CERI Commodity Report Crude Oil

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1 CERI Commodity Report Crude Oil March 2015 Lifting of Iran s Sanctions and the Impact on Oil Markets Dinara Millington So far, two of the biggest news stories of 2015 have been the fall in global crude oil prices and, most recently, the apparent breakthrough in negotiations between Iran, the United States, and others around Iran's nuclear weapons research. Moreover, because Iran relies so heavily on oil export revenues, the two stories are interlinked. This article discusses the terms around the lifting of sanctions and the potential impact additional crude supplies from Iran could have on the global crude market. International negotiators gathered in Switzerland and have announced the broad terms of the Iranian nuclear deal. The deal is not yet finalized, and it is not particularly detailed. The announcement on April 2 nd is only for the basic framework. Negotiators will continue to meet over the coming months to develop a complete, detailed agreement based on these terms. The deadline is June 30, but negotiations could collapse before then. However, this is a major step toward reaching a full agreement, which could potentially settle the world's years-long standoff with Iran over its nuclear program. The agreement does not detail which of an intricate web of financial, oil, and travel sanctions will be removed first, and in what order they will be lifted. What has been announced are some terms dealing with Iran s nuclear program: CERI Commodity Report Crude Oil Editor-in-Chief: Dinara Millington (dmillington@ceri.ca) About CERI The Canadian Energy Research Institute is an independent, not-for-profit research establishment created through a partnership of industry, academia, and government in Our mission is to provide relevant, independent, objective economic research in energy and related environmental issues. We strive to build bridges between scholarship and policy, combining the insights of scientific research, economic analysis, and practical experience. For more information about CERI, please visit our website at Centrifuges: 1 Iran will be allowed about 6,000 centrifuges: 5,000 at its Natanz facility and 1,000 at Fordow. It can only use first-generation IR-1 centrifuges, and has to give up other models (Iran currently has about 20,000 centrifuges, so it will have to give up most of them). This means Iran will have a much smaller nuclear program, in terms of its ability to create nuclear fuel or, potentially, weapons grade material. Figure 1: Iranian Nuclear Reactors Source: ,00.html Nuclear facilities: Iran will be allowed to use its nuclear facility at Natanz for enrichment (though activities will be limited). It can also use its facility at Fordow for research as a nuclear physics lab, but no fissile material will be allowed there. These facilities will be subject to inspection from the International Atomic Energy Agency (IAEA) inspectors. Plutonium plant at Arak: Iran will be required to rebuild its plutonium plant at Arak such that it will only make fuel-grade plutonium, and will ship out its spent plutonium. It is barred from heavy-water reactor use. This part of the deal removes weapons-grade plutonium from the equation and only allows fuelgrade plutonium for powering a power plant. Relevant Independent Objective

2 Page 2 Uranium enrichment: Iran will be allowed to enrich uranium to only 3.67 percent, which means Iran will be allowed to turn raw uranium into fuel for a nuclear power plant. Stockpile: Iran will be required to reduce its stockpile of enriched uranium from 10,000 kilograms to 300 kilograms, giving up 97 percent of its nuclear stockpile. A more important question: how will Iran get rid of this stockpile? The US and Iran have not yet negotiated a deal on this. Sanctions relief: The US and the European Union will suspend sanctions after IAEA inspectors confirm that Iran has completed its requirements under the deal. United Nations Security Council sanctions will be lifted once Iran completes all actions addressing nuclear concerns. US sanctions related to non-nuclear matters, such as Iran's state-sponsored terrorism, will remain in place. Sanctions will be reintroduced if Iran violates the terms. A more important question: how will the lifting of sanctions be determined, when that happens, or whether it means the sanctions are lifted all at once, or over time? If Iran violates the agreement, the sanctions will be re-applied. Iran wanted all the sanctions off right away, the US and others wanted to remove them gradually. Some observers believe that once European or United Nations sanctions come off, it will be difficult to re-impose them even if Iran does cheat. 2 Inspections: IAEA inspectors will have access to Iran's nuclear sites, the uranium mines and mills, centrifuge plants, and supply chains. It will monitor dual-use technologies. It can access "suspicious sites." Inspectors, by gaining access to not just the core nuclear sites but also secondary facilities like uranium mills and centrifuge plants, will be in a better position to make sure Iran isn't cheating on a deal or trying to build another secret facility. The details are not yet finalized, but it is almost certain that the Iranian oil export restrictions will be, at the very least reduced or lifted completely, if a final agreement is reached and Iran complies with its obligations. Uncertainty around the impact is twofold: The timing of the resumption of oil exports depends on the physical capability to increase oil production and on the timing of the sanctions relief. Due to the nature of the demands, it will take Iran time to implement enough of its commitments before sanctions are eased. The impact on the crude prices (once exports resume) is also not easy to assess, as a number of factors will affect the market simultaneously: a) Iranian tankers come out of storage and deliver their cargoes; b) Iranian production ramps up and additional barrels will be exported; and c) additional Iranian production could further saturate an oversupplied oil market. Iran has the fourth-largest proven reserves of oil after Saudi Arabia, Venezuela and Canada, with almost 10 percent of the world's proven reserves. In terms of production, the country has become a marginal player. Iran's crude oil production fell by one million barrels a day in 2012 to just above 2.5 Mb/d, following the implementation of sanctions in late 2011 and mid-2012 (Figure 2). Iran dropped from being the second-largest crude oil producer in OPEC to the fourth in 2013, after Saudi Arabia, Iraq, and narrowly behind the United Arab Emirates (UAE). Iran's production increased slightly in 2014, increasing Iran's rank to the third-largest crude oil producer in OPEC during the first half of Most of all, the financial sanctions have made it extremely difficult for Iran to attract the foreign investment needed to actually pump the oil out of the ground. If sanctions were lifted, this trend would turn around as new investment entered into the Iranian industry. Of course, it would take some time for investment to lead to production, and most likely, any deal would only provide partial sanctions relief. Nevertheless, the reality that this production could come back online is of interest to global oil markets. Many analysts have provided their estimates as to how much Iranian production could come online. UK Barclay s says it could be 500,000 barrels per day (b/ d) by April 2016 while US Merrill Lynch estimates it would be up to 650,000 b/d within six months of a final deal. The US Energy Information Administration (EIA) projects Iranian production increasing by 700,000 b/d by the end of next year, whereas Iranian oil minister Bijan Namdar Zangeneh insists that once the sanctions are lifted, the country can easily increase production by 1 million barrels per day (Mb/d). 3 Although Iran s oil sector will struggle to recover to its full production capacity, there is enough potential supply for other OPEC and global oil producers to contend with in coming months.

