September 5-7, 2007 Loews Ventana Canyon Resort Tuscon, AZ
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Transcript of September 5-7, 2007 Loews Ventana Canyon Resort Tuscon, AZ
Spot, Rack and Retail Prices and News -- The Undisputed U.S. Petroleum Fuel Benchmark http://www.opisnet.com • (301) 287-2525 • Toll Free (888)301-2645
September 5-7, 2007
Loews Ventana Canyon Resort
Tuscon, AZ
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IT’S NOT YOUR FATHER’S OILIT’S NOT YOUR FATHER’S OILMARKET ANY MORE!MARKET ANY MORE!
Presented byPresented by Tom KlozaTom Kloza
Chief Oil Analyst, OPISChief Oil Analyst, OPIS
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A DisclaimerA Disclaimer
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This presentation was prepared exclusively for the benefit and internal use of the client, in order to indicate on a preliminary basis, the feasibility of the third party of the first part, and is not intended to provide forward looking statements that might be construed as beneficial to any transactions that might obstruct or otherwise harm or inform the endoplasmic reticulum. The information and materials provided herein reflect management forecasts within the organization, and as such, are fatally flawed, and could represent stuff that you might get into major deep doo-doo with. In the event that things do indeed hit the fan, you must absolve those responsible for this presentation and recognize that this represented prevailing views and subjects that might change as capriciously as a post menopausal woman's viewpoint. This presentation may or may not be accurate, depending on what the market does in the next 3-300 weeks. We also note that this document includes forward looking statements, as opposed to backward or sideways looking statements and should qualify for safe harbor from liability established by the Private Securities Litigation Reform Act of 1995, as well as the Stamp Act of 1765. Forward looking statements can generally be identified by phrases such as "believes", "expects", "anticipates", "is", "forecasts", "may", or other words of similar import, including the term "frankincense". Similarly, statements in this forecast may describe a business strategy, hobby, predilection, perversion, or fascination with Joey Buttafucco. We urge you to carefully consider the important factors that could cause your actual results to differ materially from these forward looking statements and cause you to lose money, or file for bankruptcy.
Disclaimer -- Safe HarborDisclaimer -- Safe Harbor
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"Oil prices are at record highs, but are still significantly lower than the inflation-adjusted record highs of
1980."
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What Precisely Has Changed What Precisely Has Changed in the Oil Businessin the Oil Business
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The Tao of Oil The Tao of Oil
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Three ViewpointsThree Viewpoints
►"The entire world assumes Saudi Arabia can carry everyone's energy needs on its back cheaply. If this turns out not to work there is no 'plan B.' Conventional wisdom says 'don't worry. Trust today, but if conventional wisdom is wrong, the world faces a giant energy crisis.“
►"There will be a large, unprecedented buildup of oil supply in the next few years. Between 2004 and 2010, capacity to produce oil (not actual production) could grow by 16-million bbls a day- - from 85-million barrels per day to 101 million b/d - - a 20% increase. Such growth over the next few years would relieve the current pressure on supply and demand.
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Invisible HandsInvisible Hands
• There has been a huge shift in the balance of participation.
CommodityIndex Funds
Macro Hedge Funds
CTAs/Trend Players
Financial Institutions
Consumers
Producers
Activity vs 3 Years Ago
ShortLongPassiveActiveNewOldParticipant
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Product 2001 2002 2003 2004 2005 CurrentWTI 406,620 472,398 475,093 709,196 803,325 1,517,000Heating Oil 128,683 133,953 112,588 181,055 175,838 218,000Unl(RBOB) 116,316 122,618 106,729 150,998 151,918 188,129
Points: The last six years have seen a doubling in the positions in NYMEX benchmark contracts alone. When ICE contracts are added for WTI, there are crude oil positions representing well over 2-billion bbl of WTI sweet crude alone!
Money Chasing Money?Money Chasing Money?(Growth in NYMEX futures' open interest)(Growth in NYMEX futures' open interest)
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A Look at "Passive" Investment A Look at "Passive" Investment (The Goldman Sachs Commodities Index)(The Goldman Sachs Commodities Index)
$100 BillionCASH
Goldman SachsCommodities Index (GSCI)
Industrial & PreciousMetals 13.59%
Agriculture & Livestock16.94%
Energy 69.47%
Crude 30.49%48,400 contracts
Natural Gas 9.24%$10.16 Billion
Heating Oil & Gasoil 27.44%
35,600 contracts
Gasoline (RBOB) 2.3%
28,000 contracts
*I pulled these numbers out of my ass!
