Youth Bubble: The Middle East's Oil Demand

31 May 2010
6%
2%
-3%
-1%
-2%
1%
3%
5%
7%
9%
US
-6%
2010/2009 Chg in oil demand
DB Middle East oil demand forecast
4%
12
4%
10
2.5% CAGR
3%
3%
2%
2%
1%
2
1%
Oil Demand (LHS)
2020
2019
2018
2017
2016
2015
2014
2013
0%
2008
0
2007
Unique demand growth profile

The Middle Easts oil consumption is as big as China and growing almost as fast.
As we illustrated in this note, the oil intensity of both population (oil demand per
capita) and economic growth (oil demand growth vs GDP growth) are high and not
notably falling. The demand growth profile is unique, due to the combination of
massively subsidised fuel in all but a few Middle Eastern markets - dominant
economies Saudi and Iran heavily subsidise local oil prices. That means that
barring revolutions or wars, Middle Eastern oil demand is pro-cyclical: it rises
faster with higher oil prices, as high oil prices drive more oil-intense economies,
attract more immigrants (nearly 80% of Qatars population is male) and make
subsidies more affordable (notably in Iran). Finally, there is a high car ownership
proportion across the region, with Saudi at 40% vehicle ownership and Irans
second largest industry (after oil) being a 1m vehicle per year car industry. Fastgrowing population (>2% region-wide), strong GDP growth (did not decline in
2009 and is forecast to rise 5% region-wide in 2010), high car penetration and
subsidised prices will combine into sustained strong demand growth, in our view.
We expect 3.5% annual growth in gasoline demand through 2020, and 2.5%
annual growth in total Middle Eastern oil demand (200 kb/d+ increment in demand
per year) , and believe that both are under upward pressure.
Iran
World
Japan
Every trend in Middle Eastern oil combines strength and risk

Over the next decade, we expect the Middle East to contribute about 25% of total
global oil demand growth, second only to China (52%). In this note we examine
four major drivers: strong population growth & a huge "youth bubble"; rapid GDP
growth but rising unemployment & urban poor; high car penetration; strong oil
demand growth subsidised by these major oil producers & so pro-cyclical. This is a
combination of powerful growth themes, & major potential political instability. BUY
Middle East exposed XOM and Oxy, oil price levered CNQ and MUR.
Middle East
2012
Research Associate
(+1) 212 250-8529
winnie.nip@db.com
Saudi
China
2011
Winnie Nip
Research Analyst
(+1) 212 250-8163
david-t.clark@db.com
10%
2010
David T. Clark, CFA
Research Analyst
(+1) 212 250-6137
paul.sankey@db.com
Middle East oil demand growing fast
2009
Paul Sankey
Industry Update
2010/2007 Chg in oil demand CAGR
The Peak Oil Market V

Youth Bubble: the Middle
East's Oil Demand
Demand (Mb/d)
Company
Global Markets Research
North America United States

Industrials Integrated Oil
Oil Demand Growth (RHS)
The Youth Bubble Might Pop

The downside risk is enormous. These young growth populations are increasingly
urbanised, unemployed, and poor. 750,000 young Iranians join the workforce
every year, and official unemployment is nearly 12% (unofficial estimates point
towards 25%). That fact of volatile conditions in major cities makes the removal of
oil subsidies an extremely difficult and challenging undertaking in this note we
look specifically at the case of Iran, and the lessons of Indonesia (removing
subsidies did not end well for Mr Suharto). Saudi has similar demographic issues
but so much oil relative to its own consumption that domestic oil prices will
remain subsidised and much-needed powergen capacity growth will be oil-fired.
Overall Thesis: a spike in oil prices towards demand rationing
Overall we believe that the themes presented here strongly support our thesis that
the combination of the negative impact of government ownership of remaining oil
reserves on oil supply and major demand growth from emerging economies will
force oil markets to ration demand by high prices. With price and currency
distortions in major growth drivers such as China and the Middle East, and with
high taxes in Europe/Japan, our view was that US oil demand would be the price
rationing point, at around $4/gallon gasoline, or $150-$200/bbl oil a spike move
we expect over the next five years. Valuation is through mid-cycle P/E, and NAV
combined to price targets: BUY oil levered/M East exposed Oxy, XOM CNQ, MUR.
Please refer to pg. 31 for risks to our views.
Deutsche Bank Securities Inc.
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche
Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.
MICA(P) 007/05/2010
31 May 2010
Integrated Oil The Peak Oil Market V
Middle East Oil Demand

An under-estimated driver of global oil demand
In our February 2008 and October 2009 notes on peak oil market and Price Dynamics at the
end of the oil age, we argued that the combination of the negative impact of government
ownership of remaining oil reserves on oil supply and major demand growth from emerging
economies would force oil markets to ration demand by high prices. With price and currency
distortions in major growth drivers such as China and the Middle East, and with high taxes in
Europe and Japan, our view was that US oil demand would be the price rationing point, at
around $4/gallon gasoline, or $150-$200/bbl oil a move we expect over the next five years.
We present the official DB oil price forecast later in this note, and underline that our view is
towards a spike price level that curtails demand rapidly, so that we are not calling for a
$150/bbl average annual price, but rather another year like 2008, when oil spiked to $150/bbl
but averaged $100/bbl for the year.
In this note we analyse a key component of global oil demand that is grossly underappreciated in terms of its importance to those future oil dynamics. Everyone knows that
China is a huge story but asked to identify the second major emerging economic area that
is driving demand growth, most would likely guess India. In reality, it is the Middle East.
Figure 1: Oil Demand Growth 2001-2010
7.0
Subsidised
6.0
Massive current account surplus

Pro-cyclical: benefit from high oil prices
5.0
mb/d
4.0
of which
China
3.0
2.0
1.0
0.0
of which
India
Asia
Middle East North America Latin America
Africa
FSU
OECD Pacific OECD Europe
-1.0
Source: Deutsche Bank, IEA
Page 2
31 May 2010
Over the next decade we expect the Middle East to contribute about a quarter of incremental
global oil demand, once again second only to China. We forecast Middle Eastern oil demand
to rise from 7.2Mb/d to about 9.4Mb/d by the end of the decade, with about 600kb/d of that
demand coming from rising gasoline consumption. The key markets driving demand in the
Middle East are the oil producers Saudi Arabia, Iran, Iraq, and the emirates.
Figure 2: Middle East oil demand growing fast, with Saudi exceeding rate of China
2010/2007 Chg in oil demand CAGR
10%
Saudi
China
6%
Middle East
2%
Iran
World
-3%
-1%
-2%
1%
3%
5%
7%
9%
US
Japan
-6%
2010/2009 Chg in oil demand
Note: Bubble size denotes relative size of oil demand in 2009

Figure 3: Absolute scale of demand is material
Figure 4: Giving material absolute growth in demand at

the margin
2010 Oil Demand (mb/d)
20
10%
8%
6%
4%
2%
16
12
0%
0
4
-1
0
US
China
Middle East
Japan
Saudi
Iran
China
Middle East
Saudi
Iran
US
Japan
-2%
-4%
-2
2010/2000 Chg in Oil Demand (mb/d), LHS
2010/2000 Oil Demand CAGR, RHS
Page 3
31 May 2010
There are powerful fundamental drivers to Mid East Demand

It is well known that the Middle East dominates ownership of global conventional oil reserves
and production. The top four crude oil reserve holders (and five of the top six) are in the
Middle East, and Saudi Arabia and Iran are among the top four producers, with the UAE and
Kuwait also in the top ten.
Figure 6: Top 10 oil reserves holders
12
300
10
250
2008 Oil Reserves (thousand million bbls)
2008 Oil Production (mb/d)
Figure 5: Top 10 oil producers
200
150
100
50
0
Saudi
Arabia
Russian
Federation
US
Iran
China
Canada
Mexico
UAE
Kuwait
Norway
Source: Deutsche Bank, BP
Saudi
Arabia
Iran
Iraq
Kuwait
Venezuela
UAE
Russian
Federation
Libya
Kazakhstan
Nigeria
Source: Deutsche Bank, BP
That very ownership has led to a powerful combination of effects on demand. First,
population is growing rapidly. Second, GDP is growing rapidly. Third, national wealth of
available oil has led to subsidised local prices.
Figure 7: Population growth
16%
11.9%
12%
3
Middle East weighted avg
8%
Middle East weighted avg GDP growth
4%
1
China
Lebanon
US
Iran
Israel
Saudi
Oman
Bahrain
Kuwait
Iraq
Syria
Afghanistan
UAE
West Bank
& Gaza
Yemen
Qatar
Jordan
Source: Deutsche Bank, World Bank
US
Saudi
Yemen
Syria
Qatar
Kuwait
UAE
Israel
Lebanon
Iran
Oman
Bahrain
China
-4%
Jordan
0%
Afghanistan
Population growth % (2008)
Figure 8: GDP growth
-8%
2007 GDP growth
2007 GDP per capita growth
Series3
Fourth, the higher the price of oil, the greater the ability and will to deeply subsidize domestic
gasoline. Fifth, the greater the fuel subsidy, the lower the cost of car ownership, the greater
the vehicle ownership penetration. The combined effect of these factors is rampant demand
growth with very strong implied future growth rates.
Page 4
31 May 2010
Figure 9: Gasoline prices
Figure 10: Car penetration