3 Page 3 Figure 2: Iranian Crude Oil Production Mb/d Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 Source: International Energy Agency (IEA) Beyond oil sitting untapped in Iranian reservoirs, there is a surprisingly large quantity of oil that has been pumped and is simply sitting in storage containers. Iran s oil exports had dropped from almost 2 Mb/d in 2011 to 1.1 Mb/d in 2013 because of sanctions. In January of this year, Iran's oil minister announced that exports had fallen 60 percent since their peak in 2011 to about 1 Mb/ d (Figure 3). Exports remained flat in 2014, hovering around 1 Mb/d after an interim deal was signed. 3Q12 4Q12 1Q13 Figure 3: Estimated Iranian Oil Exports 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 western sanctions on shipping and insurance made it difficult for state-run National Iranian Tanker Co. to operate tankers in global waters. Since the beginning of February of this year, an estimated 15 very large crude carriers, or VLCCs, 5 each with a capacity of approximately 2 million barrels, have been parked on the Iranian coast for oil storage (total supply from tankers is around 30 million barrels, equivalent to 1.25 days worth of crude consumption in OECD North America). Unlike oil that is sitting in the ground, oil stored in tankers could reach world markets quickly in the wake of any kind of diplomatic agreement. Even if formal sanctions were released only gradually, for example, it is very unlikely that India and other countries would keep up informal deals to swear off Iranian crude. The impact on crude oil markets will be determined by the timing of the exports and which oil is being displaced, if any. Global oil demand will remain largely the same when Iranian oil supply is added. The additional surplus needs to be stored unless other countries adjust production, either through market forces (by higher cost producers such as shale oil) or through negotiations within OPEC (quota reductions). Historically, Iran s main customers included China, India, Japan and South Korea. These countries are likely initial customers when sanctions are lifted. Currently, the two main sources of crude for these countries are West Africa and the Middle East. If a final nuclear agreement is reached by the end of June, it could take three months to lift or suspend oil and banking sanctions against Tehran and another six months to restore 1 Mb/d of oil production and exports, according to French bank Société Générale. 6 Source: International Energy Agency (IEA), Poten Tanker. This and other export curbs mean that for a while now, Iranian exports have dropped more rapidly than Iranian production. The country has responded by investing massively in oil storage. The bulk of Iran s oil is exported from the islands of Kharg, Lavan and Sirri in the Persian Gulf, with a combined storage capacity of around 38 million barrels of oil, according to the British tanker company, Gibson. 4 In addition to these terminals, Iran also uses its supertankers for oil storage, because tight The biggest wild card is what impact additional Iranian oil has on the overall oil supply and demand balance. The market already has trouble dealing with the current oil surplus. Adding an additional estimated 1 Mb/d of increased Iranian production could add further complications. Unless the oil market finds a way to deal with this surplus, the market could experience a significant boost to its crude supply and further downward pressure in price. In their latest Short-Term Energy Outlook (STEO), the EIA estimates that WTI crude prices could be down by $5-15/bbl from the current forecast, if sanctions against Iran are lifted.

4 Page 4 Endnotes 1 Centrifuges are equipment used to enrich uranium, a natural ore, into nuclear fuel. If it is enriched long enough in centrifuges, weapons grade material can be produced (about 90 percent enriched). 2 Vox News. The Iran nuclear deal, translated into plain English. 3 Argus Global Markets. Iran deal signals potential export rise. April Vox News. Oil prices could fall further if Iran nuclear deal is reached. 5 The Wall Street Journal. How Iranian Nuclear Deal Would Affect Oil Markets. -nuclear-deal-would-affect-oil-markets Financial Post. Iran has a little surprise for oil markets that s ready to ship. energy/iran-has-a-little-surprise-for-oil-markets-thats-ready-to -ship? lsa=41ad-9cc8

