Global Energy MarketsBy Manash GoswamiBy Manash Goswami

September 2011

AgendaAgenda

• Energy market dynamicsgy y

• Crude benchmarks

• Brent/WTI spread – Importance/weightagep g g

– History

• Brief about Reuters• Brief about Reuters

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Energy market dynamics

Energy market dynamicsEnergy market dynamics

• Economic growth in China and India driving demand for oil and metals – fundamental shift from West to East

• Growing importance of new markets - carbon, freight, bio fuels, coal, steel

• Population growth and changing diets in BRIC's driving demand for agriculture, combined with biofuels diverting supply to the energy markets (sugar, corn, wheat, soybeans, etc)

• Extreme weather events impacting supply/demand balance

• C&E seen as separate asset class by investors

• Regulatory move in OTC transactions will move markets to clearing and electronic platforms

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Energy Markets in AsiaMarket Trend

As Asian economies fuel the demand for commodities, we expect to see

ti d th A iMarket Trend

Japan – Mature market, but undergoing a h f ll i th M h th k

continued growth across Asia…

sea change following the March earthquake

North Asia

Korea has similar structure to Japan –opportunities in carbon and poweropportunities in carbon and power

China – huge demand exists as the world’s fastest growing major economy

ASEANASEAN

Singapore – hub for energy and shipping for Asia – continued growth as companies look to expand existing operations. Other

i iopportunities

Indonesia – Palm Oil, Energy, Rubber; Malaysia in Palm Oil, Energy, Rubber; Vietnam – Coffee, gold

NorthAsia

, g

South Asia

Large opportunities in agricultural and bullion markets. Potential in power markets

SouthAsia

ASEAN

Asia

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Europe U SEurope, U.S.

• Sovereign debt crisis in Greece is threatening to spread g g pacross the euro zone and that may lead to a slowdown in oil demand as the European economy struggles

• U.S. economy is also slowing, and talks are getting louder about a double-dip recession. This may hurt demand in the world’s largest oil consumerworld s largest oil consumer.

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Oil Market how does it work

Crude Oil Refined Products

Oil Market – how does it work

Crude Oil

Futures (WTI Brent Oman)

Refined Products

Futures (HO Gasoil Gasoline)Crack Spread

Time Spread – front month, c2, c3 Time Spread – front month, c2, c3

Futures (WTI, Brent, Oman) Futures (HO, Gasoil, Gasoline)

Contract for Difference (CFD)

Crack SpreadNaphtha

Time Spread

Swaps (Brokers) Swaps (Brokers)

Exchange for Physical (EFP)Minute Markers

Gasoline

Jet Kerosene

G Oil

Physical (Platts) Physical (Platts)

Minute Markers GasOil

Fuel Oil 180

F l Oil 380

Regrade Spread

L i Fuel Oil 380

Freight (Platts)Viscosity Spread

Location

Grade - Over 200 different grades – priced on a differential

Location - Differential priced on different delivery locations (freight)

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NYMEX WTI Crude Oil vs ICE Brent Crude Oil

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US Dollar Index vs ICE Brent Crude Oil Forecast (Mean Price)

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Reuters Poll on Oil Prices

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Oil Swap Prices

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Asia Gasoil/Jet Fuel Tender Summary

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Asia Fuel Oil Tender Summary

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Asia Gasoline Tender Summary

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Asia Naphtha Tender Summary

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Asia Refinery Maintenance/Outages 2011

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World Refinery Outages - Latest

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Crude benchmarks

Brent CrudeBrent Crude• Brent crude futures and other parts of the Brent complex are

d t t th l f th t thi d f th ld'used to set the value of more than two-thirds of the world's crude.

Pl tt i t it f M G Hill• Platts price assessment agency, a unit of McGraw Hill <MHP.N>, said last year the proportion of global crude supplies referenced to Brent had increased to about 70supplies referenced to Brent had increased to about 70 percent from 65 percent in the previous two years.

• New fields in Asia and Australia, for instance, have adopted Brent for price-setting. In Asia, traders have predicted it will i i l l i l k hi h l k li idit dincreasingly replace regional markers, which lack liquidity and are volatile by comparison with the two major futures-backed benchmarks Brent and U.S. West Texas Intermediate (WTI).benchmarks Brent and U.S. West Texas Intermediate (WTI).

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Brent CrudeBrent Crude• North Sea Brent crude is waterborne. Its specific gravity (API)

i d 38 d d it l h t t i 0 45 tis around 38 degrees and its sulphur content is 0.45 percent.