80.8%
70,000
$/gallon gasoline at the pump
50%
$4/gallon Marginal point of

gasoline demand destruction in the US
60,000
40%
50,000
4
3
Middle East avg
30%
40,000
20%
30,000
20,000
10%
10,000
0%
0
US
Saudi
Iran
Qatar
Bahrain
Kuwait
Yemen
Oman
US
UAE
Jordan
Lebanon
Syria
China
Afghanistan
Israel
tar audi rain

Qa
S B ah
E
ait rael man rdan
UA Kuw
Is
O
Jo
2007 Passenger car penetration (LHS)
Note: Gasoline price in Iran (2008) was $2.01/gal (53c/liter) for sales above 120 liters/mth.
Source: Deutsche Bank, World Bank, EIA
n
a
a
n
Ira Chin Syri nista
ha
Afg
2007 GDP per capita (RHS)
Source: Deutsche Bank, World Bank, JD Power
Middle Eastern demand is smaller than Chinas, but is of similar scale, and at times is
growing as fast.
Figure 11: Oil demand % of world
13%
11%
9%
7%
5%
Middle East % of World
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
3%
China % of World
Page 5
31 May 2010
Middle East Demographics

For the past fifty years, the Middle East experienced explosive population growth. The
regions population (including regions on the periphery such as Afghanistan and Georgia)
grew from under 100m in 1950 to 350m in 2000, mainly as a result of high birth rates, better
healthcare leading to longer lifespan, and sharply lower infant and maternal mortality over the
period.
Figure 12: Global population growth rates by region, 2010/2000
2.5%
Population Growth 2010/00 CAGR
2.0%
1.5%
1.0%
0.5%
0.0%
Middle East
US
China
Europe
Japan
Over the last fifty years, the Middle Eastern population surge was driven primarily by five
countries: Iran, Iraq, Saudi Arabia, Yemen and Afghanistan.
Figure 13: Population in the Middle East
75
Iran
70
Armenia
65
Bahrain
60
Georgia
55
Iran
Population (mn)
50
Iraq
45
Israel
40
Jordan
35
Iraq
Afghanistan
Saudi
Yemen
30
25
Kuwait
Lebanon
Oman
20
15
Qatar
10
Saudi
Syria
UAE
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
Page 6
Afghanistan
West Bank & Gaza

Yemen
31 May 2010
While Iran, by far the largest Middle Eastern nation in terms of population, has moderated its
population growth rate (about 1.3% per annum recently), most of the rest of the region are
experiencing population growth in excess of 2% per year (Israel and Lebanon are the notable
exceptions).
Figure 14: 2/3 of Middle East countries at/above 2% population growth
80
Iran
70
2/3 of ME countries
at/above 2% pop grow th
2008 Population (mn)
60
50
40
Iraq
30
Afghanistan
Saudi
Yemen
Syria
20
MIDEAST AVG
10
Israel
Armenia
Lebanon
0.5
Oman
Bahrain
0
0.0
West Bank
& Gaza
1.0
1.5
2.0
Kuw ait
2.5
Qatar
Jordan
UAE
3.0
3.5
4.0
Population grow th % (2008)

Greater female empowerment and education, the single most important factors in
moderating population growth, have lowered birth rates in some parts of the region.
Urbanisation, which has accelerated sharply over the last two decades, has tended to reduce
family size as well, with children less of a help than a burden in urban versus rural life.
However, there is a major residual effect of the massive population growth of the past fifty
years that is hugely important for oil demand and supply the Middle Eastern youth bulge.
Around 65% of the population of the region is under the age of 30. By contrast, the portion of
under 30s in Japan and the US are 30% and 41%, respectively. The effect is both
economically powerful, as the youth enter the workforce, and politically dangerous, as the
ranks of urban unemployed swell.
The population pyramids of the Middle East illustrate the point. There is fundamental
pressure from a greater proportion of youth. There is also remarkable skew towards men vs
women as a function of huge immigration rates. Nearly 80% of the population of Qatar is
male. Again, this under-scores the extent to which economies are developing, and growing
oil demand, but also represents a political risk from dissatisfied young men.
Page 7
31 May 2010
Figure 15: Iran population pyramid
Figure 16: Qatar population pyramid
Source: Deutsche Bank, US Census Bureau
Figure 17: Saudi population pyramid
Figure 18: US population pyramid
Figure 19: China population pyramid
Figure 20: Italy population pyramid
Page 8
31 May 2010
Figure 21: Male vs female skew in the Middle East & the US
Qatar
UAE
Kuwait
FEMALE
Bahrain
Oman
Saudi
Afghanistan
Jordan
Iran
West Bank & Gaza
MALE
Yemen
Iraq
Syria
Israel
US
Lebanon
Armenia
-80%
-60%
-40%
-20%
0%
20%
40%
60%
These are oil intense populations, as a function of abundant local supply. No places in the
world have such a combination of population and oil intensity, not even the US.
Figure 22: Oil demand per capita
2010 Oil Demand per capita (bbls/yr)
50
40
30
20
10
China
Yemen
Syria
Jordan
Iraq
Iran
Lebanon
Israel
Oman
Japan
Europe
Bahrain
US
Qatar
Saudi
Kuwait
UAE
Source: Deutsche Bank, IEA, World Bank
Page 9
31 May 2010
Figure 23: Oil Demand per capita 1971-2010

Bahrain
80
Iran
Oil demand per capita (bbls/yr)
70
Iraq
Israel
60
Jordan
50
Kuwait
Lebanon
40
Oman
30
Qatar
20
Saudi
Syria
10
Turkey
0
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
1973
1971
UAE
Yemen
Notably, oil intensity is not falling greatly as population rises in the region. In some of the
countries, Saudi for example, oil intensity is rising.
Page 10
31 May 2010
Middle East GDP Growth strong absolute, less so per capita

For a region so frequently in the minds of US politicians and citizens, the absolute economic
scale of the Middle East remains remarkably small. The entire regions GDP remains around
1/5 the size of China and 1/10 the size of the US, with the entire Saudi economy just 3% of
the size of the US economy. Afghanistans entire economy is 0.1% the size of the US.
Figure 24: Absolute Economic Scale 2010
$14 trillion
10
9
US$ Current Trillion
8
7
6
5
4
3
2
1
Ir a
q
O
m
an
Sy
Le r i a
ba
no
n
Jo
rd
a
Ba n
h
A
ra
fg
ha in
ni
st
an
A
E
Is
ra
e
Ku l
w
ai
t
Q
at
ar
Ir a
Sa
ud
na
Ea
st
e
id
dl
Ch
i
Source: Deutsche Bank, World Bank, IMF
There is of course, rapid economic growth, and as we show in a later graph, high oil intensity
of economic growth.
Figure 25: Real GDP
Bahrain
300
Iran
Iraq
250
GDP (constant 2000 US$Bn)
Israel
Jordan
200
Kuwait
Lebanon
150
Oman
Qatar
100
Saudi
Syria
50
UAE
West Bank &
Gaza
Yemen
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
ME Avg
Despite strong GDP growth, one interesting fact of strong population growth is that despite
the sustained strength of growth in major economies such as Saudi and Iran, per capita GDP
has remained flat or even falling in many countries. Again, this suggests strong potential for
growth but high potential for discontent.
Page 11
31 May 2010
The Middle East outperformed in 2009, with GDP growth at an estimated 2.1%, against
EMEAs -4.6%. Deutsche Banks see more than a doubling in MENA growth in 2010 to 5%.
This is largely the result of higher oil prices and production on the back of a more supportive
global backdrop. The continuation of substantial investment spending, particularly in Abu
Dhabi, Qatar and Saudi Arabia is also a factor; Dubai World remains an important concern but
not one so far that has spread.
Per capita wealth has not performed so strongly, as population growth is so rapid. Notably
Saudi and Iranian per capita wealth is rising slowly, again adding to social pressures.
Figure 26: Real GDP per capita
Bahrain
50,000
Iran
45,000
Real GDP per capita (constant 2000 US$)
Iraq
40,000
Israel
35,000
Jordan
30,000
Kuwait
25,000
Lebanon
Oman
20,000
Qatar
15,000
Saudi
10,000
Syria
5,000
UAE
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
West Bank &

