Oil markets, oil prices, and the financial crisis. Havana, October 30, 2009 Joel R. Couse, VP Market Analysis for Trading & Shipping

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1 Oil markets, oil prices, and the financial crisis Havana, October 3, 29 Joel R. Couse, VP Market Analysis for Trading & Shipping

2 Oil is the World s biggest physical commodity market: over 15% of world trade! World Goods Trade 27 $13 3 billion Clothing 3% Textiles 2% Autom otive Products 9% Office & Telecom Equipm ent 11% Other Manufactures 32% Chem icals 11% Com m odities 29% Iron & Steel 4% Agricultural Products 8% Oil 15% Mining 5% Other Manufactures : personnal& household goods, scientific&controlling instruments, miscellaneous manufactures Source : WTO, latest available data 2 -

3 Markets mechanisms in slow evolution over past 2 years US$/bl Fixed oil Prices: OSP Or Crude prices indexed to market references Increasing market liquidity, depth, & forwardness Market attracts new actors: financial players (banks & investment funds) Netback prices Start of IPE London 6 Spot Gulf war Irak invasion /1985: Long Term Contracts with Fixed prices & volumes (OSP) 198 s: A Fixed Price per Spot Cargo 1985/1986: Netback crude price formulas Crude prices indexed to product prices 1987: Indexation to a physical crude oil reference (Brent or WTI) 22 / 23: Physical crude reference price linked to crude futures 3 -

4 Oil Market: paper & physical markets tightly linked New York W.T.I. NYMEX US Gulf Coast ICE Brent/BFO Rotterdam MED AG TOCOM Dubai/Oman DME Tokyo Tapis Singapore 4 - Futures Markets: Crude & Products ICE = Inter Continental Exchange (ex-ipe) NYMEX = New York Mercantile Exchange TOCOM = Tokyo Commodity Exchange DME = Dubai Mercantile Exchange (mid 7) Crude Markers: specific to each producing region Futures Markets and related key crude & product markets Product Markets: specific to each refining region

5 Oil Market: physical market & forward paper market Spot prices form daily in Physical Markets Spot price reflects prompt physical market Forward curve is the structure of the prices of the futures contract at forward expiry dates NOTE: not a forecast but a view of price risk day by day Forward price curves form daily in the Futures Markets Futures : standardized financial contracts for crude or products traded in a clearing house for future months from 1 to 7 years in the future. They ensure market liquidity and greater transparency in price formation. 5 - WTI Cushing Platts 1 st quotation

6 23-25 demand shock surpises market industry responds! 28 crisis leads to a collapse in demand Demand Growth Observed (kbd) World GDP Growth % (IMF Basis) 5.4 Brent ($/bl) $135 $12 World economic growth surges after 21 recession due to low interest rates $18 $ $24 $ $29 $ Demand Shock $55 $65 $97 $ World refining spare capacity (Mbd) vs Weighted World Refining margin ($/b) $ $15 $9 $75 $6 $45 $3 $ to 1st Half 28: above trend economic growth boosts oil demand in US & Asia low prices & weak refinery margins in late 199s led to oil industry under-investment Supply capacity steadily tightens boosting oil prices to cool demand in line with supply Middle distillate markets tighten due to a insufficient refinery capacity & strong demand growth Rising interest rates & high oil prices provoke economic crisis nd Half 28: Oil demand falls with economy Supply capacity in excess

7 USD/BBL OPEC production an indicator of market tension OPEC Spare Capacity as a % of World Oil Demand vs. crude oil prices ($/b) US invades Iraq April 23 Oct-26 OPEC cuts output to reduce high stocks & boost prices OPEC boosts output 1% 2% % 9 8 4% Demand Shock 5% 6% OPEC cuts output 7% 8% 7 -