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The Oil Price-Inflation Paradox The Oil Price-Inflation Paradox
• These are free markets and there is nothing wrong with the sentiment that drives free markets. This cycle has been happening for decades with gold, silver and other commodities.
• But most people do not have to purchase gold or silver every week... With one notable exception…
Money managers are worried about 21st
century inflation.
Oil has replaced gold as an instrument that money managers believe is a wonderful hedge against inflation.
As more money flows into oil, it drives prices
dramatically higher.
As oil prices move higher, inflation fears
increase. Money managers move more money into oil.
Higher oil prices fuel more
inflation, etc. etc.
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Refinery CreepRefinery Creep
LocationTotal Crude
CapacityGasoline Output
IncreasesMiddle Distillates Output Increases
US PADD I 0 10 5
US PADD II 484 184 183
US PADD III 786 312 310
US PADD IV 33 17 15
US PADD V 161 117 77
Total US 1,464 640 590
Europe 209 70 145
Asia Pacific 4,504 1,530 1,763
Other North America 500 225 177
Central and South America 1,231 562 398
Former Soviet Union 412 191 242
Middle East 3,441 1,105 1,441
Africa 567 122 182
Total Rest of the World 6,151 2,205 2,440
World Total 12,328 4,445 4,938
Refinery Construction Outlook Through 2014
Crude and Product Capacity Increases
(Unit Capacities in Thousands of Barrels per Day)
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Inventory to 2010Inventory to 2010(in millions) Gasoline
1993 (Aug 27) 1998 (Aug 28) 2007 (Aug 10) 2010 PredictionsNationwide Population 257.78 270.25 299.41 308.94 Stocks 200.39 212.02 201.90 204.40 Barrels (per person) 0.78 0.79 0.67 0.66 Gallons (per person) 32.76 33.18 28.14 27.79East Coast Population 96.94 100.61 111.89 115.58 Stocks 55.91 60.38 53.60 52.90 Barrels (per person) 0.58 0.60 0.48 0.46 Gallons (per person) 24.36 25.20 20.16 19.22 New England Population 13.23 13.43 14.30 14.74 Stocks 4.48 4.51 4.30 4.30 Barrels (per person) 0.34 0.34 0.30 0.29 Gallons (per person) 14.28 14.28 12.60 12.25 Central Atlantic Population 44.26 44.65 47.52 48.37 Stocks 28.71 30.13 27.00 25.30 Barrels (per person) 0.65 0.68 0.57 0.52 Gallons (per person) 27.30 28.56 23.94 21.97 Lower Atlantic Population 39.47 42.53 50.10 52.47 Stocks 22.72 25.74 22.20 23.30 Barrels (per person) 0.58 0.61 0.44 0.44 Gallons (per person) 24.36 25.62 18.48 18.65Midwest Population 73.28 75.66 80.04 81.48 Stocks 53.63 56.04 47.80 49.10 Barrels (per person) 0.73 0.74 0.60 0.60 Gallons (per person) 30.66 31.08 25.20 25.31Gulf Coast Population 33.15 35.45 40.07 41.69 Stocks 59.42 61.01 64.00 65.80 Barrels (per person) 1.79 1.72 1.60 1.58 Gallons (per person) 75.18 72.24 67.20 66.29Rockies Population 7.85 8.66 10.23 10.43 Stocks 5.03 5.72 6.00 6.10 Barrels (per person) 0.64 0.66 0.59 0.59 Gallons (per person) 26.88 27.42 24.78 24.56West Coast Population 46.56 49.87 57.17 59.76 Stocks 26.41 28.87 30.50 30600.00 Barrels (per person) 0.57 0.58 0.53 0.51 Gallons (per person) 23.94 24.36 22.26 21.51
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Inventory to 2010Inventory to 2010(in millions) Distillate
1993 (Jul. 16) 1998 (May 15) 2007 (Aug 10) 2010 PredictionsNationwide Population 257.78 270.25 299.41 308.94 Stocks 124.57 145.51 127.70 121.60 Barrels (per person) 0.48 0.54 0.43 0.39 Gallons (per person) 20.16 22.68 18.06 16.53East Coast Population 96.94 100.61 111.89 115.58 Stocks 57.26 69.75 52.00 44.40 Barrels (per person) 0.59 0.69 0.47 0.38 Gallons (per person) 24.78 28.98 19.74 16.13 New England Population 10.28 14.94 14.30 14.74 Stocks 7.81 10.21 9.50 7.40 Barrels (per person) 0.76 0.68 0.66 0.50 Gallons (per person) 31.92 28.56 27.72 21.09 Central Atlantic Population 44.26 44.65 47.52 48.37 Stocks 35.85 40.97 28.90 23.70 Barrels (per person) 0.81 0.92 0.61 0.49 Gallons (per person) 