Gaza
Yemen
The overall growth in these economies is oil intensive. Domestic demand for oil relative to
GDP scale is enormous.
Page 12
31 May 2010
Figure 27: Oil demand per $1,000 Real GDP
2010 Oil Demand per $1,000 Real GDP (bbls/yr)
Japan
Israel
US
Europe
Qatar
China
Oman
Bahrain
Lebanon
UAE
Kuwait
Jordan
Syria
Saudi
Iran
Yemen
Page 13
31 May 2010
Again, there is no strong theme to suggest that oil intensity is falling, which would be
expected in developing economies as they mature. That is not happening in the Middle East,
not least because of subsidised pricing.
Figure 28: Oil demand per $1,000 Real GDP over time
Bahrain
Iran
Oil Demand per $1,000 Real GDP (bbls/yr)
6
Israel
Jordan
Kuwait
4
Lebanon
Oman
Qatar
2
Saudi
Syria
UAE
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
1973
1971
0
Yemen
Page 14
31 May 2010
Middle East local oil prices: low on subsidies

Adding to the strong pressure on oil demand is subsidised domestic oil product pricing that is
a feature across the region. Another recurring theme: this is not un-related to the issue of
social pressures. In summary, local oil prices to domestic Middle Eastern consumers are
some of the lowest in the world. As major oil producers, (most) governments can afford this,
and populations expect this.
Figure 29: Gasoline prices
$/gallon gasoline at the pump
6
5
$4/gallon Marginal point of

gasoline demand destruction in the US
4
3
Middle East avg
2
1
Iran
Saudi
Bahrain
Qatar
Kuwait
Yemen
Oman
UAE
US
Jordan
Lebanon
Syria
China
Afghanistan
Israel
Source: Deutsche Bank, World Bank, GTZ
This theme has changed little over time, despite global oil/gasoline rice volatility. In the face
of the enormous run in oil prices since 1995, Middle Eastern gasoline prices have more or
less remained flat.
Figure 30: Gasoline prices over time
4.0
US$/gallon gasoline at the pump
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1995
US
1998
2000
China
2002
Saudi
2004
Iran
2006
2008
Kuwait
'10 Apr
UAE
Source: Deutsche Bank, World Bank, GTZ, Bloomberg Finance LP
Page 15
31 May 2010
Because low gasoline prices fail to incentivise the introduction of higher efficiency vehicles,
high car penetration directly translates into higher gasoline use in the Middle East. Gasoline
demand in the region has risen 5.5% on average per year since 2000, reaching 1.2 mb/d in
2009.
Subsidies prevent demand from reacting to price and allocating resources efficiently. In fact,
as oil prices rise internationally, so major producer countries can afford to continue
subsidising local demand. It is LOW oil prices that challenge the subsidy, by squeezing
government revenues and forcing subsidies to be removed. But as oil prices rise, so there is
no incentive to remove subsidies, and so Middle Eastern demand becomes pro-cyclical it
rises faster the higher the oil price.
Figure 31: Iranian oil demand vs WTI
Figure 32: Saudi oil demand vs WTI
1900
1800
$100
3000
$100
$90
2800
$90
$80
1700
$70
$60
1600
$80
2600
$70
2400
$60
2200
$50
$40
$30
Iran oil demand (kb/d), LHS
Avg WTI, RHS
Source: Deutsche Bank, IEA, Bloomberg Finance LP
1600
$10
1400
$10
$0
1200
$0
Saudi oil demand (kb/d), LHS
2010
2008
$20
2006
2010
2008
2006
2004
2002
2000
1200
$30
$20
2004
1300
$40
1800
2002
1400
$50
2000
2000
1500
Avg WTI, RHS
Source: Deutsche Bank, IEA, Bloomberg Finance LP
The problem is that the price required to force change is relatively low. DB economists
calculate the data for certain Middle Eastern countries. It is essentially below $50/bbl at
which point fiscal regimes get stretched. That point is much higher for Iran, we believe, at
around $80/bbl oil. As we examine later in this note, it is a paradoxical situation: if oil prices
get low enough to truly ration demand by forcing the removal of subsidies, we may also face
the removal of governments by dissatisfied populations.
Figure 33: Middle East oil price sensitivities
Increase in C/A from

$1/bbl increase in oil price
US$ bn
% GDP
Saudi
2.8
0.7
UAE
1.0
0.4
Kuwait
0.6
0.5
Qatar
0.5
0.5
Budget Breakeven
oil price
oil price
US$/bbl US$/bbl
44.0
44.0
53.1
43.0
25.6
55.0
-
Source: Deutsche Bank
Page 16
31 May 2010
High car intensity

Car intensity is high in the Middle East. Over 50% of Middle East countries have broken
through the $5,000 GDP/capita line, the threshold beyond which car ownership penetration
has tended to grow much more rapidly in emerging markets. According to the World Bank,
passenger car penetration in Qatar and Saudi Arabia is 47.8% and 44.4% - far above most
developing countries. Iran has the largest car industry in the Middle East, second only in
importance to its oil industry in economic terms.
Figure 34: Car ownership penetration and GDP per capita
80.8%
50%
70,000
60,000
40%
50,000
30%
40,000
20%
30,000
20,000
10%
10,000
0%
0
US
tar audi rain

h
Qa
S
Ba
E
ait rael man rdan
UA Kuw
Is
O
Jo
2007 Passenger car penetration (LHS)
n
Ira
ina Syria istan

Ch
n
ha
Afg
2007 GDP per capita (RHS)
Source: Deutsche Bank, World Bank, JD Power
Car penetration across the region varies widely, but essentially every country is experiencing
rising GDP and increasing car ownership penetration.
Passenger car penetration
Figure 35: Passenger car penetration over time

50%
Afghanistan
45%
Bahrain
40%
Iran
Israel
35%
Jordan
30%
Kuwait
25%
Oman
20%
Qatar
15%
Saudi
10%
Syria
5%
UAE
0%
2002
2003
2004
2005
2006
2007
West Bank & Gaza
Rising car ownership penetration generally results in higher total gasoline consumption, and
as long as the car parc is growing faster than population, an increase in consumption per
capita as well.
Page 17
31 May 2010
Figure 36: Iran & Saudi - Top 2 ME Gasoline users
Figure 37: ME Gasoline Demand per capita

Bahrain
450
Iran
Iran
400
7
Iraq
300
Jordan
250
Kuwait
200
Lebanon
150
Oman
100
Qatar
Iraq
6
Kuwait
4
Oman
3
Qatar
2
Saudi
Page 18
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
0
1979
Yemen
Saudi
1977
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
1973
1971
UAE
1975
Syria
1973
50
1971
Demand - Mogas (kb/d)
Israel
Gasoline demand per capita (bbls/yr)
350
UAE
31 May 2010
Saudi focus: High use of oil in power generation

Electricity demand correlates closely with GDP growth, and by extension more power
generation will need to be added across the region. One feature in the Middle East and
particularly of Saudi oil demand is the quantity of oil used in power generation.
Saudi Arabia is keenly focused on major industrial development, with a $400 billion, five-year
government-spending program to cater to rising population and under-employment.
Investment is intense in gas-fired petrochemicals and de-salination plants; again, to make
water needed to meet population growth.
On balance therefore it is very likely that incremental power generation capacity added will be
oil fired, particularly in Saudi, the largest economy and oil user in the region; but the final
plans are vague. Overall use of fuel is around 1.5mb/d of both natgas and oil, of which around
50% is oil-fired. With 8% annual demand growth, Saudi Electricity needs to boost capacity by
around 3000 MW annually. By extension, and allowing for a stated aim to burn oil in power
gen, at least 6% annual demand growth for oil from a 700 kb/d base demand could be
expected, representing around 40 kb/d of annual incremental oil demand in Saudi power
generation alone. With regional demand for oil for power generation around 1.7 mb/d, and
assuming a more conservative regional growth of 5% (although one would expect, for
example Iraq to use far more than that) around 85 kb/d of oil demand growth, will be coming
from the region annually.
Figure 38: Oil use in power generation
800
700
600
kb/d
500
400
300
200
100
ai
n
Ba
hr
at
ar
Q
en
Ye
m
an
m
O
U
AE
rd
an
Jo
n
Le
ba
no
Sy
ria
Ira
q
Ku
w
ai
t
Sa
ud
i
Page 19
31 May 2010
UAE focus: Bunkers