8 Prices surges while futures trading volumes triple in 4 years Trade in Oil Futures Contracts on Exchanges - Million b/d (including NYMEX, ICE, DME for crude and products) Lehman's collapse Jan-84 Jan-85 Net back pricing Jan-86 Jan-87 Jan-88 Jan-89 Jan-9 Jan-91 Jan-92 1st War in Iraq 1993 recession Asian Financial Crisis 11 Sep '1, & recession 21/2 OPEC Crisis Year 2 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan- Jan-1 Jan-2 Jan-3 Grow th w arnings, US$ w eakness starts interest rates invert 2nd War in Iraq Total Volumes Traded on Oil Futures Contracts (Mbd) NYMEX WTI Crude Price 1st Month ($/b) 2nd Phase Hyper-grow th World GDP 1st Phase Hyper-grow th World GDP World Oil Demand 28 Jan-4 Jan-5 Jan-6 Jan-7 Jan-8 Jan

9 Oil Demand in Total Demand: quarterly YonY growth (Mbd) 2.5 Total Demand: quarterly YonY growth (Mbd) Q7 2Q7 3Q7 4Q7 1Q8 2Q8 3Q8 4Q8 1Q9 2Q9 3Q9 4Q9 1Q1 Asia North America Latin America Europe/FSU ME/Africa Total 2Q1 3Q1 4Q Gasoline Kerosene Gasoil Fuel Oil Other Total 1Q7 2Q7 3Q7 4Q7 1Q8 2Q8 3Q8 4Q8 1Q9 2Q9 3Q9 4Q9 1Q1 2Q1 3Q1 4Q1

10 Oil Supply in World Crude & Other Liquids Production Growth (kbd) 12 Other Liquids - Supply Change (kbd) TOTAL OPEC Non-Crude 3 2 Note: OPEC includes Angola beginning Jan-7 and Ecuador beginning Jan N.America Condensates N.America Other Non Conventional N.America Oxygenates (EtOH & Methanol portion of MTBE) N.America Biodiesel BRAZIL Ethanol 1 EU Ethanol 6 EU Biodiesel TOTAL OPEC M. East Asia Europe N. America L. America Africa FSU TOTAL Note: OPEC excludes Indonesia beginning Jan

11 OPEC production & spare capacity in $/bl OPEC Excess Capacity vs. Crude Prices.5% OPEC Crude Production (Mbd) % % J F M A M J Jy A S O N D 6 5.% 8 7 Opec-1 Spare Production Capacity (Mbd) 6 3 NYMEX WTI 1st Contract ($/b) 6.5% Jan-5 Jan-6 OPEC Total Capacity Surplus as % of World Oil Demand Jan-7 Jan-8 Jan-9 Jan-1 8.% J F M A M J Jy A S O N D 11 -

12 Oil Stocks in Global Oil Stock Indicators (Mbls) Sep-9 Aug-9 Jul-9 Sep-9 Aug-9 Sep-9 Aug-9 Jul-9 vs Aug-9 vs Jul-9 yr-on-yr yr-on-yr yr-on-yr Global crude stocks - OECD Industry: China (to Aug-9) ARA Independent Stocks (to Jul-9) Other Non-OECD Industry Floating crude storage * : Global Industry Crude Total: Global Product Stocks - OECD Industry: China (to Aug-9) Singapore Independent: Other Non-OECD industry Floating Storage Global Industry Product Total TOTAL Industry stock indicators TOTAL OECD Government stocks #N/A #N/A +. #N/A Global Oil Demand (Mbd) TOTAL Industry stock indicators (days cover) OECD Industry Oil Stocks (Mb) Range 3/7 YEAR AGO LATEST Forecast Avg 1/5 Forecast Yr+1 Mar May Jul Sep Nov Jan 65 OECD Industry Oil Stocks (days) Range 3/7 YEAR AGO LATEST Forecast Forecast Yr+1 Avg 3/7 Mar May Jul Sep Nov Jan

13 Conclusions Today s oil pricing system is robust, finding liquidity & price discovery in futures markets Oil markets function, with occasional distortions that can be addressed through better regulation The oil market is coming out of a difficult contraction in demand and should see good growth in 21 Surplus capacity in OPEC, in refining, and in oil in storage should prevent the development of supply tensions for a few years to come Prices reflect these fundamentals, as interpreted through the futures markets which also consider broader and longer term economic issues including US$ exchange rate risks and inflationary risks 13 -

14 14 - Thank you for this opportunity to speak to you.

