US Crude Oil Reshaping International Crude Oil Flows. Olivier Jakob,

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1 US Crude Oil Reshaping International Crude Oil Flows Olivier Jakob,

2 Claimer Petromatrix publishes since 2006 a daily market note on the oil markets Our reports are trading oriented and offer a mix of fundamental, technical and investment flow analysis Our customers include the largest oil traders, oil majors, hedge funds, investment banks but also small oil companies and private traders. For more information or a free trial please visit or info@petromatrix.com

3 WTI is the real price of crude oil Brent is the reality of the price of crude oil.

4 The two crude markets WTI: Free-market Efficient allocation of resources. If pricing differentials exist, then infrastructure will be developed. Trend of increasing production Brent: Ultimately it is the OPEC market. Supply is controlled by OPEC and price is dependent of OPEC policies Trend of decreasing production in the pricemaking benchmark

5 From the price being set by OPEC 2000: OPEC price band of 22 $/bbl to 28 $/bbl on basis of OPEC basket Below 22 $/bbl for 10 days or above 28 $/bbl for 20 days triggers production adjustments. Abandoned in early 2005.

6 World Oil Demand Y-O-Y Growth myn b/d (source: IEA)

7 Crude Oil lost to wars/strikes in OPEC countries (k bpd) 3,000 2,500 2,000 1,500 1, Jan-02 Jun-02 Nov-02 Apr-03 Sep-03 Feb-04 Jul-04 Dec-04 May-05 Oct-05 Mar-06 Aug-06 Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12

9 to the price being set by the market Until end-december 2010: price of crude oil has to be set by the marginal cost of production. Deemed to be deep-offshore then Canadian sands $/bbl floor King Abdullah, 2008/2009: fair price is 75 $/bbl or maybe 80 $/bbl.

10 and back to OPEC Since early 2011: price has to be set at a floor that allows budgetary requirements of OPEC nations facing civil pressure. More or less 100 $/bbl floor Targeting 100 $/bbl or 110 $/bbl?

20 There used to be only one benchmark WTI was the price maker. Had the most liquidity and Brent was also a WTI market due to North Sea shipments up the pipe to Padd2 Brent was being priced as a differential to WTI. Dubai set as a differential to Brent. World crudes could be linked to a WTI or Brent formula, WTI was the ultimate price maker

21 And then there were two With reduced flows from the US Gulf to Padd2, the arbitrage started to move to the US Gulf values Relationship between Brent and WTI has been broken. OPEC walks from WTI reference Passive investors have lost in the WTI contango, loosing appetite in WTI and favoring Brent since 2011 Increased calls that «WTI is disconnected» to the world.

22 -In early 2010, Petromatrix calls for Brent premium to WTI for 1Q2011 -But not to the 15 $/bbl+ -Would we have a Brent/WTI at 15 $/bbl if OPEC target was still 80 $/bbl?

24 Myth: US does not export crude oil. Versus Jan 2008 ( 000 bpd): 2,000 1,500 1, Feb-08 Feb-09 Feb-10 Feb-11 Feb ,000-1,500 Product Exports Crude Oil Production

25 14,000 12,000 10,000 Myth: US does not export Natural Gas (US Coal Exports, thou short tons) 8,000 6,000 4,000 2,000 0 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

26 US crude prodn & imports vs Jan 2008 ( 000 b/d) 2,500 2,000 1,500 1, Feb-08 Feb-09 Feb-10 Feb-11 Feb-12-1,000-1,500-2,000-2,500 Imports Production

27 IEA (OECD) outlook for US crude production growth ( 000 bpd) Dec11 Dec12 Jul12 Jan13

29 US imports from Saudi Arabia ( 000 b/d) 1,800 1,700 1,600 1,500 1,400 1,300 1,200 1,100 1,

30 Imports from S.Arabia Oct-Nov 2012 vs Oct-Nov 2011 ( 000 b/d) OECD Europe OECD Asia US China

31 Iraq production increase ( 000 bpd) 3,400 3,200 3,000 2,800 2,600 2,400 2,200 2,000 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13

32 US imports from Iraq ( 000 b/d)

33 Imports from Iraq Oct-Nov 2012 vs Oct-Nov 2011 ( 000 b/d) OECD Europe OECD Asia US China

34 Imports from Iran ( 000 bpd) 3,000 2,500 2,000 1,500 1, Belgium France Greece Italy Netherlands Spain Turkey Japan South Korea China India Taiwan

35 US imports from Colombia ( 000 b/d)

36 Imports from Colombia Oct-Nov 2012 vs Oct-Nov 2011 ( 000 b/d) OECD Europe OECD Asia US China

37 US imports from Brazil ( 000 b/d)

38 Imports from Brazil Oct-Nov 2012 vs Oct-Nov 2011 ( 000 b/d) OECD Europe OECD Asia US China

39 US imports from Russia ( 000 b/d)

40 Imports from Russia Oct-Nov 2012 vs Oct-Nov 2011 ( 000 b/d) OECD Europe OECD Asia US China

41 US imports from Algeria ( 000 b/d)

42 Imports from Algeria Oct-Nov 2012 vs Oct-Nov 2011 ( 000 b/d) OECD Europe OECD Asia US China

43 US imports from Angola ( 000 b/d)

44 US imports from Angola ( 000 b/d) Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Padd1 Padd3 Padd5

45 Imports from Angola Oct-Nov 2012 vs Oct-Nov 2011 ( 000 b/d) OECD Europe OECD Asia US China

46 US imports from Nigeria ( 000 b/d)

47 US imports from Nigeria ( 000 b/d) Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Padd1 Padd3

48 Imports from Nigeria Oct-Nov 2012 vs Oct-Nov 2011 ( 000 b/d) OECD Europe OECD Asia US China

49 Increased Nigeria to Europe offset by FTA for European crude to S.Korea ( 000 bpd) Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Norway UK

50 Policy decisions on small flows but key benchmarks can have significant price impact

51 US crude imports 4 week avg to Feb 15 th 000 bpd vs year ago level Canada Saudi Arabia Mexico Venezuela Iraq Nigeria Kuwait Colombia Angola Ecuador Russia Brazil Norway Algeria -89 0

52 US crude oil imports (excl. CAN, 000 bpd) 9,000 8,500 8,000 7,500 7,000 6,500 6,000 5,500 5,000 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13

53 US crude oil imports (excl. CAN) and China crude oil imports (vs Jan 2007, 000 bpd) 3,000 2,000 1, ,000 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13-2,000-3,000 US China

54 US crude oil imports (excl. CAN) and China crude oil imports ( 000 bpd) 9,000 8,000 7,000 6,000 5,000 4,000 3,000 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 US Oct-09 Jan-10 Apr-10 China Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13

55 US obligatory oil stocks in days of net imports (End-Nov, IEA)

56 US Sweet SPR days of cover for USG imports of NIG+ALG+ANG+BRAZ 1,

Global Overview of Middle Distillates Supply and Demand ICE Market Forum Rotterdam, November 2012

Global Overview of Middle Distillates Supply and Demand ICE Market Forum Rotterdam, November 2012 About Petromatrix Based in Switzerland (city of Zug) Publishes a daily newsletter on oil markets Mix of