On the contrary, most of the power generation in the UAE is gas-fired, so the sectors
demand for fuel oil is negligible. However the UAE makes up over 3/4 of regional bunker
demand, given that Dubai is the major shipping hub for the Middle East. In turn, marine
bunkers constitute 27% of Middle Eastern fuel oil demand. While the recent financial crisis
has greatly reduced bunker fuel demand in 2009, resumption in stronger global trade, not
least from the need to source more oil from the Middle East and tanker it globally, provide
upward pressure on demand. Of course the oil industry itself is highly oil intense, and again,
as refineries are built and oil infrastructure developed, so more oil will be needed by the
region itself.
Wood MacKenzie expects UAE marine bunker fuel oil demand to increase by 3.2% per year
through 2025 with increasing oil production and growth in international trade in the longerterm. The UAE is also a sizeable consumer of kerosene jet fuel, with Dubai International
Airports development into a regional hub, a new terminal addition to Abu Dhabis main
international airport in 2008 and plans for several new smaller airports in the UAE over the
next decade. In the near term (2010-15), Wood Mac expects jet fuel demand in the UAE to
increase 8.5% per year.
Figure 39: UAE - #1 marine bunker demand for resfuel
Bahrain
300
Figure 40: Marine bunker demand for resfuel, 2007

260
70
Iran
Iraq
Israel
200
60
50
Jordan
40
Kuwait
150
Lebanon
Oman
100
30
20
Qatar
Page 20
Syria
Qatar
Oman
Iraq
Bahrain
Lebanon
Jordan
Yemen
0
Israel
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
1973
1971
UAE
Kuwait
Syria
0
10
Iran
Saudi
Saudi
50
UAE
Marine Bunker Demand - Resfuel (kb/d)
250
Yemen
31 May 2010
The special case of Iran and oil price subsidies

With above average population growth, a growing economy (surprisingly, despite
international sanctions), and with the largest car industry in the Middle East (1m per year built
and almost all sold in the country), Iran has faced a major challenge regarding its
subsidisation of gasoline prices.
Essentially the subsidy is a legacy of the Revolution and the 10 year Iran-Iraq war. The
government has since held prices artificially low on gasoline and other refined oil products,
natural gas, electricity, water and basic foodstuffs, in order to maintain social/political
stability.
There are several dynamics, starting with the four major drivers we have spoken of:
Population: Irans population boomed under government encouragement after the

Revolution, offset by the 10 year war. But huge early 1980s growth rates in
population quickly strained water and agriculture, and within five years the
government instigated one of the most comprehensive contraception programs in
the world, essentially making all major forms of contraception available to everyone
for free. Population growth rates have since tempered considerably. However, as
elsewhere in the Middle East, the lagging baby boom is now reaching the
workforce, and is having an attendant impact on GDP growth.
Lively GDP growth: Real GDP is estimated by the IMF to have declined to 2% in
2008/09 from almost 7% in 2007/08. Now, with higher oil prices, the economy is
projected to grow in 2009/10, albeit at a slower-than-historical pace, at 2%-3%.
Massive car industry and high vehicle penetration: the industry is the second largest
employer in Iran, with production exceeding 1.4mn vehicles in 2009, making Iran the
largest auto manufacturer in the Middle East.
Figure 41: Iran vehicle production

1200
1000
800
600
400
200
0
2003
2004
Passenger cars ('000 units)
2005
2006
2007
2008
Light commercial vehicles ('000 units)
Source: International Organization of Motor Vehicle Manufacturers
Major subsidies that see a rationing system offset by extremely cheap prices for
rationed supply. A two-tier system in operation whereby motorists can buy 80 liters
(21 US gallons US consumers average around 40 gallons) of gasoline per month at
the subsidized price of IRR 1,000 per liter ($0.38 per gallon), and an unlimited
amount at the market rate of IRR 4,000 per liter ($1.52 per gallon).
Page 21
31 May 2010
The driver of gasoline and oil demand and wider oil demand will be threefold. 1) The
availability of imports to make up the shortfall; 2) the development of new refining capacity to
make gasoline available and offset imports; and 3) the governments ability to raise gasoline
prices in a tense political atmosphere.
The economy is heavily oil dependent. In 2008, at the simplest, we estimate around 40% of
the economy, and 80% of exports, was oil related. Unemployment is around 12% - officially,
with one fifth of the population below the poverty line - and 750,000 youth, per year, entering
the labour force.
The limitation on Iranian supply of gasoline is actually refining capacity, which has fallen
below demand and is remarkably low complexity by global standards, for example offering a
<20% gasoline yield compared to 45%+ for a major US refiner.
So Iran now imports around 1/3 of its gasoline demand because of the lack of refining
capacity. The pressure there becomes the ongoing controversy over the countrys nuclear
policy which is increasingly raising the ire of the P5+1 here Russia and China remain the
awkward members of the group, but on balance supportive of an end to Irans pursuit of a
nuclear programme and so supportive of sanctions.
Clearly concerned by sanctions, the government has built a 15 mbbl gasoline inventory (or
100 days of forward demand cover), up 50% from last year. Having said that, the country has
continued to source imported gasoline from third parties, even though several major oil
companies and trading houses have this year suspended dealings, for example Shell and
Vitol. Additionally, facing sanctions presents Iran with the dual problem of having difficulty in
selling its crude (and importing the gasoline it needs); for now, third party sales and good
relations (relatively) with China have allowed Iran to continue importing the gasoline it needs.
Why are sanctions not enforced? Our understanding is that stopping gasoline imports may
not be possible without military/navy action, and risking a direct act of war. Thus far,
diplomacy appears to be the preferred strategies for dealing with the Iran nuclear issue.
Our view is that Iran rightly wants to minimize its imports of gasoline, as a major oil exporter,
and will continue to look for opportunities to do so.
The first and obvious strategy is to add refining capacity. In 2005, Iran had a refined product
surplus of ~120k b/d, and has over the years laid out plans to increase refining capacity to
address the countrys increasing demand, which led to a refinery supply deficit of over 100k
b/d by 2009.
But as with Irans petrochemical and oil supply industries, ambitious plans have been
modified and consistently delayed due to capital constraints and the increasing isolationism
of the country in the global trade.
The current plans for the 2010-2016 period call for the construction of 7 new refineries, 6
(Persian Gulf, Hormoz, Caspian, Anahita, Shahria, and Pars) by state-owned National Iranian
Oil Co. (NIOC) and 1 (Khoozestan) by the private sector in Omidyeh to process extra heavy
crude oil. We forecast four out of these seven are likely to proceed and add about 660k b/d
of capacity. Main refinery investment is Bandar Abbas, designed to process South Pars
condensate and expected to add 360,000 b/d of refining capacity by 2015. The project will be
implemented in three stages, with three parallel trains of 120,000 b/d each. Plans for capacity
expansion of existing refineries at Tabriz and Shiraz have been cancelled and we only
estimate an additional 80k b/d by 2012 at Arak, increasing total expansion (greenfield +
brownfield) to 740k b/d. Upgrading capacity is also expected to increase with FCCs added at
Abadan, Arak and Isfahan, besides the Bandar Abbas new capacity, with a significantly higher
Page 22
31 May 2010
gasoline yield (>60% of condensate volume); we model Iranian oil demand to follow refining
capacity growth, even allowing for rationing and removal of subsidies.
Figure 42: Iranian oil product demand and refining capacity
2500
2000
kb/d
1500
1000
500
Oil Product Demand
2016
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
Refining Capacity
Source: Deutsche Bank, IEA,
The second, and much harder strategy to implement, though no less discussed in Tehran, is
the need to reduce subsidisies. In President Ahmadinejads most recent budget bill, he
proposed to save $40bn by eliminating energy and food subsidies. The budget bill was
approved by the Parliament (the Majlis), but only for $20bn of the subsidy cuts for fear of
stoking inflation. Subsequently the bill has been approved by the Guardian Council, thus it
officially became law. In a confusing turn of events, Ahmadinejad refused to put the law into
effect unless it was put to a public referendum.
The problem is clear. Not only would lifting subsidises directly impact consumers at the
pump, it would also exacerbate inflation that is officially 12% but widely estimated to be
closer to 20%, towards estimates post-gasoline subsidy raise of closer to 40%. Equally,
popular dissatisfaction can boil over if subsidies are removed. Since December, Iranian
drivers have had an 80 liter (21.13 gallon) allotment of gasoline per month at a subsidised
price of 1,000 rials - or about 10 cents per liter. Any volume over that costs roughly fourtimes the subsided price. Previously, each car received 100 liters per month.
This issue of Iranian gasoline prices is live, a constant current debate within the country and
one to be followed closely. We assume that gasoline demand is constrained by a
combination of rationing and price increases offset by direct cash subsidies to the poor,
going forward. Our forecast demand follows our forecast refining capacity. But this is a
volatile situation.
Page 23
31 May 2010
Be warned: look what happened to Indonesia