15 Annex 1 Short-term world oil demand trends Total Demand by Regions Q9 2Q9 3Q9 4Q Oct-9 North America Chge Mbd Chge Pct -5.3% -3.2% -5.5% -6.2%.% -.8% 1.3% Europe Chge Mbd Chge Pct -.1% -4.3% -2.8% -5.5% -5.6% -3.1%.7% FSU Chge Mbd Chge Pct 5.% -6.1% -4.1% -4.9% -6.7% -8.4% 5.7% Asia Chge Mbd Chge Pct 1.8% -.7% -4.8% -2.4% 1.4% 3.1% 2.8% of which China Chge Mbd Chge Pct 6.6% 2.9% -4.6%.1% 8.4% 7.5% 5.8% of which India Chge Mbd Chge Pct 5.6% 3.% 4.1% 3.3% 2.4% 2.2% 4.4% of which OECD* Chge Mbd Chge Pct -3.6% -5.% -8.6% -7.2% -4.6%.6% -.8% of which Others Chge Mbd Chge Pct 1.6% -1.6% -4.3% -2.7% -.6% 1.3% 2.5% Latin America Chge Mbd Chge Pct 3.9% -.6% -.5% -2.4% -.6%.9% 1.8% Middle East Chge Mbd Chge Pct 3.% 1.8% -.6% 2.5% 2.6% 2.6% 2.% Africa Chge Mbd Chge Pct.9% 1.5% 1.6% 2.1% 1.7%.5%.5% Total Chge Mbd Chge Pct -.1% -2.% -3.7% -3.6% -.8%.% 1.9% * OECD Asia-Pacific: Japan, South Korea, Australia and New-Zealand 15 - Total Demand by Products Q9 2Q9 3Q9 4Q Oct-9 Gasoline Chge Mbd Chge Pct.% 1.6%.9% 1.5% 2.4% 1.5% 1.5% Gasoil Chge Mbd Chge Pct 2.5% -3.4% -3.1% -4.6% -3.9% -1.8% 2.4% Jet-Kero Chge Mbd Chge Pct -1.4% -4.3% -7.% -7.3% -2.9%.1% 2.2% Fuel Oil Chge Mbd Chge Pct -3.5% -7.8% -6.5% -11.5% -9.% -4.1%.5% Other Chge Mbd Chge Pct -1.% -1.1% -6.3% -3.% 3.2% 2.1% 2.4% Total Chge Mbd Chge Pct -.1% -2.% -3.7% -3.6% -.8%.% 1.9%

16 Annex 2 World oil supply / demand balance DTS/AM Oct ' Chng Chng Mb/d Q9 2Q9 3Q9 4Q9 1Q1 2Q1 3Q1 4Q1 9/8 1/9 DEMAND North America of which US Europe Asia of which China Others Total SUPPLY North America North Sea FSU Non-OPEC Africa * Other non-opec (inc. OPEC NGLs & Processing Gains) Total Non-OPEC + OPEC NGLs OPEC Crude * Call on OPEC Crude & Stks Total Supply Change World Stocks (Mbd) Government Stock Change Est. Non-OECD Stock Change OECD Indust. Stock Change OECD Comm. Stocks (Bbls) OECD Days Stock Cover Avg. Deseasonalized Cover Dtd Brent ($/bl) *NOTE: Angola joined OPEC 1/1/7, Ecuador 1/1/8, and Indonesia left OPEC 1/1/9 16 -

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