Question 1

How much does a gallon of diesel fuel weigh?

Question 2

What is the sulfur content in a gallon of on-road diesel fuel?

Question 3

How many gallons of renewable fuels are mandated by the Renewable Fuel Standard by 2020 ?

How Infrastructure Plays a Role

in Today’s Markets

• An OPIS analysis of Energy Information Administration records for early summer imports of gasoline and components, for example, found that U.S. gasoline (on mainland states) was sourced in over 30 countries on five of the seven continents.

The Importance of Energy Management Strategies in Today’s Market

Why Manage your Price Risk

Because fuel price risk is a sizeable financial risk that can be managed

To increase earnings predictabilityLock in MarginsTo stabilize cash flowsDisaster Protection

• Much trade in oil futures is carried out by commercial traders such

as oil companies, utilities and airlines, seeking to protect their profits

against swings in energy prices.

• In recent years, big non-commercial traders such as hedge funds

and investment banks have poured money into oil and other

commodities.

• Such investors typically put their money in indexes that track the

value of futures contracts – in which investors promise to pay a

certain amount in the future for oil and other commodities.

CFTC Wants Efficient MktsAssures Traders on Speculation

The Commodity Futures Trading Commission said today that it will not eliminate speculation in the energy markets, but will "address excessive speculation," especially in over the counter trades. The CFTC said its focus was to ensure the markets were operating in a more transparent and efficient manner. That means ensuring that speculative traders are limited to certain position limits when they trade in the energy futures markets. The regulator of U.S. futures markets is currently reviewing how to exert its power to limit how many futures contracts can be held, so called position limits, and also if some traders should be allowed to exceed those limits. The CFCT held its first hearing on position limits today, with two more hearings scheduled for next month. "Let me be clear: the CFTC recognizes the importance of speculators to the effective operation of futures markets - markets that benefit the American public," said CFTC Chairman Gary Gensler at the start of the hearing. Traders have expressed concern recently that the CFTC move to clamp down on excessive speculation might drive speculators out of business. But Gensler assured them that wasn't his goal. He said speculators "allow farmers, grain elevator owners, oil producers and oil users to hedge their risk and have a marketplace where prices are determined in a fair and orderly way." Speculators have been at the heart of the futures markets for more than a century. However, as essential as they are, there may be a burden to the economy when the market becomes too controlled by a single party or just a few parties. That's why, he said, "Congress gave the CFTC an important tool - position limits - and they directed us to use them." He added, "Position limits have the potential to decrease liquidity by reducing the positions of the largest traders. Position limits can enhance liquidity by promoting more market participants rather than having one party that has so much concentration so as to decrease liquidity." Saying that he was open to any options that would best address the problem, Gensler said nearly 70 parties exceeded accountability levels on the four major energy contracts in the last 12 months. The CFTC plans two additional hearings on the issue later this summer. Some of the companies will likely be affected, such as the CME Group, have expressed support for position limits.

Volatility

For NY RBOB – daily price changes exceeded 5 cpg

2006 44.4%

2007 41.4%

2008 79.4%

YTD 2009 95.3%

Mirabito Energy Products

In its early years, the NYMEX Division heating oil contract mainly attracted wholesalers and large consumers of heating oil in the New York Harbor area. Soon, its use spread to areas outside of New York, and it became apparent the contract was also being used to hedge diesel fuel, which is chemically similar to heating oil, and jet fuel, which trade in the cash market at a usually stable premium to NYMEX Division Heating oil futures.

Today, a wide variety of businesses, including oil refiners, wholesale marketers, heating oil retailers, trucking companies, airlines, and marine transport operators, as well as other major consumers of fuel oil, have embraced this contract as a risk management vehicle and pricing mechanism.

THE NYMEX FACTOR

• For the year 2003

• Traded and cleared 139.2 million futures and options contracts (up 4% from 2002)

• NYMEX seat now worth $1.625 million

• Earnings per share $15,072

NYMEX Facts

Jan. 24, 1997 – A NYMEX Seat sold for $600,000 Jan. 5, 1998 – A NYMEX Seat sold for $700,000 Jan. 24, 2000 – A NYMEX Seat sold for $725,000 2003 - A NYMEX Seat sold for $1.625 Million Nov 15, 2005 - A NYMEX Seat sold for $3.775 Million

US Gasoline Demand

                                                                                                                                                                             

  

How to Accomplish and Stabilize Pricing

and Purchasing of Fuels

Price Risk Management (i.e., “Fuel Hedging”)

• IS – The act of taking a position in the financial markets in order to mitigate the risk of adverse price movements in the physical fuel markets that can erode a companies margins or product values

• IS – A means of transferring price risk away from the organization

• IS NOT – A means of speculating on future price behavior

• Hedging strategies should never be viewed as a profit center or as a means to secure below market prices. The act of hedging is a risk mitigation tool and therefore, the success of a program is not measured in conventional profitability terms.

