Todays Global Oil Market

1
Todays Global Oil Market

• Jason Feer
• Argus Media
• 10 September 2005

2
Introduction

• Fundamentals
• Supply
• Demand
• Other factors
• The role of China
• Imports
• Demand
• The Future

3
About Argus

• Largest independent pricing service
• One of two with global reach
• 35 years of experience
• Comprehensive pricing services in all regions and
  energy markets
• Offices in London, Singapore, Tokyo, Beijing
  Moscow, Washington, Dubai, Houston
• Owned by founder and employees
• Independent and analytical

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The Future - Demand

• Demand to remain strong
• Chinese demand growth will slow
• But in long run, expected to continue to show
  strong demand growth
• Regulation is distorting markets
• US and global consumers have shown that they can
  take high prices
• India showing signs of taking off
• Economic reforms will lead to stronger growth in
  demand
• No real alternatives to oil-based economy in next
  20-40 years

5
Global Refining Capacity
Global Refining Capacity
Global Product Demand
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Supply

• Supply will have trouble catching up
• Planning and investment cycles are long (3-7
  years)
• Investment constraints to continue
• AG producers resistant to foreign investment
• Russian legal framework is uncertain
• Non OPEC production will continue to lag
• North Sea, US
• Russia FSU are possible exceptions
• Most of the worlds available oil is in unstable
  regions
• AG, West Africa, FSU

7
OPEC Production Capacity
OPEC Production Capacity
OPEC Production
8
OPEC Production
OPECs share of production has remained constant
at about 41
OPEC Production
Non OPEC Production
9
The Role of China
10
Chinese demand
11
Chinese product imports
12
Pricing Issues
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Todays crude benchmarks
Tapis
Brent
Minas
Dubai/Oman
WTI
14
Sweet crude at a premium
15
Sour crude demand is growing

• Demand for a sour benchmark in the Atlantic basin
  is at an all time high
• Volatility in sweet/sour spreads
• Also because of AG imports to US
• Volume in Mars forward market has risen, with
  more players involved
• New heavy sour production is coming on stream in
  the Gulf of Mexico market
• China taking growing quantities of sour crude

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Mars weighted average

• Argus developed a weighted average of deals done
  for Mars
• Looks at all trade over the course of the day,
  not just a short window
• Becoming the leading US sour crude benchmark
  because of liquidity
• Could have relevance to AG sales into US and
  beyond

17
Looking Ahead
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The Future - Demand

• Chinese demand may slow in the short term but it
  will continue to grow over time
• Market deregulation could impact prices
• New technologies will take a long time to have an
  impact so economic growth means demand growth
• India will have a significant impact
• Demand of 2.8 mn b/d but this will grow
• May be slower than China because of emphasis on
  services
• Buyers will have to pay a premium for sweet crude

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The Future - Supply

• High prices have removed incentives for OPEC to
  allow foreign investment
• Dont need the cash
• Supply will be increasingly sour and acidic
• Will require additional investments in refining
  upgrades
• At least 3-5 years until OPEC can build
  additional capacity to reduce strains on supply
  chain
• FSU is wildcard
• Politically unstable and reluctant to accept
  foreign investment
• Large untapped reserves

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The Future - Prices

• Robust demand and constrained supply is a formula
  for high prices
• OPEC no longer can make up for loss of a
  significant producer
• Crisis will have strong impact on prices
• Speculators can smell an opportunity
• Producers will look for more diverse price
  benchmarks
• But beware the unknowable
• A sharp economic contraction could change this
  equation

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Thank You