5 Page 5 US$/bbl WTI Spot - WTI Edmonton Crude - Brent Prices Light Price Differentials Differential WTI Brent US$/bbl US$/bbl WTI - Edmonton Light Price Differentials Differential WTI Edmonton Light Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Spot Prices WTI Brent Cdn.Light* H.Hardisty Year-to-Date Quarter-to-Date SOURCE: EIA. April 9, SOURCE: EIA. W US$/bbl 120 WTI - Hardisty Heavy Price Differentials N US$/bbl 58 NYMEX WTI Crude Forward Curve 4 contract months Differential WTI Hardisty Heavy Feb Mar Apr Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 SOURCE: NRCan, EIA. SOURCE: EIA, CERI. Relevant Independent Objective

6 SOURCE: EIA, CERI. SOURCE: NRCan. Page 6 NYMEX Petroleum Products CDN/US$ Exchange Rate US$/gal 3.25 CDN/US$ RBOB Gasoline Heating Oil Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 NYMEX Prices Unleaded Gasoline Heating Oil Year-to-Date Quarter-to-Date April 9, Oil Demand Global in Selected Oil Demand Countries U US Products Demand March March 2015 Y-on-Y change MMbpd % 51.5% 51.0% 50.5% 50.0% 49.5% 49.0% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 % 15% 10% 5% 0% -5% -10% -15% -20% -25% -30% -35% -40% -45% Total Gasoline Jet Fuel Distillate Residual Propane Other Total OECD Total Non-OECD non-oecd Demand share SOURCE: IEA Oil Market Report. SOURCE: EIA Weekly Petroleum Status Report.

7 SOURCE: IEA Oil Market Report, CERI. SOURCE: IEA Oil Market Report. SOURCE: IEA Oil Market Report. SOURCE: IEA Oil Market Report. Page 7 MMbpd Mbpd 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Global Oil Supply 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 non-opec Supply OPEC Supply non-opec Share of Global Supply Canadian Oil Production by product 4Q14 1Q15 2Q15 3Q15 4Q15 AB L/M/H AB Bitumen SK Other NGLs Synthetic 61.5% 61.0% 60.5% 60.0% 59.5% 59.0% 58.5% 58.0% 57.5% 57.0% Mbpd 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Mbpd 3,000 2,500 2,000 1,500 1, US Oil Production by region 4Q14 1Q15 2Q15 3Q15 4Q15 Alaska California Texas Federal GOM Other Lower 48 NGLs Other OECD Commercial Stocks by region Feb-12 Feb-13 Feb-14 Feb-15 OECD North America OECD Europe OECD Pacific Relevant Independent Objective

8 Page 8 MMb US Commercial Stocks February 27 - March 27, 2015 M-on-M Change Crude Gasoline Distillate Products Total MMb Canadian Stocks on Land 4Q13 1Q14 2Q14 3Q14 4Q14 SOURCE: EIA Weekly Petroleum Status Report. SOURCE: IEA Oil Market Report.

9 Page 9 World Supply and Demand Balance (MMbpd) Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 World Demand OECD non-oecd World Supply Non-OPEC OPEC NGLs OPEC Crude Supply - Demand OECD Stocks (MMbbls) Days Cover OPEC Crude Oil Production (MMbpd) Sustainable Production Over (+)/Under (-) Target Capacity Jan-15 Feb-15 Mar-15 Jan-15 Feb-15 Mar-15 Saudi Arabia Iran UAE Kuwait Qatar Nigeria Libya Algeria Ecuador OPEC Iraq Total OPEC WTI Price Projections ($US/barrel) Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 High Price Case Reference Case Low Price Case Relevant Independent Objective

10 Page 10 Data Appendix

11 Page 11 A1: Historic Light Sweet Crude Futures Prices ($US per barrel) NYMEX Light Sweet Crude Last 3 Day Avg. When 12-Month Spread Close Average Near Mo. Strip Avg. (1-2 Mo.) Q Q Q Q Q Yr-on-Yr Chg % -47.7% -43.5% -12.2% Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr Yr-on-Yr Chg % -55.1% -52.5% -47.1% A2: Historic Crude Product Futures Prices ( US per gallon) NYMEX Unleaded Gasoline NYMEX Heating Oil Last 3 Day Avg. When 12-Month Spread Last 3 Day Avg. When 12-Month Spread Close Average Near Mo. Strip Avg. (1-2 Mo.) Close Average Near Mo. Strip Avg. (1-2 Mo.) Q Q Q Q Q Yr-on-Yr Chg % -44.7% -43.8% -40.4% -38.3% -39.7% -38.3% -38.4% Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr Yr-on-Yr Chg % -38.8% -37.7% -38.5% -41.4% -41.4% -39.6% -38.5% Notes (Tables A1 and A2): Prices are listed by contract month. Close: final contract close on the last day of trading. Last 3 Day Average Close: simple average contract close on last three days of trading. Average When Near Month: simple average closing price on trading days when contract was near month. 12-Month Strip Average: simple average of daily near 12-month contract closing prices in a given contract month. Spread: difference between one-month and two-month forward prices in a given period. Source: New York Mercantile Exchange (NYMEX). Relevant Independent Objective