Formation of Fuel Price Risk Management Program

Corporate View

Board/CEOGoals and Objectives

(Philosophy of Risk

Management)

Operating Environment

(Competition,Supply Chain,Channels of Distribution,

etc.)

StrategiesObjectives Execution Measures

Capability and ResourcesRequired for SuccessfulExecution of Strategies

Monitoring and understanding the 5 primary price drivers is critical to effective strategy execution

1. Fundamentals (Demand vs. Supply)

2. Macroeconomic Factors

3. Geopolitical factors and other risks

4. Weather factors

5. Technical factors and investment flows

An Average Barrel 42 US Gallons is refined into:

• Gasoline (18 gallons)• Kerosene, light fuel oil (10 gallons)• Residual fuel (5 gallons)• Jet Fuel (3 gallons)• Lubricating oil, Asphalt, Wax (2 gallons)• Chemical for use in manufacturing –

petrochemicals (2 gallons)• Other (2 gallons)

Oil prices reached a low for the year of $34.03 per barrel in February 2009, and have since rebounded to about $70 per barrel. Oil rig counts began growing again 4 months later, and have since followed a similar trajectory to the price changes.

Fixed Price Contracts

• A fixed price contract guarantees the buyer:

• 42,000 gallons of oil• For delivery in a specified month• At a fixed price• Price for any given month is based on the NYMEX

heating oil futures for that month plus a differential

Explanation of Floating DifferentialWhen a supplier quotes a forward price to a customer for ULSD to be delivered into the customer’s tank, that price is based on the NYMEX future Heating Oil contract price for a specific month or strip of months,  plus a differential (or additional cost ) to get the product from the NYMEX to the customers tank.    That differential includes the following:

• The difference between the NYMEX Heating Oil and the Physical heating Oil that is traded in the New York Harbor 

• The product re-grade (or difference in price) to convert that Heating Oil  to ULSD• The cost to move the product from NY harbor to the terminal• The cost to move the product through the terminal into the Marketers Truck• The cost to deliver that truck to the customers tank • Margin for the Marketer and his supplier

The second item above is the product re-grade between the physical (wet barrel) heating oil and the wet barrel ULSD.  

DTNMARKETWIRE ALERTSEIA's Weekly U.S. Petroleum Inventory Statistics

Week-ending Week-ending Year-ago Weekly Weekly Yearly Yearly 6-Nov-09 30-Oct-09 6-Nov-08 Change % Change Change % ChangeSTOCKSCrude Oil 337.7 335.9 314.1 1.8 0.5% 23.6 7.5%Gasoline 210.8 208.3 196.4 2.5 1.2% 14.4 7.3%Distillate Fuels 167.7 167.4 129 0.3 0.2% 38.7 30.0%Jet Fuel 44.7 45.2 38.3 -0.5 -1.1% 6.4 16.7%REFINERIESCrude inputs 13.825 13.970 -- -0.145 -1.0% -- --Refinery run rate 79.9% 80.6% -- -0.7% -0.7% -- --PRODUCTIONCrude Oil 5.506 5.391 -- 0.115 2.1% -- --Gasoline 8.919 9.040 -- -0.121 -1.3% -- --Distillate Fuels 4.054 3.957 -- 0.097 2.5% -- --Jet Fuel 1.321 1.351 -- -0.030 -2.2% -- --IMPORTSCrude Oil 8.656 8.126 -- 0.530 6.5% -- --Gasoline 0.732 1.077 -- -0.345 -32.0% -- --Distillate Fuels 0.177 0.197 -- -0.020 -10.2% -- --Jet Fuel 0.035 0.086 -- -0.051 -59.3% -- --Implied DemandGasoline 8.844 9.015 -- -0.171 -1.9% -- --Distillate Fuels 3.543 3.570 -- -0.027 -0.8% -- --Jet Fuel 1.381 1.482 -- -0.101 -6.8% -- --Stocks in millions of barrelsAll other categories in million bpdr-revised

Actual Customer Hedge Cost Vs. OPIS Average

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

4/25

/200

8

5/25

/200

8

6/25

/200

8

7/25

/200

8

8/25

/200

8

9/25

/200

8

10/2

5/20

08

11/2

5/20

08

12/2

5/20

08

1/25

/200

9

2/25

/200

9

3/25

/200

9

4/25

/200

9

5/25

/200

9

6/25

/200

9

7/25

/200

9

8/25

/200

9

9/25

/200

9

10/2

5/20

09

Date

Pri

ce P

er G

allo

n

Albany ULSDOPIS AVERAGE

Customer Price

Formation of Fuel Price Risk Management Program

Corporate View

Board/CEOGoals and Objectives

(Philosophy of Risk

Management)

Operating Environment

(Competition,Supply Chain,Channels of Distribution,

etc.)

StrategiesObjectives Execution Measures

Capability and ResourcesRequired for SuccessfulExecution of Strategies