As a major early oil producer, an Islamic country, with massive population, Indonesia faced
many of the problems that are now facing major producers in the Middle East, particularly
Iran. The way the situation plays out is clear: ultimately, it became the first OPEC country to
become a net importer of oil. That outcome, when combined with rampant corruption at the
highest levels of the country, led to a major financial and political crisis.
The Southeast Asian financial crisis spread to Indonesia in 1997, and then-President Suharto
was compelled to seek help from the IMF. The IMF agreed in April 1998 to release aid in $1B
installments in exchange for certain fiscal responsibility actions from the Indonesian
government. But Suharto, for unknown reasons, abruptly removed all fuel price controls on
May 4, 1998, which along with the shooting of four student protestors prompted immediate
and massive riots across the country. By May 13, Jakarta was on fire and in complete chaos,
with over 1,000 dead in about one week. Suharto had used deeply subsidised gasoline (and
other staples) as a tool to suppress rebellion in impoverished regions for decades, and the
belief now is that he ordered the sudden cuts as a way to derail the IMF, which he viewed
with a deep distrust. In the end though, it could be concluded that Suharto (and the IMF)
badly misjudged both the scale of the financial crisis and the degree to which the gasoline
subsidy cut would spark a cultural/political crisis that led inexorably to Suhartos May 21
resignation, ending over 30 years of rule.
Current Indonesian President Susilo Bambang Yudhoyono has had more success with
reducing gasoline subsidies when forced to act due to massive budget deficits and fiscal
emergency. Yudhoyono implemented fuel price increases twice in 2005 (30% and 90%) and
once in 2008 (29% increase). All three occasions prompted considerable social unrest, but
Yudhoyonos administration was able to moderate public reaction by using cash handouts to
poor families to compensate for increased fuel prices ($1.5B for ~19m families in 2008). As
of 2008 the fuel subsidy was still $14B, accounting for about 20% of the governments
budget. Following the 2008 subsidy cuts, Yudhoyonos popularity sagged badly and resulted
in a split in his ruling coalition. The issue is still not resolved. To prop up his sagging
popularity in 2010, the government has once again implemented increases in subsidies,
which will cost about $9.5B.
Page 24
31 May 2010
Our long-term demand forecast for the Middle East

Working on a country-by-country basis, we have rolled the thirteen markets in the Middle
East (as per IEA definition) into our global oil demand model. As the charts below show, the
Middle Easts demand growth profile is unique, due to the combination of massively
subsidised fuel in all but a few Middle Eastern markets (Israel has no subsidy, Jordan
eliminated subsidies in 2008, and Syria is phasing them out), a fast-growing population (>2%
region-wide) and rising GDP/capita. We expect 3.5% annual growth in gasoline demand
through 2020, and 2.5% annual growth in total Middle Eastern oil demand.
Figure 43: Middle East gasoline demand forecast
Figure 44: Middle East oil demand forecast Peak Oil
Peak Oil Market Scenario
Market Scenario
2.0
10%
Gasoline Demand YoY Growth (RHS)
Source: IEA, World Bank, IMF, Economist Intelligence Unit, Deutsche Bank estimates
3%
8
3%
2%
2%
1%
2
1%
Oil Demand (LHS)
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
0%
2009
0
2008
0%
2.5% CAGR
2007
0.0
4%
10
Demand (Mb/d)
1%
2020
2%
0.2
2019
0.4
2018
3%
2017
0.6
2016
4%
2015
0.8
2014
5%
2013
1.0
2012
6%
2011
7%
1.2
2010
1.4
2009
8%
2008
1.6
Gasoline Demand (LHS)
4%
12
9%
3.5% CAGR
2007
Demand (Mb/d)
1.8
Oil Demand Growth (RHS)
Source: IEA, World Bank, IMF, Economist Intelligence Unit, Deutsche Bank estimates
We recently updated our gasoline demand model for China as well, and the shape of the
demand projection there is an interesting contrast to the forecast for the Middle East. Both
China and the Middle East are experiencing major economic growth, with fast-rising
GDP/capita, growing car ownership penetration, and surging near-term demand for gasoline
and oil. However, China doesnt subsidise gasoline (though it does centrally control pump
prices), and out of necessity has elected to pursue a largely electrified future transportation
fleet. As a result, we believe China gasoline demand will peak by the mid-2020s, while
Middle East demand will continue to rise unchecked. A third demand trend pattern is
unfolding in the OECD countries, where increasing fuel efficiency, low population growth and
mature economic growth are combining to reduce gasoline demand for the foreseeable
future.
Page 25
31 May 2010
Figure 45: The shape of demand to come four very different long-term gasoline demand profiles
Subsidized gas, no electrification, rapid
population and economic growth add up to
sustained growth in gasoline demand for
coming decades
2.5
2.0
3.5
3.0
Fast growing economy, large population bubble

about to cross car-ownership income threshold, so
major demand growth over next decade. But
longer-term fleet will be increasingly electrified , so
peak, then decline, in 2020's
2.5
1.5
2.0
1.5
1.0
1.0
0.5
0.5
0.0
OECD Europe/Japan
2030
2028
2026
2022
2024
2030
2028
2026
2024
2020
2018
2016
2014
2012
2010
2030
2028
2026
2024
2022
2020
2018
0.0
2016
1.0
0.0
2014
2.0
0.5
2012
3.0
1.0
2010
4.0
1.5
2008
5.0
2.0
2006
6.0
2.5
2004
7.0
3.0
2008
8.0
3.5
2022
9.0
2006
4.0
Gasoline demand likely peaked in 2007,

current plateau before increasing fuel
efficiency and electrification, and rising
ethanol mandate, drags down gasoline
demand.
10.0
2004
Fuel efficiency gains from smaller cars and

electrification, low population growth, mature
economies, all point towards continuing decline in
gasoline demand in OECD makrets
4.5
2020
China
Middle East
5.0
2018
2016
2014
2012
2010
2008
2006
2004
2030
2028
2026
2024
2022
2020
2018
2016
2014
2012
2010
2008
2006
2004
0.0
United States
Source: IEA, EIA, World Bank, IMF, JD Power & Associates, Economist Intelligence Unit, CIA World Factbook, CAAM, DB China Auto Team, DB US Auto Team, China Statistical Yearbook, Zawya, CEIC, Deutsche Bank
Given strong demand in China and the Middle East for the next decade, we believe that
global demand for oil will rise until near the end of the current decade, then plateau for a half
decade or more as OECD declines and increasing Chinese transportation fuel efficiency
roughly offset growing demand in the Middle East and other emerging markets. Eventually
electric vehicle/hybrid penetration will be great enough to pull gasoline demand down in
China, and overall global oil demand will start to decline. The figure below shows our longterm global oil demand expectation.
Page 26
31 May 2010
Figure 46: DB long-term global oil demand forecast

Global oil demand should reach a peak around 2019, amidst a long plateau between
92Mb/d and 94Mb/d that lasts about a decade before demand starts to decline
100
90
80
Mb/d
70
60
50
40
30
20
10
Other Non-Transport
Gasoline
Diesel/Gasoil
Jet Fuel
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
0
Naphtha
Source: IEA, EIA, IMF, World Bank, JD Power & Associates, Economist Intelligence Unit, World Bank, Deutsche Bank estimates
Over the next decade, we expect the Middle East to contribute about a quarter of total global
oil demand growth, second only to China, which we believe will contribute 50% or more.
Figure 47: Middle East could account for 25% of incremental demand over next decade
China
Middle East
India
Other Asia
Africa
FSU
Latin America
North America ex-USA
OECD Europe
OECD Pacific
US
World
(2.0)
0.0
2.0
4.0
6.0
8.0
10.0
Projected change in demand 2009-20 (Mb/d)

Source: IEA, EIA, World Bank, IMF, Deutsche Bank estimates
Page 27
31 May 2010
DB Oil Price Deck