12 Page 12 A3: World Crude Oil Contract Prices (FOB, $US per barrel) Saudi U.A.E. Oman U.K. Norway Russia Venez. Kuwait Ecuador Mexico Nigeria Indon. Arab Lgt Dubai Oman Brent Ekofisk Urals 1 T.J. Light Blend Oriente Isthmus Bonny Lgt Minas Q Q Q Q Q Yr-on-Yr Chg % -50.2% -49.6% -50.1% -49.7% -50.1% -53.0% -53.4% -52.8% -49.4% -50.5% -53.0% Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Yr-on-Yr Chg % -47.6% -47.4% -48.0% -47.5% -48.4% -50.9% -51.0% -51.8% -48.0% -48.2% -52.4% Notes: 1. Urals is Delivered price at Mediterranean. Contract prices are based on prices at the end of each month. Source: OPEC Monthly Oil Market Report. A4: North American Posted Crude Prices (FOB, $US per barrel) United States Canada ANS 1 Lost Hills Kern R. WTI WTS GCS Okla. Sw. Kans. Sw. Mich. So. Wyo. Sw. CDN Sweet 2 HH Q Q Q Q Q Yr-on-Yr Chg % -50.8% -58.1% -52.3% -55.1% -55.9% -52.3% -50.3% -57.0% -53.8% -39.7% -48.5% Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Yr-on-Yr Chg % -49.2% -57.0% -51.1% -53.9% -54.6% -51.1% -54.5% -55.7% -52.6% -46.5% -48.1% Notes: 1. ANS is Delivered price on US West Coast. 2. Edmonton Light Sweet prices are discontinued as of May 1, 2014 and replaced by the Canadian Light Crude blend which is traded daily on the Net Energy Index. 3. Hardisty Heavy. Posted prices are based on price at the end of each month. Sources: Oil & Gas Journal; Natural Resources Canada.

13 A5: Crude Oil Quality Differentials (FOB, $US per barrel) Light vs. Heavy Sweet vs. Sour Arab Lt Arab Hv Diff. Isthmus Maya Diff. CDN Sweet 2 HH 2 Diff. GCS WTS Diff Q Q Q Q Q Yr-on-Yr Chg % -54.1% -49.4% -51.9% -46.2% -54.0% -55.9% -55.1% A6: Crude Oil Spot Prices and Differentials (FOB, $US per barrel) Page 13 Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Yr-on-Yr Chg % -51.7% -48.0% -51.4% -52.5% -53.9% -54.6% -53.9% Notes: 1. Edmonton Light Sweet prices are discontinued as of May 1, 2014 and replaced by the Canadian Light Crude blend which is traded daily on the Net Energy Index. 2. Hardisty Heavy. Based on contract prices at the end of each month. Sources: OPEC Monthly Oil Market Report: Oil & Gas Journal; Natural Resources Canada. Spot Prices Differentials WTI Brent Dubai Urals Basket 1 WTI-Brent WTI-Dubai WTI-Urals WTI-Basket Q Q Q Q Q Yr-on-Yr Chg % -50.1% -50.5% -50.7% -52.0% Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Yr-on-Yr Chg % -47.9% -47.7% -48.7% -49.6% Notes: 1. OPEC-Reference Basket is average price of seven crude streams: Algeria Saharan Blend, Dubai Fateh, Indonesia Minas, Mexico Isthmus, Nigeria Bonny Light, Saudi Arabia Light and Venezuela Tia Juana Light. Source: OPEC Monthly Oil Market Report. Relevant Independent Objective

14 Page 14 A7: World Petroleum Product Spot Prices ($US per barrel) US Gulf Coast, Pipeline Rotterdam, Barges Singapore, Cargoes Gasoline 1 No. 6 3% 2 Jet/Ker. Gasoline 1 Gasoil Resid. 3 Gasoline 1 Gasoil Resid Q Q Q Q Q Yr-on-Yr Chg % -50.4% -44.5% -43.3% -43.5% -53.5% -43.6% -44.3% -49.1% Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Yr-on-Yr Chg % -48.7% -43.7% -37.1% -41.9% -51.4% -38.2% -41.9% -47.0% Notes: 1. Regular unleaded gasoline. 2. Waterborne 3. High Sulfur ( %) Residual Fuel Oil. Spot prices are based on average daily prices over a specific timeframe. Source: IEA Oil Market Report. A8: Product Spot Prices in Selected American Cities ( US per gallon) NY Harbor US Gulf Los Angeles Gasoline 1 No. 2 H.O. Distill. Gasoline 1 Jet Fuel Distill. Gasoline 1 Distill Q Q Q Q Q Yr-on-Yr Chg % -43.3% -40.8% -42.8% -44.4% -42.5% -37.3% -40.8% Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Yr-on-Yr Chg % -44.0% -38.0% -38.2% -43.6% -41.3% -30.3% -40.5% Notes: 1. Reformulated regular unleaded gasoline. Spot prices are based on average daily prices over a specific timeframe. Source: EIA Weekly Petroleum Status Report.

15 Page 15 B1: World Petroleum Supply and Demand Balance (million barrels per day) OECD Non-OECD OPEC World N. A. Europe Asia-Pac Total 1 Asia Non-Asia FSU Total 1 P. Gulf Non-Gulf Total 2 Total 3 Demand Q Q Q Q Q Q Q Q Q Supply Q Q Q Q Q Q Q Q Q Balance Q Q Q Q Q Q Q Q Q Notes: 1. Totals for OECD and non-oecd supply include net refining gains; specific regions/groupings within each do not. 2. OPEC demand is an estimate based on historical annual data. 3. Balance for World equals global stockbuilds (+) and stockdraws (-) for crude oil and petroleum products and miscellaneous gains and losses. Regional surpluses (+) and deficits (-) are balanced through net-imports and stock changes in the short-term, and net-imports in the longer term. Supply includes crude oil, condensates, NGLs, oil from non-conventional sources and processing gains. Demand is for petroleum products. Source: IEA Oil Market Report. Relevant Independent Objective