• As the Brent crude stream dwindles, Platts has added new d t th b h k h F ti O b dgrades to the benchmark such as Forties, Oseberg and

Ekofisk. This made the Brent blend heavier.

Th b h k t i l d li i th• The benchmark streams are progressively declining as they flow from the mature North Sea province, but Platts has said it keeps the liquidity of the underlying physical productionit keeps the liquidity of the underlying physical production under review and makes adjustments if considered necessary.

• Brent traded on ICE in 2010 rose to an average daily volume of 397,030 lots (a lot equals 1,000 barrels), an increase of 36

t f 2009 di t ICE fipercent from 2009, according to ICE figures.

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U S CrudeU.S. Crude• Most liquid oil market in the world.

• Total WTI futures and options volume set a record in 2010 of 214,386,949 contracts, up over 20 percent from 2009, NYMEX idNYMEX said.

• WTI (API 38.7 degrees, 0.45 percent sulphur) is one of the d d li d i t th U S f t t t t thgrades delivered against the U.S. futures contract, together

with a raft of other domestic and foreign grades.

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Dubai OmanDubai, Oman• While Brent and U.S. crude are particularly useful in pricing

th b t lit il k h i b t t t hthe best quality oil, a sour marker -- heavier, but not too much so -- is useful for lower quality crudes.

Th ill t i i l l t f l b l l• They will represent an increasingly large part of global supply as sweeter sources grow increasingly mature.

U i D b i ( d 31 API 2 13 t l h )• Using Dubai (around 31 API, 2.13 percent sulphur) as a marker grade has become problematic after physical production plummeted to less than 100,000 barrels per day.production plummeted to less than 100,000 barrels per day.

• A potential solution is physically settled Oman crude futures (around 33.34 API, 1.04 percent sulphur), which since 2007(around 33.34 API, 1.04 percent sulphur), which since 2007 have traded on the Dubai Mercantile Exchange, owned by NYMEX owner CME Group <CME.N>.

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Dubai OmanDubai, Oman• The futures contract has become more liquid, although it still

l B t d U S f tlags Brent and U.S. futures.

• In 2010, average daily volumes for the DME Oman Crude Oil F t C t t h d 2 898 t t t d d ( i l tFutures Contract reached 2,898 contracts traded (equivalent to 2.9 million barrels of oil per day).

Ph i l d ti f O i f i l b t t d• Physical production of Oman is fairly robust at around 850,000 barrels per day, with Oman investing heavily to increase output from declining fields.increase output from declining fields.

• In contrast to the U.S. and North Sea grades, however, relatively little is traded on the spot market and instead soldrelatively little is traded on the spot market and instead sold under term deals.

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ESPOESPO• ESPO <ESPO->, with an initial API gravity at around 34

d d l h t t t 0 6 t i li ht thdegrees and sulphur content up to 0.6 percent, is lighter than Russia's main European-facing crude oil Urals <URL-E> and similar to Middle East benchmark Oman crude.similar to Middle East benchmark Oman crude.

• Output may hit 1 million barrels per day by 2012. Some traders fear its quality could deteriorate as increased volumestraders fear its quality could deteriorate as increased volumes are pumped, although its advocates dispute this and say it is accessible to Asian buyers and the U.S. West coast, which

l dd t it b h k t ti lcan only add to its benchmark potential.

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Argus sour crude indexArgus sour crude index• Argus, a privately owned British company, launched the ASCI

i 2009 b d G lf f M i d M P id din 2009 based on Gulf of Mexico crudes Mars, Poseidon and Southern Green Canyon.

B k f th i d b h k it i ti d t th• Backers of the index as a benchmark say it is tied to the dominant WTI benchmark, while its composition will offset the volatility of U.S. crude and it will more closely reflect thevolatility of U.S. crude and it will more closely reflect the world's growing segment of heavy sours.

• Interest has grown after the world's top oil exporter SaudiInterest has grown after the world s top oil exporter Saudi Arabia began using the index as its benchmark for exports to the United States, but its futures contracts are still relatively illi idilliquid.

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Brent/WTI spread

Difference between Brent/WTIDifference between Brent/WTI

• Brent -- traded in cargoes, which complicates physical g p p ysettlement -- is principally a financially settled contract.

• U.S. crude, delivered by pipelines, is primarily physically y p p p y p y ysettled and has been prone to distortions in relation to inventory levels at Cushing, Oklahoma, the main delivery point for U S crude futurespoint for U.S. crude futures.