Figure 48: DB Oil, Gas and Refining Price Deck
$/bbl
Com m odity Price s
WTI
Bre nt
Natural Gas ($/m m btu)
2005
2006
2007
2008
1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10E
3Q10E
4Q10E
2010E
2011E
56.65
54.48
9.01
66.24
65.93
6.98
72.23
72.59
7.26
99.66
98.05
8.88
43.31
45.71
4.47
59.79
59.90
3.81
68.50
69.25
3.45
76.13
75.54
4.93
61.93
62.60
4.17
78.85
77.00
5.00
84.00
84.00
4.20
65.00
65.00
5.25
70.00
70.00
6.00
74.50
74.00
5.11
80.00
80.00
6.00
Re fining M argins
Gulf Coas t
Gulf Coas t Com ple x
Eas t Coas t 2-1-1
M idcontine nt 3-2-1
M idcontine nt 6-3-2-1
We s t Coas t 5-3-2
PNW 5-3-1-1
10.84
21.16
12.43
13.77
6.99
20.38
20.00
10.85
21.23
11.75
14.13
8.86
21.44
21.85
15.10
21.52
13.54
18.85
12.69
23.68
21.02
11.00
19.00
14.00
10.00
6.00
17.00
22.00
9.49
10.94
8.70
9.60
7.42
18.26
14.99
7.84
9.91
7.54
8.83
5.74
15.65
11.57
6.60
8.45
6.40
7.51
5.47
15.40
10.14
4.51
8.21
6.78
5.59
3.64
8.52
9.14
7.11
9.38
7.35
7.88
5.57
14.46
11.46
7.10
12.10
9.42
6.82
4.43
10.28
9.16
10.00
17.00
8.00
13.50
8.60
16.00
16.00
10.00
16.00
8.00
11.50
7.30
16.00
16.00
6.00
12.00
8.00
8.50
5.40
12.00
12.00
8.28
14.28
8.36
10.08
6.43
13.57
13.29
8.63
13.80
8.00
13.00
9.00
16.25
16.25
Crude Spre ads

WTI-M aya
WTI- Lloyd
WTI-WTS
15.29
21.35
4.58
15.01
21.09
5.21
12.65
23.84
5.06
15.64
22.54
3.76
4.90
8.65
0.94
4.61
9.79
1.40
4.82
12.09
1.76
6.60
12.16
2.12
5.23
10.67
1.55
8.73
12.10
1.90
11.00
10.00
2.00
9.00
10.00
2.00
7.00
10.00
2.00
8.93
10.53
1.98
7.00
10.00
2.00
Source: Deutsche Bank, Bloomberg Finance LP
Figure 49: DB Forecast vs. current WTI strip
Figure 50: DB Forecast vs current natgas strip
$125
$14.0
$12.0
$100
$10.0
$/mmbtu
$/bbl
$75
$50
A verage Strip $79.1
$25
$8.0
$6.0
$4.0
A verage Strip $5.21
$2.0
$0
Source: Nymex, Deutsche Bank
Figure 51: DB forecast vs refining strip 321 Nymex
Figure 52: Discounted Oil Price in US integrateds

$100
$25.00
$90
$20.00
Average Strip
$8.31
$15.00
$ / bbl
$/bbl
3Q11E
DB Forecast
$30.00
1Q11E
3Q10E
1Q10
3Q09
1Q09
3Q08
A ctual
1Q08
3Q07
1Q07
3Q06
Futures Strip
1Q06
3Q05
1Q05
3Q04
1Q04
3Q03
1Q03
DB Forecast
3Q02
1Q02
3Q11E
1Q11E
A ctual
3Q10E
1Q10
3Q09
1Q09
3Q08
1Q08
3Q07
1Q07
3Q06
1Q06
3Q05
1Q05
3Q04
1Q04
3Q03
1Q03
3Q02
1Q02
Futures Strip
$0.0
$10.00
$80
A verage oil price

discounted f or
integrateds using
respective WA CC's, 2%
f aded terminal
$70
$5.00
$60
$0.00
DB Forecast
3Q11E
1Q11E
3Q10E
1Q10
3Q09
1Q09
3Q08
1Q08
A ctual
3Q07
1Q07
3Q06
1Q06
3Q05
1Q05
Page 28
3Q04
1Q04
3Q03
1Q03
3Q02
1Q02
Futures Strip
$50
NAV Basis
DCF Basis
Current Strip
31 May 2010
The valuations
Figure 53: Valuation Comparison
As on:
Ticker
2009
28-May-10
Share Price
Com pany
Price Target
Rec
Market
Cap
(US$bn)
Price/Earnings Ratio (x)

2009
2010E
2011E
EV/DACF
2009
2010E
2011E
2010
EV/EBITDA
2009
2010E
2011
EV/ 1P
Res erves
$/boe
2011E
Super Majors
BP.L
BP
CVX.N
Chevron
XOM.N
ExxonMobil
RDSa.L
Royal Dutch Shell a
RDSb.L
Royal Dutch Shell b
TOTF.PA Total SA
Average
GBp
$
$
GBp
GBp
EUR
494.80
73.87
60.46
1823.00
1751.50
38.14
720.0
85.0
80.0
2100.0
2100.0
52.0
Buy
Hold
Buy
Buy
Buy
Buy
135.02
147.81
284.35
162.23
155.87
104.40
10.4
14.6
17.7
14.0
13.7
11.4
13.6
6.9
8.0
11.0
9.2
8.8
9.1
8.8
5.6
7.3
9.8
6.5
6.3
7.9
7.2
5.6
7.3
12.0
7.9
7.1
6.5
7.7
4.9
5.0
6.7
7.2
6.1
5.9
6.0
4.1
4.4
6.5
5.3
4.5
5.2
5.0
5.1
5.2
9.1
6.7
6.0
5.2
6.2
3.7
3.7
6.4
5.4
4.5
4.2
4.6
3.1
3.3
5.7
4.4
3.7
3.6
3.9
8.7
13.1
12.4
14.1
11.9
12.0
12.0
Mid-Majors
BG.L
BG Group
ENI.MI
Eni
HES.N
Hes s Corporation
MRO.N
Marathon Oil
MUR.N
Murphy Oil
OXY.N
Occidental Petroleum
SU.TO
Suncor Energy
CNQ.TO
Canadian Natural Res ources
REP.MC
Reps ol
STL.OL
Statoil
Average
GBp
EUR
$
$
$
$
C$
C$
EUR
NOK
1061.00
15.35
53.20
31.09
53.38
82.51
32.08
36.61
16.80
130.30
1275.0
17.0
60.0
33.0
70.0
100.0
C$28
C$40
17.5
138.0
Buy
Hold
Hold
Hold
Buy
Buy
Hold
Buy
Hold
Hold
52.23
68.24
17.40
22.09
10.30
67.12
48.09
37.87
25.17
63.97
15.7
11.5
22.0
18.4
15.0
17.8
47.7
12.8
16.2
12.0
18.9
14.7
9.4
12.0
11.9
13.0
15.5
25.0
16.3
10.4
10.1
13.8
11.3
7.9
9.1
6.3
8.9
11.2
15.4
11.1
7.8
9.4
9.8
9.2
6.5
6.5
5.2
6.1
7.9
28.4
6.9
6.7
6.1
8.9
8.3
5.0
5.2
8.3
4.3
8.5
9.5
7.4
5.1
5.2
6.7
6.4
4.3
4.1
5.6
4.3
6.7
6.9
5.2
5.1
5.1
5.4
6.3
4.0
4.9
4.5
5.2
7.3
19.8
6.0
5.7
2.8
6.6
6.1
3.4
3.7
3.8
4.1
6.5
8.6
6.5
4.5
2.6
5.0
4.7
3.0
3.2
3.1
3.1
4.8
6.4
4.9
4.3
2.4
4.0
18.1
16.0
14.3
17.5
25.9
21.3
31.0
12.9
21.8
14.2
19.29
Ticker
Com pany
Dis counted
Oil Price
$/bbl
ROCE
2009
2010E
2011E
Price/Cas h Flow (x)