16 Page 16 B2: World Petroleum Production (million barrels per day) OECD Non-OECD OPEC World N. A. Europe Asia-Pac Total Asia Non-Asia FSU Total P. Gulf Non-Gulf Total Total Q Q Q Q Q Yr-on-Yr Chg. 7.9% -1.1% 2.0% 6.4% 0.1% 1.9% 0.1% 0.6% 2.0% -1.8% 1.9% 2.6% Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Yr-on-Yr Chg. 8.0% -1.1% 10.6% 6.6% 0.7% 1.6% 1.0% 1.1% 4.3% 1.3% 4.7% 3.9% R/P Ratio Notes: 1. Production includes crude oil, condensates and NGLs. 2. Reserve-Production ratio is based on latest month production and British Petroleum reserve estimates. Sources: IEA Oil Market Report and BP Statistical Review of World Energy. B3: OECD Commercial Petroleum Stocks (million barrels) North America Europe Asia-Pacific OECD Crude Product Total Crude Product Total Crude Product Total Crude Product 1 Total , ,413 2, , ,337 2, , ,019 1,399 2,710 4Q , ,337 2,566 1Q , ,003 1,292 2,582 2Q , ,012 1,332 2,652 3Q , ,415 2,720 4Q , ,019 1,399 2,710 Yr-on-Yr Chg. 10.5% 8.6% 9.8% 0.7% 1.2% 1.0% 8.1% -0.8% 1.7% 7.0% 4.6% 5.6% Feb , ,322 2,576 Mar , ,003 1,292 2,582 Apr , ,000 1,306 2,598 May , ,018 1,341 2,662 Jun , ,012 1,332 2,652 Jul , ,362 2,665 Aug , ,410 2,709 Sep , ,415 2,720 Oct , ,011 1,368 2,703 Nov , ,396 2,705 Dec , ,019 1,399 2,710 Jan , ,031 1,406 2,731 Feb , ,068 1,370 2,729 Yr-on-Yr Chg. 17.2% 6.7% 11.7% 2.3% 2.2% 1.9% -0.3% -4.1% -4.0% 9.8% 3.6% 6.0% Notes: 1. Product includes only finished petroleum products. 2. Total stocks include NGLs, refinery feedstocks, additives/oxygenates and other hydrocarbons. All stocks are closing levels for respective reporting period. Source: IEA Oil Market Report.

17 Page 17 B4: OPEC Crude Oil Production and Targets (million barrels per day) Persian Gulf Non-Persian Gulf OPEC-11 OPEC-11 Arabia Iran UAE Kuwait Qatar Venez. Nigeria Libya Algeria Angola Ecuador Total 1 Target Iraq Q Q Q Q Q Yr-on-Yr Chg. 1.2% 0.4% 4.0% 0.4% -6.9% -2.4% -5.2% 0.0% 3.7% 13.4% 1.8% 1.2% 5.8% Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Yr-on-Yr Chg. 5.5% -0.4% 2.2% 1.4% -5.6% -2.4% -7.7% 100.0% 9.8% 22.4% 1.8% 4.0% 14.7% Quotas Over/Under % -16.5% 27.9% 26.1% -8.2% 20.6% 7.2% -67.3% -6.7% 18.4% 30.2% -8.8% Notes: 1. Does not include NGLs; OPEC production targets apply to crude oil only. 2. Iraq does not have an official OPEC target. 3. OPEC-10 production targets. 4. As of latest month. Source: IEA Oil Market Report. B5: OECD Refinery Activity Crude Input (MMbpd) - Utilization (percent) - Refining Margins ($US/barrel) North America Europe Asia-Pacific OECD Input Util. Margin 1 Input Util. Margin 2 Input Util. Margin 3 Input Util Q Q Q Q Q Yr-on-Yr Chg. 1.5% % 8.8% 209.4% -1.3% -96.6% 3.2% Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Yr-on-Yr Chg. -0.2% % 8.4% 228% 2.3% % 3.0% Notes: 1. Based on dated Brent being processed in average US Gulf cracking refinery. 2. Based on dated Brent in average Rotterdam cracking refinery. 3. Based on spot Dubai in average Singapore hydroskimming refinery. Source: IEA Oil Market Report. Relevant Independent Objective

18 Page 18 C1: US Petroleum Supply and Demand Balance (million barrels per day) United States 1 East Mid-West Supply Demand Net-Imp. Stk. Chg. Supply Demand Balance Supply Demand Balance Q Q Q Q Q Yr-on-Yr Chg. 13.4% 1.0% -13.2% 70.2% 4.3% 14.0% 0.8% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Yr-on-Yr Chg. 12.2% 1.7% -8.0% 55.2% -2.5% 16.3% 3.9% % of Total % 100.0% 2.5% 29.3% 24.9% 25.5% South-Central North-West West Supply Demand Balance Supply Demand Balance Supply Demand Balance Q Q Q Q Q Yr-on-Yr Chg. 14.0% -1.8% 13.0% 0.7% 0.9% 0.8% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Yr-on-Yr Chg. 12.3% 4.7% 12.9% 2.0% -4.7% 1.3% % of Total % 27.4% 7.2% 3.8% 9.5% 14.0% Notes: 1. Does not balance because of unaccounted for crude oil. Regional surpluses (+) and deficits (-) are balanced through net-imports/transfers and stock changes in the short-term, and net-imports/transfers in the longer term. 2. As of most recent month. Supply includes crude oil, condensates, NGLs, oil from nonconventional sources and processing gains. Demand is for petroleum products. Source: EIA Petroleum Supply Monthly.

