2013 WPMA National Convention & Convenience Store Expo February 19 - 21, 2013 The Mirage Hotel Las...

2013 WPMA National Convention & Convenience Store ExpoFebruary 19 - 21, 2013 • The Mirage Hotel • Las Vegas, Nevada

www.opisnet.com • [email protected]


A KINDER, GENTLER 2013

Presentation By: Tom Kloza

OPIS, Chief Oil Analyst732-730-2558 • E-Mail: [email protected]

Website: www.opisnet.com


The Non-Global Global Market


Various Goldman Sachs’ UtterancesOPIS 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.


The Variability & Volatility in CrudePrices for late-October 2012

WTI – Cushing, OK- $86/bbl •

WTI – West Texas - $82/bbl •WTS – West Texas - $81/bbl

• WCS – Hardisty, Alberta - $56/bblSynCrude – Hardisty, Alberta - $86/bbl

• Bakken - $85/bbl

• ANS - $103/bbl

• Light Sweet Crude - $107.15/bbl

• West African - $113/bbl


Fiscal Break-Even Numbers

Source: Citi Research


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)


Source: Lipow Oil Associates


Some Reasonable 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


U.S. Crude Production Change by PADD 2011 to 2020



U.S. Change in Crude Production by Grade 2011 to 2020



Change in U.S. Product Yields 2011 to 2020



But There Is Also The “Super Light”

Light Sour16%

Medium Sour26%

Heavy2%

Super Light12%

Light Sweet44%

PADD 3 Crude Quality 2011

Light Sour 12%

Medium Sour 27%

Heavy 2%

Super Light 20%

Light Sweet 39%

PADD 3 Crude Quality 2020


North Dakota versus West AfricaNORTH 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%

Distillate 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.


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…


• Shallow product inventories are quick-to-fill, but also quick-to-empty

• Storage per capita is a mere fraction of what it was in 1975-1985

• Refinery turnarounds, maintenance, and projects accent the tidal swings

• Nowhere is this more of an issue than California, and the West Coast.

The Problem with Just-In-Time Inventory


The Seven Sisters (Ranges for 2012 Spot Prices)

ChicagoGasoline $2.45-$3.46/galULSD $2.65-$3.33/gal New York Harbor

Gasoline $2.61-$3.50/gal ULSD $2.63-$3.36/gal

Gulf CoastGasoline $2.45-$3.46/galULSD $2.65-$3.33/gal

Group 3Gasoline $2.57-$3.32/galULSD $2.66-$3.65/gal

Los AngelesGasoline $2.41-$4.29/galULSD $2.66-$3.47/gal

San FranciscoGasoline $2.39-$4.14/galULSD $2.54-$3.44/gal

Pacific NorthwestGasoline $2.42-$3.74/galULSD $2.61-$3.63/gal


Go With the Flow!


Why Summers Sometimes Sizzle These Days An Oil & Population Thought Experiment

1980 population 35.3-million





Some Rocky Mountain Extrapolations

Some PADD 5 Extrapolations

Why Summers Sometimes Sizzle These Days An Oil & Population Thought Experiment

• In 1980, every Rocky Mountain citizen had about 43 gallons of gasoline in storage for their eventual use. Those same citizens had about 24.3 gallons of diesel.

• By 2012, the Rocky Mountain population had about 24.9-gallons of gasoline per person, a drop of about 18 gallons/each. That same population had just 14 gallons of diesel, down more than 10 gallons from 1980.

• In 1980, every resident could count on about 38.53 gallons of gasoline in western state storage. Last summer, that number had dipped to about 19.77 gallons per person, or almost precisely half of what it was back in 1980.

• In 1980, each PADD 5 citizen had about 16.46 gallons per person of diesel. Last summer, that per person allotment was down to about 8.8 gallons.


Why Summers Sometimes Sizzle These Days An Oil & Population Thought ExperimentObservations:• We’ve seen refining output rise during the same time

frame. Summer gasoline output in PADD 5 is about 1.59-million b/d these days versus just over 1-million b/d in 1980. Diesel output in PADD 5 is 586,000 b/d versus 322,000 b/d thirty three years ago. In the Rockies, gasoline production is around 291,000 b/d versus 174,000 b/d in 1980. Distillate production in PADD 4 is 204,000 b/d versus 129,000 b/d in 1980.

• So, we have better organs, and a better circulatory or distribution system . . . as long as everything works!

• Lessons learned. Refinery disruptions in either region are far more important than various inventory swings. This is probably the region of the planet that has moved most severely to just-in-time inventory management.


The Creeping Western Population Growth

State 1980 Population 2013 Population* %

Change

Washington 4.130-million 7.000-million +69.5%

Utah 1.461-million 2.846-million +94.8%

New Mexico 1.300-million 2.120-million +63.0%

Nevada 0.799-million 2.700-million +238%

Montana 0.787-million 1.018-million + 29%

Idaho 0.945-million 1.614-million +70.8%

Hawaii 0.965-million 1.400-million +45.0%

WPMA States 10.387-million 18.698-million +80%*I pulled these population statistics out of my ass!


Monthly Diesel Margins

0.100

0.150

0.200

0.250

0.300

0.350

0.400

0.450

Janua

ry

Febru

ary

Mar

chApr

ilM

ayJu

ne July

August

Septe

mbe

r

Octob

er

Novem

ber

Decem

ber

2012 2011

2010 2009


0.301

0.203

0.266

0.249

0.340

0.237

0.2150.227

0.286

0.000

0.050

0.100

0.150

0.200

0.250

0.300

0.350

0.400

NewEngland

Mid-Atlantic Southeast Great Lakes Midwest Southwest Rockies West USA

2012 2011 2010 2009

Annual Diesel Margins


A Look Into The Future


• 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. ..

Predictions


Most Popular Cars and Trucks in the U.S.Make Model EPA MPG* Jan. 2013 Sales Change from Jan. 2012 Sales

Ford F-Series 13-18 46,841 +21.7%

Chevrolet Silverado 12-21 35,445 +32.0%

Toyota Camry 25-41 31,897 +12.7%

Honda Accord 22-30 23,924 +75.2

Toyota Corolla/Matrix 22-30 23,822 +32.4

Ford Fusion 25-47 22,399 +64.5

Honda Civic 22-44 21,881 Unch.

Nissan Altima 27-38 21,464 – 4.0

Dodge Ram 14-20 20,474 +14.3

Ford Escape 23-33 19,939 +15.5

Honda CR-V 23-31 17,809 – 6.1

Chevrolet Equinox 16-32 17,223 +26.1

Ford Focus 28-40 16,161 +12.2

Chevrolet Malibu 21-37 15,823 + 7.8

Toyota Prius 40-50 15,772 +36.5

Ford Explorer 16-24 15,207 +52.6

*MPG ranges for regular gasoline

Biggest Loser

Biggest Gainer


Some Recommended Reading


Questions & Answers


www.opisnet.com • [email protected]

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