2009
2010E
2011E
Free Cas h Flow Yield

2009
2010E
2011E
Dividend Total Cas h

Net Debt/Total Cap.
Em ployed (%)
Yield
Yield
2009
2010E
2010E
2010E
Super Majors
BP.L
BP
CVX.N
Chevron
XOM.N
ExxonMobil
RDSa.L
Royal Dutch Shell a
RDSb.L
Royal Dutch Shell b
TOTF.PA Total SA
Average
70.16
71.00
63.45
118.90
118.90
76.14
86.43
9%
9%
16%
7%
7%
10%
10%
11%
17%
20%
9%
9%
11%
13%
13%
17%
21%
12%
12%
12%
14%
5.5
7.2
12.1
7.7
7.5
6.1
7.7
4.8
5.0
6.7
6.4
6.1
5.2
5.7
4.4
4.5
6.6
4.6
4.5
4.6
4.9
6%
1%
2%
-4%
-4%
3%
1%
10%
7%
7%
-1%
-1%
8%
5%
11%
8%
7%
6%
6%
10%
8%
15%
2%
-1%
13%
13%
21%
10%
13%
0%
-3%
17%
17%
18%
10%
7.1%
3.8%
2.9%
6.1%
6.4%
6.2%
5.4%
7.1%
3.8%
5.0%
6.1%
6.4%
6.1%
5.8%
Mid-Majors
BG.L
BG Group
ENI.MI
Eni
HES.N
Hes s Corporation
MRO.N
Marathon Oil
MUR.N
Murphy Oil
OXY.N
SU.TO
Suncor Energy
CNQ.TO
Canadian Natural Res ources
REP.MC
Reps ol
STL.OL
Statoil
Average
137.14
114.66
66.38
126.44
78.46
60.42
100.73
87.82
90.44
134.10
99.71
12%
9%
6%
4%
10%
10%
2%
9%
3%
13%
8%
11%
9%
9%
6%
9%
13%
4%
9%
4%
14%
9%
13%
10%
10%
11%
12%
16%
7%
12%
5%
14%
11%
10.5
4.3
6.0
4.1
5.5
7.7
15.6
5.0
4.3
5.6
6.9
9.5
3.8
4.6
6.5
4.0
8.3
10.1
6.3
3.4
5.0
6.1
7.2
3.2
3.7
4.2
4.1
6.6
6.1
4.8
2.7
4.3
4.7
-3%
-1%
1%
-1%
-1%
3%
-4%
11%
5%
-1%
0.8%
-1%
3%
1%
0%
3%
4%
1%
3%
4%
9%
2.7%
1%
6%
2%
0%
7%
6%
7%
9%
8%
46%
9.3%
-17%
31%
18%
21%
12%
5%
28%
32%
34%
27%
19%
-19%
31%
17%
23%
12%
4%
25%
28%
36%
28%
18%
1.3%
6.5%
0.8%
3.2%
2.0%
1.9%
1.2%
0.8%
5.6%
4.6%
2.8%
1.3%
6.5%
0.8%
3.2%
2.0%
1.9%
1.2%
0.4%
5.6%
4.6%
2.7%
Source: Deutsche Bank, Bloomberg Finance LP
Page 29
31 May 2010
Valuation and Stock Recommendations

Overall we believe that the themes presented here strongly support our thesis that the
combination of the negative impact of government ownership of remaining oil reserves on oil
supply and major demand growth from emerging economies will force oil markets to ration
demand by high prices. With price and currency distortions in major growth drivers such as
China and the Middle East, and with high taxes in Europe/Japan, our view was that US oil
demand would be the price rationing point, at around $4/gallon gasoline, or spike to $150$200/bbl oil a move we expect over the next five years.
Valuation is through mid-cycle P/E, and NAV combined to price targets. We take through-thecycle EPS and calculate a target P/E from long term ROCE / WACC. WACC is calculated from
CAP-M with a qualitative premium or discount applied for management skill and strategy risk.
NAV is the present value of future free cashflow of existing assets:
BUY oil levered/M East exposed Oxy, which enjoys above average growth in both reserves
replacement and oil production growth, with high Middle Eastern exposure in Qatar, Yemen,
Oman, the UAE. We value Oxy based on the average of our NAV and P/E analyses. We
estimate NAV at $81 based on a bottom-up analysis of future cash flows and ROCE/WACC,
and we add a 25% premium to reflect management's track record of adding value, for a NAVbased target of $101. Our P/E methodology yields a valuation of $100, based on a target P/E
of 16x (derived from a ROCE of 18%) applied to a mid-cycle EPS estimate of $6.25. The
average of the NAV and P/E analyses results in our $100 PT.
ExxonMobil also has higher oil price leverage than appreciated and high Middle Eastern
exposure. It has well-above average growth this year from Qatari gas project start ups. It is
leveraged to recovering global GDP. We value ExxonMobil based on the average of our NAV
and P/E analyses. We estimate NAV at $66 based on a bottom-up analysis of future cash
flows and ROCE/WACC, and apply a 25% premium to reflect management strength, lifting
our NAV-implied target to $82. We use a WACC of 9%. Our P/E methodology yields a
valuation of $77, based on a target P/E of 13x (which is derived from our Return on Capital
Employed estimate) applied to a mid-cycle EPS estimate of $5.95. The average of the NAV
and P/E analyses results in our blended $80 PT.
CNQ and MURPHY are recommended based on their high oil price leverage, lack of or
underweight refining, and LACK of exposure to the Middle East. If political tensions boil over
in the Middle East, Canadian oil sands will be an important play, as will Murphys high oil
price leverage and significant oil supply growth, notably from Malaysia. We set our price
target for Murphy Oil in line with our adjusted Net Asset Value estimate of $70. We estimate
NAV at $63 based on a bottom-up analysis of future cash flows with ROCE/WACC and apply
a 10% premium for growth optionality given its aggressive exploration programme. We value
CNRL on a combination of P/E analysis and Net Asset Valuation (NAV). Our NAV
methodology employs a bottom-up analysis of future cash flows and ROCE/WACC, and
derives a $41 NAV. We estimate through-the-cycle Return on Capital Employed (ROCE) of
15.2%. Thus we derive a target P/E of 13x and then apply this to our EPS estimate of $3.00.
This results in a valuation of $39. The average of these two figures results in our blended $40
PT.
Page 30
31 May 2010
Risks
Primary risks are rising taxes and shrinking access abroad, geopolitical instability, and falling
demand. An expensive acquisition could put downward pressure on the stock. A lagging
market and slowing global economy could see continue to pressure oil names, but a quicker
than expected recovery in global demand and oil prices could see ExxonMobil lag its more
leveraged peers. Further risk at home lies in a Democratic Congress determined to ramp up
renewable energy and make "big oil" finance it.
Oxys unique advantage is in its Middle Eastern relationships, and it is highly exposed to this
region in Qatar, Libya, Yemen and Oman. Regional instability or management turnover is a
serious risk to future growth. Additionally, Occidental is highly leveraged to oil prices, which
could fall significantly due to a dramatic event (avian flu, terrorist attack) or a slower-thanexpected economic recovery. Further downside risk exists from potential tax and renewable
fuel legislation in Washington D.C., or the unexpected departure of highly respected senior
management.
The main risk to our Buy is oil prices if China growth evaporates (although our recent note on
Chinese 70% auto sales annual growth does not support this) and the potential of Iraq to get
past 4m b/d of production over the coming 4 years. Murphy-specific risks are successive
failures of its exploration activity, involving high risk and potentially costly efforts.
CNQ, as with most companies with significant exposure to the Canadian Oil Sands, risk is
primarily in project execution. The Horizon project had a successful 1H09 startup, but had
operational issues in 3Q. The risk of further interruptions or delays continues, as does the risk
that rising costs will challenge further expansion. Heavy oil economics are at risk to sufficient
pipeline and conversion capacity to transport and process growing volumes, and delays in
pipeline capacity growth would adversely affect product pricing. Commodity price risk exists,
primarily the potential for falling crude prices due to recessionary demand destruction.
Additional changes to Canada's greenhouse gas emission policies, whether at the provincial
or federal level, could cut into margins.
Page 31
31 May 2010
Appendix 1
Important Disclosures
Additional information available upon request
Disclosure checklist
Company
ExxonMobil
Canadian Natural
Murphy Oil
Ticker
XOM.N
OXY.N
CNQ.TO
MUR.N
Recent price*
60.46 (USD) 28 May 10
82.51 (USD) 28 May 10
37.25 (CAD) 31 May 10
53.38 (USD) 28 May 10
Disclosure
2,7,8,14,15,17
8,14,15
2,8,14,15,17
6,8,14
*Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies.
Important Disclosures Required by U.S. Regulators

Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States. See
Important Disclosures Required by Non-US Regulators and Explanatory Notes.
2. Deutsche Bank and/or its affiliate(s) makes a market in securities issued by this company.
6.
Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company
calculated under computational methods required by US law.
7.
Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment
banking or financial advisory services within the past year.
8.
Deutsche Bank and/or its affiliate(s) expects to receive, or intends to seek, compensation for investment banking services
from this company in the next three months.
14. Deutsche Bank and/or its affiliate(s) has received non-investment banking related compensation from this company within
the past year.
15. This company has been a client of Deutsche Bank Securities Inc. within the past year, during which time it received noninvestment banking securities-related services.
Important Disclosures Required by Non-U.S. Regulators

Please also refer to disclosures in the Important Disclosures Required by US Regulators and the Explanatory Notes.
2. Deutsche Bank and/or its affiliate(s) makes a market in securities issued by this company.
6.
Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company
calculated under computational methods required by US law.
7.
Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment
banking or financial advisory services within the past year.
17. Deutsche Bank and or/its affiliate(s) has a significant Non-Equity financial interest (this can include Bonds, Convertible
Bonds, Credit Derivatives and Traded Loans) where the aggregate net exposure to the following issuer(s), or issuer(s)
group, is more than 25m Euros.
For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this
research, please see the most recently published company report or visit our global disclosure look-up page on our
website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr.
Page 32
31 May 2010
Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the subject
issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive any
compensation for providing a specific recommendation or view in this report. Paul Sankey
Historical recommendations and target price: ExxonMobil (XOM.N)