19 Page 19 C2: US Petroleum Demand by Product (million barrels per day) Finished Petroleum Products NGLs Petroleum Gasoline Jet Fuel Distil. Resid. Total 1 Total Total Q Q Q Q Q Yr-on-Yr Chg. 3.5% 4.5% 2.9% 5.6% 3.8% -4.4% 1.0% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Yr-on-Yr Chg. 6.2% -0.3% -0.9% 1.1% 4.1% -5.3% 1.7% Notes: 1. Total includes other finished petroleum products. 2. Total petroleum demand includes refinery feedstocks, additives/oxygenates and other hydrocarbons. Source: EIA Petroleum Supply Monthly. C3: US Petroleum Stocks (million barrels) Petroleum Stocks 1 Crude Oil Finished Products East Mid-West S-Cent N-West West U.S. Total 2 Gasoline Jet Fuel Distil. Resid. Total , ,807 1, , ,760 1, , ,856 1, Q , ,760 1, Q , ,753 1, Q , ,814 1, Q , ,835 1, Q , ,856 1, Yr-on-Yr Chg. 4.4% 7.4% 5.7% 7.2% 1.0% 5.5% 2.9% -22.9% 0.9% 6.9% -10.6% -1.5% Jan , ,743 1, Feb , ,743 1, Mar , ,753 1, Apr , ,780 1, May , ,809 1, Jun , ,814 1, Jul , ,818 1, Aug , ,822 1, Sep , ,835 1, Oct , ,830 1, Nov , ,842 1, Dec , ,856 1, Jan , ,874 1, Yr-on-Yr Chg. 15.7% 11.5% 6.2% 6.2% 3.1% 7.6% 5.0% -24.8% 2.5% 15.2% -6.9% 2.4% Notes: 1. Petroleum stocks include crude oil, finished products, NGLs, refinery feedstocks, additives/oxygenates and other hydrocarbons. 2. Includes Strategic Petroleum Reserves. 3. Total includes other finished petroleum products. All stocks are closing levels for respective reporting period. Source: EIA Petroleum Supply Monthly. Relevant Independent Objective

20 Page 20 C4: US Petroleum Net Imports by Source (million barrels per day) Region of Origin OPEC Canada Mexico Lat. Am. Europe Africa M.E. Total 1 Venez. S. Arabia Nigeria Total 2 P. Gulf Q Q Q Q Q Yr-on-Yr Chg. 6.5% -43.3% -8.3% -68.6% -17.2% -32.1% -13.2% -11.8% -40.4% -53.7% -23.2% -32.1% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Yr-on-Yr Chg. 8.9% -91.8% 23.4% -14.5% -7.8% -38.5% -8.0% -6.1% -44.0% -46.3% -23.7% -38.4% % of Total % 0.9% 13.0% -2.6% 2.4% 27.4% 100.0% 12.4% 16.9% 0.7% 48.9% 27.5% Notes: 1. Total includes net-imports from Russia and Asia-Pacific region. 2. Total OPEC includes the other eight cartel members. 3. As of latest month. Source EIA Petroleum Supply Monthly. C5: US Regional Crude Oil Production (million barrels per day) PAD District U.S. Major Producers East Mid-West S-Cent N-West West Total Alaska Calif. 1 Louis. Texas G. of Mex Q Q Q Q Q Yr-on-Yr Chg. 24.3% 20.4% 16.9% 17.3% -0.1% 15.2% -2.8% 2.1% -5.0% 20.1% 14.2% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Yr-on-Yr Chg. 24.6% 17.4% 19.1% 20.5% 0.1% 16.1% -3.4% 3.2% -6.3% 21.6% 17.6% R/P Ratio Notes: 1. California includes Federal Offshore crude oil production. 2. Gulf of Mexico includes Federal Offshore production adjacent to Texas and Louisiana. 3. Crude oil Reserve-Production ratio as of latest production month. Crude oil production does not include NGLs. Source: EIA Petroleum Supply Monthly.

21 Page 21 C6: US Refinery Activity Crude Input (MMbpd) - Utilization (percent) East Mid-West South-Central North-West West U.S. Input Util. Input Util. Input Util. Input Util. Input Util. Input Util Q Q Q Q Q Yr-on-Yr Chg. 1.0% -3.3% -0.2% 0.1% -6.6% -1.9% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Yr-on-Yr Chg. 13.5% -1.7% 1.9% 2.6% -2.6% 1.1% % of Total 1 6.9% 21.7% 51.9% 3.7% 15.9% 100.0% Notes: 1) As of most recent month. Source: EIA Petroleum Supply Monthly. C7: US Refinery Margins ($US per barrel) NY Harbor Chicago US Gulf Los Angeles (East Coast Comp.) (WTI) (WTS) (ANS) Q Q Q Q Q Yr-on-Yr Chg. 96.2% -5.8% 21.7% 157.6% Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Yr-on-Yr Chg % 17.5% 39.4% 355.3% Note: Based on specific crude being processed in average cracking refinery in a given area. As of February 2010, NY Harbor Arab Med. is now East Coast Composite. Source: Oil and Gas Journal. Relevant Independent Objective

