2013 DNB Torbjørn Kjus Presentasjon

Oil Market Outlook
The Fat Lady Has Started To Sing

- Sad but true for Norway but not all Doom and Gloom - A dream come true for the US
Hey, Im you life Im the one who took you there Hey, Im your life And I no longer care
Quote: Hetfield, Ulrich, Alan Sad but true
February 2013 - Torbjrn Kjus
The Limit Of Oil Production Is Being Reached - Not

- In 1919 the US had produced 4 billion barrels of oil and the US Bureau of Mines though the country would run out of oil by 1930 - By 2012 the US has produced about 205 billion barrels
Carl Beal (US Bureau of Mines in 1919): The limit of production in this country is being reached, and although new fields undoubtedly await discovery, the yearly output must inevitably decline, because the maintenance of output each year necessitates the drilling of an increasing number of wells. Such an increase becomes impossible after a certain point is reached, not only because of a lack of acreage to be drilled, but because of the great number of wells that will ultimately have to be drilled. The statement above could have been stated now about sceptics to shale oil production in the US, but it was written in 1919.
MIT professor Morris Adelman:

In the United States in 1930, proved reserves were 13 billion barrels. Over the next 60 years, the United States, without Alaska, produced 130 billion barrels. The inventory turned over ten times.
Torbjrn Kjus torbjorn.kjus@dnb.no Telephone: +47 24 16 91 66
Trend Line Demand Growth Weakening On High Prices

- We do not believe the world is about to return to the latest 30-year long trend line oil demand path which started in 1983
Global Oil Demand - Price Matters

100
Supply shock: Yom Kippur
250%
90
200%
80
Global Oil Demand (mbd)
150%
70
Demand shock: China and emerging markets Weak non-OPEC supply growth
100%
60
50%
50
0%
40
Supply shock: Iran vs Iraq Revolution in Iran

-50%
30 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Oil price change (real terms)
Source: BP Statistical Review, DNB Markets
Global oil demand
Fwd looking oil demand DNB
Oil price change in percent
Peak Oil Has Already Happened

- At least when talking about demand in the developed world and a large chunk of this looks structural and not cyclical
OECD Oil Demand Seasonally Adjusted

52
JBC claims European oil demand would have been 1 million b/d higher now than ten years ago without a 20% efficiency improvement in the car fleet. Efficiency improvement in the European transportation sector set to knock off a further 0.5 million b/d by 2020 according to the JBC transport model. In Britain the MPG for new cars on the road has increased from 36 MPG to 47 MPG since 2001.
51
50
Million b/d
49
48
47
46
45
OECD Oil Demand (kbd) LPG and Ethane Naphtha Motor Gasoline Jet and Kerosene Diesel Other Gasoil Residual Fuels Other Products Total Products
Jan/2004
2005 4776 3274 14836 4263 8519 4590 4504 5124 49888
Jan/2006
2012 Change 4787 11 3187 -87 13870 -966 3672 -591 9546 1027 2983 -1607 2779 -1725 4472 -652 45297 -4591
Jan/2008 Jan/2010 Jan/2012
44 Jan/2002
Source: IEA
GDP Growth In OECD No Longer Provide Growth In Oil Demand

- The high and rising oil price has started irreversible negative effects on demand for refined oil products in advanced economies
Advanced Economies GDP vs Oil Demand (Yearly data 1980-2005)
53 51
Avanced Economies - Oil demand Million b/d
53
51 y = 0.5492x + 33004 R = 0.9221

49 47 45 43 41 39
37 35 5000
49 47 45 43 41 39 37 35 5000
y = 0.3364x + 36484 R = 0.6984
10000
15000
20000
25000
30000
35000
10000
15000
20000
25000
30000
35000
40000
45000
Advanced Economies GDP - Purchasing Power Parity

Source: DNB Markets, BP stats, IMF Source: DNB Markets, BP stats, IMF

51
OECD Oil Demand vs OECD Economic Growth

45 40 51 49
Oil Demand Advanced Economies in Million b/d
50
Advanced Economies - GPD in PPP
35
30
49 48 47 y = -0.6813x + 73546 R = 0.5911
47
45
25 43 20 41 15 10 5 0 39 37 35 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010
46
45
44
43 35000
36000
37000
38000
39000
40000
41000
42000

Source: DNB Markets, BP stats, IMF
Advanced economies GDP (PPP)

Source: BP stats, DNB Markets, IMF
Advanced Economies Oil Demand
High Oil Pain Equals Lower Payback Per GDP Growth Unit
- When the oil burden becomes high, then GDP-growth yields less oil demand growth
Oil Demand Change Per Unit Real GDP Change vs Real Oil Price
(Average: last 20 years is 0.5, Last 10 years is 0.6 (0.4 if excluding 2009)) 3.0 0% 1% 2% 3% 0.0 4% -1.0 5% -2.0 -3.0 6% 7% 8% 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010
2.0 1.0
-4.0
Source: BP stats, IEA, IMF, DNB Markets
Global Oil Burden
Oil Intensity
Overdose
"You're a habit I don't wanna break just write on my grave I overdosed on you" (AC/DC - Let there be rock) The US has however been on a very good track in recovering from it's addiction to oil after it's overdose. The country has recently turned into a net oil products exporter.
US Fuel Efficiency Standards To Significantly Improve By 2025