(as of 5/28/2010)
100.00
Previous Recommendations
90.00
5
6
80.00
Security Price
70.00
Strong Buy
Buy
Market Perform
Underperform
Not Rated
Suspended Rating
60.00
Current Recommendations
50.00
Buy
Hold
Sell
Not Rated
Suspended Rating
40.00
30.00
20.00
10.00
*New Recommendation Structure

as of September 9, 2002
0.00
Jun
Sep
Dec
Mar
Jun
Sep
Dec
Mar
Jun
Sep
Dec
Mar
07
07
07
08
08
08
08
09
09
09
09
10
Date
1.
7/16/2007:
Hold, Target Price Change USD95.00
6.
9/28/2008:
2.
11/16/2007:
7.
10/20/2008:
3.
1/11/2008:
8.
12/8/2008:
4.
3/28/2008:
9.
2/23/2009:
Upgrade to Buy, Target Price Change USD80.00
5.
6/27/2008:
Historical recommendations and target price: Occidental Petroleum (OXY.N)

(as of 5/28/2010)
120.00
Security Price
100.00
80.00
15
14
13
12
16
11
60.00
Strong Buy
Buy
Market Perform
Underperform
Not Rated
Suspended Rating
9 10
Buy
Hold
Sell
Not Rated
Suspended Rating
40.00
20.00

0.00
Jun
Sep
Dec
Mar
Jun
Sep
Dec
Mar
Jun
Sep
Dec
Mar
07
07
07
08
08
08
08
09
09
09
09
10
Date
Page 33
31 May 2010
1.
6/20/2007:
Downgrade to Hold, Target Price Change USD56.00
9.
10/20/2008:
2.
7/16/2007:
10.
12/8/2008:
Buy, Target Price Change USD56.00

3.
9/7/2007:
11.
4/24/2009:
4.
11/16/2007:
12.
6/30/2009:
5.
11/27/2007:
13.
7/24/2009:
6.
3/28/2008:
14.
10/5/2009:
7.
6/27/2008:
15.
10/23/2009:
8.
9/28/2008:
16.
5/20/2010:
Historical recommendations and target price: Canadian Natural (CNQ.TO)

(as of 5/31/2010)
120.00
Strong Buy
Buy
Market Perform
Underperform
Not Rated
Suspended Rating
100.00
1
6
Security Price
80.00
3
60.00
Buy
Hold
Sell
Not Rated
Suspended Rating
40.00
20.00

0.00
Jun
Sep
Dec
Mar
Jun
Sep
Dec
Mar
Jun
Sep
Dec
Mar
07
07
07
08
08
08
08
09
09
09
09
10
Date
1.
8/12/2008:
Buy, Target Price Change CAD102.00
4.
12/8/2008:
2.
10/13/2008:
5.
8/7/2009:
3.
10/20/2008:
6.
3/2/2010:
Historical recommendations and target price: Murphy Oil (MUR.N)

(as of 5/28/2010)
120.00
100.00
3
Security Price
Strong Buy
Buy
Market Perform
Underperform
Not Rated
Suspended Rating
80.00
7
1213
11
10
60.00
Buy
Hold
Sell
Not Rated
Suspended Rating
9
40.00
20.00

0.00
Jun
Sep
Dec
Mar
Jun
Sep
Dec
Mar
Jun
Sep
Dec
Mar
07
07
07
08
08
08
08
09
09
09
09
10
Date
Page 34
31 May 2010
1.
9/24/2007:
8.
10/20/2008:
2.
11/16/2007:
9.
12/8/2008:
Sell, Target Price Change USD38.00
3.
1/11/2008:
10.
5/18/2009:
Sell, Target Price Change USD45.00
4.
3/28/2008:
11.
10/5/2009:
Upgrade to Hold, Target Price Change USD50.00
5.
6/27/2008:
12.
5/10/2010:
6.
8/8/2008:
Downgrade to Hold, Target Price Change USD97.00
13.
5/12/2010:
7.
9/28/2008:
Equity rating key

Buy: Based on a current 12- month view of total shareholder return (TSR = percentage change in share price
from current price to projected target price plus projected dividend yield ) , we recommend that investors
buy the stock.
Sell: Based on a current 12-month view of total shareholder return, we recommend that investors sell the
stock
Hold: We take a neutral view on the stock 12-months
out and, based on this time horizon, do not recommend
either a Buy or Sell.
Notes:
1. Newly issued research recommendations and target
prices always supersede previously published research.
2. Ratings definitions prior to 27 January, 2007 were:
Buy: Expected total return (including dividends) of
10% or more over a 12-month period
Hold: Expected total return (including dividends)
between -10% and 10% over a 12-month period
Sell: Expected total return (including dividends) of 10% or worse over a 12-month period
Downgrade to Sell, Target Price Change USD43.00
Equity rating dispersion and banking relationships
500
51%
48%
400
300
200
41%
37%
1% 36%
100
0
Buy
Hold
Companies Covered
Sell
Cos. w/ Banking Relationship
North American Universe
Page 35
31 May 2010
Regulatory Disclosures
1. Important Additional Conflict Disclosures
Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the
"Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.
2. Short-Term Trade Ideas

Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are consistent
or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the SOLAR link at
http://gm.db.com.
3. Country-Specific Disclosures
Australia: This research, and any access to it, is intended only for "wholesale clients" within the meaning of the Australian
Corporations Act.
EU countries: Disclosures relating to our obligations under MiFiD can be found at http://globalmarkets.db.com/riskdisclosures.
Japan: Disclosures under the Financial Instruments and Exchange Law: Company name - Deutsche Securities Inc. Registration
number - Registered as a financial instruments dealer by the Head of the Kanto Local Finance Bureau (Kinsho) No. 117.
Member of associations: JSDA, The Financial Futures Association of Japan. Commissions and risks involved in stock
transactions - for stock transactions, we charge stock commissions and consumption tax by multiplying the transaction
amount by the commission rate agreed with each customer. Stock transactions can lead to losses as a result of share price
fluctuations and other factors. Transactions in foreign stocks can lead to additional losses stemming from foreign exchange
fluctuations.
New Zealand: This research is not intended for, and should not be given to, "members of the public" within the meaning of the
New Zealand Securities Market Act 1988.
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appraisal or evaluation activity requiring a license in the Russian Federation.
Page 36

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Youth Bubble: The Middle East's Oil Demand

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Youth Bubble: The Middle East's Oil Demand

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31 May 2010

2010/2009 Chg in oil demand

DB Middle East oil demand forecast

Oil Demand (LHS)

Unique demand growth profile

Every trend in Middle Eastern oil combines strength and risk

David T. Clark, CFA

Middle East oil demand growing fast

2010/2007 Chg in oil demand CAGR

The Peak Oil Market V

Global Markets Research

North America United States

Oil Demand Growth (RHS)

The Youth Bubble Might Pop

Integrated Oil The Peak Oil Market V

Middle East Oil Demand

Massive current account surplus

Middle East North America Latin America

OECD Pacific OECD Europe

Deutsche Bank Securities Inc.

Integrated Oil The Peak Oil Market V

2010/2007 Chg in oil demand CAGR

2010/2009 Chg in oil demand

Note: Bubble size denotes relative size of oil demand in 2009

Figure 3: Absolute scale of demand is material

Figure 4: Giving material absolute growth in demand at

2010 Oil Demand (mb/d)

Source: Deutsche Bank, IEA

Deutsche Bank Securities Inc.

2010/2000 Oil Demand CAGR, RHS

Source: Deutsche Bank, IEA

Integrated Oil The Peak Oil Market V

There are powerful fundamental drivers to Mid East Demand

2008 Oil Reserves (thousand million bbls)

2008 Oil Production (mb/d)

Figure 5: Top 10 oil producers

Source: Deutsche Bank, BP

Source: Deutsche Bank, BP

Source: Deutsche Bank, World Bank

Population growth % (2008)

Figure 8: GDP growth

2007 GDP per capita growth

Source: Deutsche Bank, World Bank

Deutsche Bank Securities Inc.

Integrated Oil The Peak Oil Market V

Figure 9: Gasoline prices

Figure 10: Car penetration

$/gallon gasoline at the pump

$4/gallon Marginal point of

tar audi rain

2007 Passenger car penetration (LHS)

2007 GDP per capita (RHS)

Source: Deutsche Bank, World Bank, JD Power

Middle East % of World

Source: Deutsche Bank, IEA

Deutsche Bank Securities Inc.

Integrated Oil The Peak Oil Market V

Middle East Demographics

Population Growth 2010/00 CAGR

Source: Deutsche Bank, World Bank

Source: Deutsche Bank, World Bank

West Bank & Gaza

Deutsche Bank Securities Inc.