22 Page 22 D1: Canada Petroleum Supply and Demand Balances (million barrels per day) Canada East West Supply Demand Net-Exp Stk. Chg. Supply Demand Balance Supply Demand Balance Q Q Q Q Q Yr-on-Yr Chg. 7.5% -14.2% 19.6% -20.5% -10.2% 10.1% -20.4% Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Yr-on-Yr Chg. 10.6% -16.6% 35.9% -2.7% -10.6% 11.5% -25.1% % of Total % 100.0% 5.9% 63.0% 94.1% 37.0% Notes: 1. As of most recent month. See notes for Table C1 for additional comments. Source: Statistics Canada s Energy Statistics Handbook. D2: Canada Demand by Product (million barrels per day) Finished Products NGLs Petrol. Gasoline Distil. Resid. Total 1 Total Total Q Q Q Q Q Yr-on-Yr Chg. 0.6% 5.8% 16.5% 3.1% 0.0% 2.3% Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Yr-on-Yr Chg. 6.8% 1.4% -94.1% 2.9% 0.0% 2.2% Notes: 1. Total includes other finished petroleum products. 2. Total petroleum demand includes refinery feedstocks, additives/oxygenates and other hydrocarbons. Source: Statistics Canada s Energy Statistics Handbook. D3: Canada Petroleum Stocks (million barrels) Finished Products Crude Oil Petrol. Gasoline Distil. Resid. Total 1 Total Total Q Q Q Q Q Yr-on-Yr Chg. 3.0% -21.5% -19.4% -4.1% -0.1% -1.5% Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Yr-on-Yr Chg. -3.6% 0.2% 22.7% 1.0% 5.1% 3.7% Notes: 1. Total includes other finished petroleum products. 2. Total petroleum stocks include NGLs, refinery feedstocks, additives/ oxygenates and other hydrocarbons. All stocks are closing levels. Source: Statistics Canada s Energy Statistics Handbook.

23 Page 23 D4: Canada Crude Oil Production (million barrels per day) Major Producers Canada Petroleum Type Alta. Sask. B.C. N.W.T. Atlantic Total 1 Light SCO Heavy Bitumen NGLs Q Q Q Q Q Yr-on-Yr Chg. 9.6% 20.8% 21.4% -4.9% -22.2% 6.4% 3.9% -0.2% 1.7% 21.0% 24.9% Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Yr-on-Yr Chg. 14.7% 6.0% 23.6% -3.2% 1.2% 11.8% 3.8% 3.9% 1.7% 30.0% 29.1% Note: Total includes small amounts of production from Manitoba and Ontario. Source: Statistics Canada s Energy Statistics Handbook. D5: Canada Petroleum Imports by Source (thousand barrels per day) Non-OPEC OPEC Imports Mexico U.S. U.K. Norway Total 1 Algeria Nigeria S. Arabia Venez. Total 2 P. Gulf Total Q Q Q Q Q Yr-on-Yr Chg -8.3% >100% % -77.0% 4.0% -68.2% -9.3% 0.0% 0.0% -60.3% % -14.6% Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Yr-on-Yr Chg. 22.3% 0.0% % 0.0% -13.3% 8.8% % 0.0% 0.0% -48.7% 0.0% -20.4% % of Total 3 7.0% 0.0% 0.0% 0.0% 87.1% 12.9% 0.0% 0.0% 0.0% 12.9% 0.0% 100.0% Notes: 1. Includes all non-opec production. 2. Includes production by the other seven OPEC members. 3. As of most recent month. Sources: Statistics Canada s Energy Statistics Handbook. Relevant Independent Objective

24 Page 24 E1: World Drilling Activity (active oil and gas rigs) OECD Non-OECD OPEC World N. A. Europe Asia-Pac Total Asia Non-Asia Total 1 P. Gulf Non-Gulf Total Total , , , , , , , , ,573 1Q , , ,626 2Q , , ,399 3Q , , ,636 4Q , , ,632 1Q , , ,950 Yr-on-Yr Chg % -6.3% -22.9% -25.4% -7.1% -0.4% -3.0% 3.9% -13.9% -3.1% -18.7% Mar-14 2, , ,544 Apr-14 2, , ,388 May-14 2, , ,372 Jun-14 2, , ,437 Jul-14 2, , ,608 Aug-14 2, , ,642 Sep-14 2, , ,659 Oct-14 2, , ,657 Nov-14 2, , ,670 Dec-14 2, , ,570 Jan-15 2, , ,309 Feb-15 1, , ,986 Mar-15 1, , ,555 Yr-on-Yr Chg % -10.4% -15.4% -38.4% -9.1% -2.8% -5.2% 1.6% -12.6% -3.8% -27.9% % of Total % 4.4% 0.9% 58.9% 8.3% 13.8% 22.0% 12.5% 6.5% 19.0% 100.0% Notes: 1. Does not include active rigs in the Former Soviet Union and onshore rigs in China. 2. As of latest month. Source: Baker Hughes, Inc. E2: North American Drilling Activity (active oil and gas rigs) United States Canada North America 1 East Mid-West S-Cent N-West West Total Land 2 Offshore Total Oil Gas Total , ,919 1, , , , ,761 1, , , , ,861 1, , ,238 1Q , ,780 1, , ,291 2Q , ,852 1, , ,054 3Q , ,903 1, , ,288 4Q , ,911 1, , ,317 1Q ,380 1, , ,688 Yr-on-Yr Chg % -17.2% -23.5% -28.4% -45.6% -22.5% -22.9% -11.2% -39.6% -28.1% -16.4% -26.3% Mar , ,803 1, , ,206 Apr , ,835 1, , ,039 May , ,859 1, , ,022 Jun , ,861 1, , ,101 Jul , ,876 1, , ,226 Aug , ,904 1, , ,303 Sep , ,930 1, , ,336 Oct , ,925 1, , ,349 Nov , ,925 1, , ,346 Dec , ,882 1, , ,257 Jan ,683 1, , ,051 Feb ,348 1, , ,711 Mar ,109 1, , ,304 Yr-on-Yr Chg % -34.3% -40.0% -47.7% -51.1% -38.5% -39.1% -20.6% -51.6% -43.8% -24.9% -40.9% % of Total 3 5.3% 22.1% 49.8% 6.0% 2.1% 85.0% 81.8% 3.3% 15.0% 80.8% 19.2% 100.0% Notes: 1. Excluding Mexico. 2. Includes drilling on inland waterways. 3. As of latest month. Source: Baker Hughes, Inc.