• Inventories in the United States have also been affected by problems with the Enbridge pipelines which move mostproblems with the Enbridge pipelines, which move most Canadian oil imports to the United States.

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Difference between Brent/WTIDifference between Brent/WTI

• The underlying physical benchmark for Brent futures is a mix y g p yof four North Sea crudes -- Brent <BRT->, Forties <FOT-E>, Oseberg <OSE-E> and Ekofisk <EKO-E>, whose volumes from mature fields are dwindlingfrom mature fields are dwindling.

• Forties crude, which usually sets the price of dated Brent, reached its highest premium since August on Thursdayreached its highest premium since August on Thursday. Lower North Sea supplies in January have been supporting the market, traders say. [NSEA/O] y [ ]

• At the same time, the volumes of crude priced off Brent stand to increase as growing Asian markets favour it as their g gbenchmark.

• Disruption in Libya exports of about 1.6 million barrels is also p y psupporting Brent.

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HistoryHistory

• The world's biggest energy market-place the New York Mercantile Exchange (NYMEX) began futures trade in 1983 and became home to a light crude futures contract <CLc1>.

• Representing the world's biggest oil consumer, it became the world's most liquid oil contract.

• Brent crude futures <LCOc1> began to be traded on London's International Petroleum Exchange (IPE) in 1988.

• The IPE was bought by Atlanta-based IntercontinentalExchange <ICE.N> in 2001.

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HistoryHistory

• Although they are less liquid than the NYMEX U.S. crude contract, Brent volumes have risen strongly since ICE became the first fully electronic exchange in 2005.

• It is also used more widely as a benchmark on physical oil markets, where it is used for pricing around two thirds of the world's physical crudeworld s physical crude.

• NYMEX has a Brent contract, just as ICE has a U.S. crude contract but Brent is far more liquid on ICE and U S crude iscontract, but Brent is far more liquid on ICE, and U.S. crude is much more heavily traded on NYMEX.

• NYMEX also still has an open outcry pit in New York but far• NYMEX also still has an open outcry pit in New York, but far more volume trades through its electronic platform, Globex.

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NYMEX WTI Crude/ICE Brent Crude Spread Daily Price vs Percent Change

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Brief about Thomson Reuters

Brief about Thomson Reuters

• Reuters has commodities and energy specialist journalists,

Brief about Thomson Reuters

global team of 200+.

• Reuters offer rapid cover and insight into regular government trade and output data We compete with Dow Jones andtrade and output data. We compete with Dow Jones and Bloomberg.

• Globally our teams cover news from Nigeria and Iran toGlobally our teams cover news from Nigeria and Iran to Venezuela. Our fast, accurate and expert coverage of equity and debt markets, economics, interest rates and politics also give commodities and energy market players a comprehensive viewcommodities and energy market players a comprehensive view of the global context for their investment decisions.

• Leading provider of news affecting crude oil and refined product markets [O/CODES]

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Reuters energy news code: O/CODES

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Oil Markets FuturesOil Markets - Futures

• Futures <OILOIL>

• Highly liquid

• WTI and Brent reflect US and European markets

• US is based on a Gasoline and HO market• US is based on a Gasoline and HO market

• Europe is driven by Gasoil

• BUT

• Asia is driven by Naphtha, JetKero/Diesel, Fuel Oil (Bunkers and Cargoes)

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Oil Markets SwapsOil Markets - Swaps• Based around brokers in Singapore – ICAP, BCG Radix, MF

Gl b l PVM T ll t TFSGlobal, PVM, Tullets, TFS

• Customized to the market requirements

• Bilateral and cleared OTC. Conversations via phone and Yahoo

• Clearing via Clearport, WebICE and SGX AsiaClear

• US is based on a Gasoline and HO marketUS is based on a Gasoline and HO market

• Interaction between physical market, as swaps are assessed a monthly average price (MOPS)a monthly average price (MOPS)

• <OILSWAP/SG>

Oil S M thl• Oil Swap Monthly

• Yan Chong Yaw - yanchong.yaw@thomsonreuters.com

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Oil Markets PhysicalOil Markets - Physical

• Based around the Platts Window. The market converges garound a 30 minute trading window

• Prices are entered via WebICE

• Highly opaque, low volume

Reuters publishes 5 end of day market reports out of• Reuters publishes 5 end-of-day market reports out of Singapore

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Oil Markets Global Oil ForumOil Markets – Global Oil Forum

• 400 Active users in Asia

• Interaction with market

A i P t l L h• Asia Petroleum Lunch

• Link RM back into Oil Workflow

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