Featuring: Tom Kloza, Oil Price Information Service (OPIS) SPONSORED BY.

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1 THE OUTLOOK OF FUEL Featuring: Tom Kloza, Oil Price Information Service (OPIS) SPONSORED BY TH E NATSO SHOW 2013 FEB 3-7 SAVANNAH, GA. tkloza@opisnet.com 1

2 Presentation By: Tom Kloza OPIS, Chief Oil Analyst Website: Various Goldman Sachs Utterances OPIS 1/14/2013 Who are you, and what have you done to all the bullish researchers at Goldman Sachs? A version of that question is being asked today after the latest Goldman research report observed that we continue to believe that the oil price has peaked and expect Brent to trade in a range of $110-$100 bbl in the next three years. But just three days later... FRANKFURT--The price of oil could reach as much as $150 per barrel this summer, Goldman Sachs chief commodities strategist Jeff Currie said Thursday. At this year's global strategy conference in Frankfurt, Mr. Currie said that he thinks it possible the price may reach $150 a barrel for Brent oil. He said he wouldn't be surprised "if we woke up in summer and oil cost $150" per barrel. 2

3 Spot Diesel And Spot Gasoline Pricing Extremes In 2012 DIESEL GASOLINE Low (date) High (date) Low (date) High (date) NY Harbor $2.63 (6/21) $3.38(10/11) $2.61(12/10) $3.50(4/3) Gulf Coast $2.58 (6/21) $3.33(3/16) $2.24(6/27) $3.25(3/23) Group 3 $2.61 (6/21) $3.69(10/9) $2.35(12/13) $3.32(9/11) Chicago $2.50 (6/21) $3.41(10/11) $2.22(12/18) $3.72(3/20) Los Angeles $2.56 (6/21) $3.47(8/30) $2.43 (12/13) $4.29(10/4) S.F. $2.54 (6/21) $3.52(8/31) $2.37 (12/13) $4.22(10/4) Pac NW $2.62 (6/21) $3.63 (4/3) $2.36 (12/6) $3.79(5/23) Go With the Flow! 3

4 The Variability & Volatility in Crude Prices for late-october 2012 ANS - $103/bbl WCS Hardisty, Alberta - $56/bbl SynCrude Hardisty, Alberta - $86/bbl Bakken - $85/bbl WTI Cushing, OK- $86/bbl WTI West Texas - $82/bbl WTS West Texas - $81/bbl West African - $113/bbl Light Sweet Crude - $107.15/bbl Source: Lipow Oil Associates 4

5 Source: Lipow Oil Associates Source: Lipow Oil Associates 5

6 TMC Forecasts Total US/Canada increase of 4.6 MMBPD by 2020(from 2011 levels) U.S. growth of 3.1 MMBPD (to 8.8 MMBPD) Canadian growth of 1.5 MMBPD (to 4.5 MMBPD) U.S. growth mostly in PADDs 2 and 3 Declines in Alaska/California to continue Canadian growth primarily in the West Revision in upward direction is more likely Forecast assumptions Crude prices (LLS/Brent) remain in $90 to $120 range Assumes some limitations (manpower, materials, regulatory, etc.) Limited production from some high potential prospects Logistical assets are built to move crude to markets in a timely fashion Source: Turner Mason Company Fiscal Break-Even Numbers Source: Citi Research 6

7 U.S. Crude Production Change by PADD 2011 to 2020 Source: Turner Mason Company U.S. Change in Crude Production by Grade 2011 to 2020 Source: Turner Mason Company 7

8 Change in U.S. Product Yields 2011 to 2020 Source: Turner Mason Company But There Is Also The Super Light PADD 3 Crude Quality 2011 PADD 3 Crude Quality 2020 Light Sweet 44% Light 0% Sour 16% Super Light 12% Medium Sour 26% Light Sweet 39% Super Light 20% Light Sour 12% Medium Sour 27% Heavy 2% Heavy 2% 8

9 North Dakota versus West Africa NORTH DAKOTA WEST AFRICA Crude Price $98/bbl $116/bbl Gravity 41.0 API 33.5 API Sulfur 0.20% 0.24% LPG Volume 3.5% 1.3% Gasoline Volume 30.7% 17.9% DisSllate Volume 34.5% 45.8% What does this mean? Bakken and similar U.S. crudes are cheap versus offshore blends, but they come with some unwanted friends. Propane grills and butane lighters should be well supplied. We ll make more of those unwanted liquids, even though prices are well below break-even for crude processors. The most highly prized molecule -- diesel -- won t be as easy to manufacture, at least until refineries invest in some additional equipment. Observations on U.S. Refining Trends Was the flurry of refinery troubles in 2012 a statistical cluster, or a sign of things to come? Private Equity money is intrigued by the U.S. refining story. Only a few U.S. North American refineries are candidates for closure. More small refiners could go into Master Limited Partnership structures. Watch out for what consultants call the dumb-belling of U.S. crude oil supplies. Production of diesel, residual fuel, and jet fuel will fall, making exports more difficult. U.S. refining just concluded its most profitable summer ever, but much of the lucre was serendipitous. I know of no refineries that anticipated the ongoing surge in light feedstocks. The U.S. refining industry could lose the equivalent of two or three medium size plants, as refineries shift their slates toward more superlight super-sweet crude. Gasoline should be a surplus product for 7-8 months out of the year, with some exceptions. 9

10 Key Drivers of Oil Price Volatility in the Next 14 Months Outright crude oil prices North American crude oil logistics Variable gasoline recipes Export & Import Dynamics Financial Fund Flows The Madness of Crowds And one key driver that deserves its own slide The Problem with Just-In-Time Inventory Shallow product inventories are quick-to-fill, but also quick-to-empty Storage per capita is a mere fraction of what it was in Refinery turnarounds, maintenance, and projects accent the tidal swings Nowhere is this more of an issue than California, and the West Coast. 10

11 The Seven Sisters (Ranges for Year-to-Date Spot Price) Pacific Northwest Gasoline $2.42-$3.74/gal ULSD $2.61-$3.63/gal San Francisco Gasoline $2.39-$4.14/gal ULSD $2.54-$3.44/gal Los Angeles Gasoline $2.41-$4.29/gal ULSD $2.66-$3.47/gal Group 3 Gasoline $2.57-$3.32/gal ULSD $2.66-$3.65/gal Chicago Gasoline $2.45-$3.46/gal ULSD $2.65-$3.33/gal Gulf Coast Gasoline $2.45-$3.46/gal ULSD $2.65-$3.33/gal New York Harbor Gasoline $2.61-$3.50/gal ULSD $2.63-$3.36/gal Monthly Diesel Margins January February March April May June July August September October November December 11

12 0.400 Annual Diesel Margins New England Mid-Atlantic Southeast Great Lakes Midwest Southwest Rockies West USA Predictions North America will have much cheaper crude than the rest of the world in this decade. Combined with the cheapest natural gas, that could lead to a renaissance in some industries. The seasonality of gasoline will only increase as time goes on. There are fundamental reasons why this market is bipolar. Buying in bulk on large pricing downdrafts gives marketers a huge advantage. Volatility can be leveraged for some smart businesses. Iran, and world hot spots can change everything, but not in a secular manner... 12

13 Some Final Thoughts Questions & Answers 13

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