25 Page 25 Geographical Specifications 1. The World: OECD is comprised of countries from three regions: North America (Canada, Mexico, US); Europe (Austria, Belgium, Czech Republ ic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Poland, Portugal, the Slovak Republic, Spain, Sweden, Switzerland, Turkey, UK); and Asia-Pacific (Australia, Japan, New Zealand, South Korea). OPEC is comprised of Persian Gulf (Iran, Iraq, Kuwait, Qatar, Saudi Arabia, United Arab Emirates) and non-persian Gulf countries (Algeria, Indonesia, Libya, Nigeria, Venezuela). Non-OECD is comprised of countries from three regions: Former Soviet Union (Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kirghizstan, Moldova, Russia, Crude Oil Qualities Producing API Country or Gravity Region F) Sulfur Content (%) BBLs/Metric Tonne Crude Stream Tapis Blend Malaysia Ekofisk Blend Norway WTI Texas GCS Gulf of Mexico Oklahoma Sweet Oklahoma Kansas Sweet Kansas Wyoming Sweet Wyoming ELS Alberta Brent Blend United kingdom Bonny Light Nigeria Oman Blend Oman Arabian Light Saudi Arabia Minas Indonesia Isthmus Mexico Michigan Sour Michigan WTS Texas Urals Russia Tia Juana Light Venezuela Dubai U.A.E Lost Hills California Cano Limon Colombia Arabian Heavy Saudi Arabia ANS Alaska Oriente Ecuador Hardisty Heavy Alberta Maya Mexico Kern River California Tajikistan, Turkmenistan, Ukraine, Uzbekistan); Asia (including non-oecd Oceania); and non-asia (Africa, Middle East, Latin America, and non- OECD Europe). 2. United States: East (PADD I) New England (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, Vermont); Central Atlantic (Delaware, Maryland, New Jersey, New York, Pennsylvania, and the District of Columbia) and Lower Atlantic (Florida, Georgia, North Carolina, South Carolina, Virginia, and West Virginia). Mid -West (PADD II) Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, Oklahoma, South Dakota, Tennessee, and Wisconsin. South-Central (PADD III) Alabama, Arkansas, Louisiana, Mississippi, New Mexico and Texas. North-West (PADD IV) Colorado, Idaho, Montana, Idaho, Montana, Wyoming. West (PADD V) Alaska, Arizona, California, Hawaii, Nevada, Oregon, Washington. 3. Canada: East is comprised of Ontario, Manitoba, Quebec and the Maritime provinces (New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island). West is comprised of Alberta, British Columbia, Saskatchewan and the northern territories (NorthWest Territories, Nunavuut, and Yukon). Additional Notes 1. Petroleum and oil refer to crude oil and natural gas liquids (NGLs), whereas crude oil refers to its namesake and field condensates. Condensates derived from natural gas processing plants are classified as NGLs. 2. The spot price is for immediate delivery of crude oil or refined products at a specific location. Spot transactions are generally on a cargo by cargo basis. In contrast, a futures price is for delivery of a specified quantity of a commodity at a specified time and place in the future. 3. Crude oil sold Free-On-Board (FOB) is made available to the buyer at the loading port at a particular time, with transportation and insurance the responsibility of the buyer. Crude oil sold Cost-Insurance-Freight (CIF) is priced at a major destination point, with the seller responsible for the transportation and insurance to that point. A Delivered transaction is similar to a CIF transaction, except the buyer in the former pays based on the quantity and quality ascertained at the unloading port, whereas in a CIF transaction, the buyer accepts the quantity and quality as determined at the loading port. 4. Processing gain is the volume of which refinery output is greater than crude oil inputs. The difference is due to the processing of crude oil products, which in total have a lower specific gravity than crude oil. 5. Unaccounted for crude oil reconciles the difference between crude input to refineries and the sum of domestic production, net imports/exports, stock changes and documented losses (in the U.S.). 6. Totals may not equal the sum of their parts in the statistical tables due to rounding. For more information, please contact Dinara Millington at dmillington@ceri.ca. Canadian Energy Research Institute 150, Street NW Calgary, AB T2L 2A6 Relevant Independent Objective