34.02 38.64 25.62 20.58 Lower Atlantic Population 39.47 42.53 50.10 52.47 Stocks 11.13 13.84 13.60 13.30 Barrels (per person) 0.28 0.33 0.27 0.25 Gallons (per person) 11.76 13.86 11.34 10.65Midwest Population 73.28 75.66 80.04 81.48 Stocks 26.23 31.99 27.50 29.70 Barrels (per person) 0.36 0.42 0.34 0.37 Gallons (per person) 15.12 17.64 14.28 15.31Gulf Coast Population 33.15 35.45 40.07 41.69 Stocks 28.07 30.16 33.50 32.60 Barrels (per person) 0.85 0.85 0.84 0.78 Gallons (per person) 35.70 35.70 35.28 32.84Rockies Population 7.85 8.66 10.23 10.43 Stocks 2.23 2.85 3.00 2.90 Barrels (per person) 0.28 0.33 0.29 0.28 Gallons (per person) 11.76 4.13 12.18 11.68West Coast Population 46.56 49.87 57.17 59.76 Stocks 10.78 10.75 11.70 12.10 Barrels (per person) 0.23 0.22 0.21 0.20 Gallons (per person) 9.66 9.24 8.82 8.50
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The Long, Long TermThe Long, Long Term
Selected Crude Prices/Spreads 2007 2010 2015 2020 2025LLS 69.00 60.00 62.78 69.32 76.53WTI 65.45 58.15 60.90 67.37 74.51Brent 66.66 57.95 60.89 67.23 74.23WCS 47.98 42.70 44.60 49.30 54.48ANS 64.77 56.73 59.40 65.67 72.60
Selected Product Margins 2007 2010 2015 2020 2025USGC Conventional Gasoline 13.80 9.36 8.48 9.36 10.33USGC ULSD 14.82 11.25 10.43 11.52 12.72NYH RBOB 16.07 12.04 11.03 12.18 13.44NYH ULSD 16.27 13.29 12.34 13.62 15.04US Mid-continent RBOB 39.22 30.59 30.78 33.93 37.41US West Coast CARBOB 29.44 22.19 21.67 23.84 26.23
Price Outlook - Summary(Current US dollars per barrel)
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Potential Tipping PointsPotential Tipping Points• At what level, do retail prices curb U.S. Demand
Economic forecasts ($ bn, nominal): 2006E 2007E 2008E ’80-’81 AvgUS GDP $13,184 $13,948 $14,757US Consumer expenditures $ 9,159 $ 9,599 $10,031US personal disposable income $ 9,684 $10,149 $10,605
Estimated gasoline spending as a % of 2006E 2007E 2008E ’80-’81 AvgUS GDP 2.9% 3.6% 4.3% 4.5%US Consumer expenditures 4.2% 5.3% 6.3% 7.2%US personal disposable income 4.0% 5.0% 6.0% 6.2%
Estimated gasoline spending ($ bn) $387 $507 $636
Gasoline Demand (thous. b/d) 9,353 9,503 9,655
Estimated US retail gasoline price ($/g) $2.70 $3.48 $4.30Estimated US retail gasoline price ($/bbl) $113.47 $146.30 $180.57Gasoline taxes ($/bbl) $ 18.45 $ 18.45 $ 18.45Estimated R&M spread ($/bbl) $ 21.00 $ 24.00 $ 27.00Estimated WTI oil Price ($/bbl) $ 74.02 $103.85 $135.12
A sensitivity table of when gasoline spending may begin to negatively impact oil demand growth looking at the experience of the late 1970s/early 1980s.
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Believe it or not, 2007 was supposed to be a bearish year for crude Across all grades we have seen crude vary from $35-$82 bbl. Both the Bulls and the Bears have had their days.Hurricanes can still wreak absolute havoc. The West Coast and Rockies do not need storms for price spikes.Ethanol output in second half of 2007 and beyond should temper gasoline price spikes. Spec changes in 2008 may help even more.Threshold for changed behavior is about $3.25 gal at the pump.Diesel will be the highest growth product through the rest of the decade, both here and abroad. Watch out for problems.More depth in U.S. storage is forthcoming, particularly for crude oil.
Predictions…Predictions…
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The Silver LiningsThe Silver Linings
• More Storage is coming
• More Refining capacity is coming
• Greater Need to use OPIS data
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If you can keep your head when all about you are losing theirs…
…Yours is the earth and everything that is in it…
…And -- which is more -- you’ll be a man my son.
Rudyard Kipling
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This premier summit has sold out 8 years straight. Register early to make sure you have a seat.
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