-belling of U.S. crude oil supplies. Production of diesel, residual fuel, and jet fuel will fall, making exports more difficult. U.S. refining just concluded its most profitable summer ever, but much of the lucre was serendipitous. I know of no refineries that anticipated the ongoing surge in light feedstocks. The U.S. refining industry could lose the equivalent of two or three medium size plants, as refineries shift their slates toward more superlight super-sweet crude. Gasoline should be a surplus product for 7-8 months out of the year, with some exceptions.
1/31/13
Key Drivers of Oil Price Volatility in the Next 14 Months

Outright crude oil prices North American crude oil logistics Variable gasoline recipes Export & Import Dynamics Financial Fund Flows The Madness of Crowds And one key driver that deserves its own slide
The Problem with Just-In-Time Inventory
Shallow product inventories are quick-to-fill, but also quick-to-empty Storage per capita is a mere fraction of what it was in 1975-1985 Refinery turnarounds, maintenance, and projects accent the tidal swings Nowhere is this more of an issue than California, and the West Coast.
10
1/31/13
The Seven Sisters (Ranges for Year-to-Date Spot Price)

Pacific Northwest
Gasoline $2.42-$3.74/gal ULSD $2.61-$3.63/gal
Chicago
New York Harbor

San Francisco
Group 3
Los Angeles
Gulf Coast
Monthly Diesel Margins

0.450 0.400 0.350 0.300 0.250 0.200 0.150 0.100
pr il ly M ar ch M ay st y r ne nu ar y m be r ob e r br ua r ug u pt e O ct m be ov e ec e D A m be Ju A Ju r
2012 2010
2011 2009
Ja
Fe
Se
11
1/31/13
Annual Diesel Margins

0.400 2012 2011 2010 2009
0.340
0.350
0.300
0.301 0.286 0.266
0.250
0.227 0.203 0.215
0.249 0.237
0.200
0.150
0.100
0.050
0.000
New England Mid-Atlantic Southeast Great Lakes Midwest Southwest Rockies West USA Feb. 2 6, 2013 Savannah International Trade & Convention Center Westin Savannah Harbor Golf Resort & Spa Savannah, Ga.
Predictions
North America will have much cheaper crude than the rest of the world in this decade. Combined with the cheapest natural gas, that could lead to a renaissance in some industries. The seasonality of gasoline will only increase as time goes on. There are fundamental reasons why this market is bipolar. Buying in bulk on large pricing downdrafts gives marketers a huge advantage. Volatility can be leveraged for some smart businesses. Iran, and world hot spots can change everything, but not in a secular manner. ..
12
1/31/13
Some Final Thoughts
Questions & Answers
13
1/31/13
www.opisnet.com tkloza@opisnet.com
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1/31/13

THE OUTLOOK OF FUEL

FEB 3-7 SAVANNAH, GA.

Presentation By: Tom Kloza OPIS, Chief Oil Analyst

Various Goldman Sachs Utterances

But just three days later . . .

Spot Diesel And Spot Gasoline Pricing Extremes In 2012

Go With the Flow!

The Variability & Volatility in Crude

WTI West Texas - $82/bbl

West African - $113/bbl

Light Sweet Crude - $107.15/bbl

Source: Lipow Oil Associates

Source: Lipow Oil Associates

Source: Lipow Oil Associates

Fiscal Break-Even Numbers

Source: Citi Research

U.S. Crude Production Change by PADD 2011 to 2020

Source: Turner Mason Company

U.S. Change in Crude Production by Grade 2011 to 2020

Source: Turner Mason Company

Change in U.S. Product Yields 2011 to 2020

But There Is Also The Super Light

Light Sweet 44%

Light 0% Sour 16% Super Light 12% Medium Sour 26%

Light Sweet 39%

Super Light 20%

Medium Sour 27%

North Dakota versus West Africa

Observations on U.S. Refining Trends

Key Drivers of Oil Price Volatility in the Next 14 Months

The Problem with Just-In-Time Inventory

The Seven Sisters (Ranges for Year-to-Date Spot Price)

New York Harbor

Monthly Diesel Margins

Annual Diesel Margins

0.301 0.286 0.266

Some Final Thoughts

Questions & Answers

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