-CAFE-standards to reach 49.6 MPG by 2025
Source: Annual Energy Outlook EIA June 27 2012
US CAFE Standards
(Source: EIA)
60 55 50
US CAFE standard
45 40 35 30 25 20
15
1978
1983
1988
1993
1998
2003
2008 Light Trucks
2013
2018
2023
Passenger cars
Passenger cars new CAFE
Light Trucks new CAFE
The Huge US Oil-Gas Spread Provides Substitution Possibilities

-General Motors will soon produce dual fuel pick ups and trucks that can switch between gasoline and CNG
WTI & Henry Hub

24 22 20 18 16 14 12 10 8 6 4 2 0 Jan-00
$/MMBTU
Jan-02
Jan-04
Jan-06
Jan-08
Jan-10
Jan-12
Source: Reuters
Henry Hub
WTI 1st month
How Large Is This Change In US Crude Output Really?

- Last year Texas was still below Norwegian crude oil production Not anymore
Norway Norway Crude Oil Production Texas & Monthly Monthly Crude Oil Production
3.4 2.9
Million b/d
2.4 1.9
1.4
0.9 Jan-00
Source: EA DOE, IEA US
Jan-02
Jan-04
Jan-06
Jan-08
Jan-10
Jan-12
Texas crude oil production
Norway crude oil production
10
Conventional vs Unconventional
- Moving to the kitchen instead of the living room (Source: USGS)
11
North American Shale Crude Production Growing Very Quickly

- Total liquids output in US/Canada set to grow from 14.7 million b/d to 21.7 million b/d (up 7 million b/d) Canadian shale crude up from 0.2 million b/d to 0.6 million b/d Canadian oil sands up from 1.8 million b/d to 3.0 million b/d
US/Canadian Oil Liquids Production Forecast

22 20 18 16 14 12 10 8 6 4 2 0 2005
(Source: PIRA Study - Road to US Energy Independence, Sep 2012) Canadian other Canadian NGLs Canadian shale crude Canadian conventional Canadian oil sands US Other US Non-Shale NGL US Shale NGL Uinta Lower Smackover Brown Dense Tuscaloosa Marine Ardmore Woodford Barnett Utica Monterey Anadarko (Cana) Woodford Niobrara Granite Wash
Million b/d
Mississippi Lime
Permian Basin Shales Bakken Eagle Ford Ethanol Non-Shale Crude & Condensate
2007
2009
2011
2013
2015
2017
2019
12
Type Curve Have Similar Shapes Across Plays

- Source: PIRA Study Road to US energy independence
13
But Decline Rates Per Well Not Interesting In This Industry

- One horizontal rig will increase its contribution even if decline rates per rig is very high this is like traditional process industry
14
US Recoverable Shale Oil Reserves - 113 billion barrels

- Source: PIRA Study Road to US energy independence
15
US Shale Resources vs Other Resources

- US shale resources larger than conventional reserves in Kuwait/UAE/Russia
US Shale Reserves Relative To Others

(Source BP stats and PIRA shale study) 300 250
EUR Billion barrels
200 150 100 50 0
Saudi
Iran
Iraq
Kuwait
UAE
Russia
Brazil
US
US shale (PIRA)
16
Reserves Growth Set To Accelerate?

- There is already visible reserves growth but will the shale oil revolution lead to an acceleration in coming years?
Historical Assessment Of Proven Oil Reserves

(Source BP stats 2012) 1800
Proven reserves billion barrels
1600 1400 1200 1000 800 600 400 200 0 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010
17
We Are Starting To See The Effect On US Crude Imports Now

- US crude imports has started to drop but this is just the beginning
US Crude imports 4 week mavg

11.0 10.0 9.0
Million b/d
8.0
7.0
6.0 5.0 4.0 Jan-2003
Jan-2006
Jan-2009
Jan-2012
Jan-2015
Jan-2018
Source: US DOE
18
World Population By Country

(Sources 2009-2011)
Canada (34m)
USA (311m)
Mexico (112m)
Turkey (74m) Algeria (36m) Iraq (31m) Iran (75m) Morocco (32m) Egypt (80m) Saudi (27m) Sudan (43m) Yemen (22m) Nigeria (158m) Ethiopia (80m) Venezuela (29m) Kenya (39m) Congo (68m) Tanzania (43m)
Germany (82m) France (66m) UK (62m) Italy (61m) Spain (46m) Poland (38m) Romania (21m)
Russia (142m) Ukraine (46m)
Colombia (46m)
China (1.34b) India (1.2b) Brazil (191m) Peru (29m) Indonesia (238m) Pakistan (176m) Bangladesh (150m) Japan (127m) Philippines (94m) Vietnam (87m) Argentina (40m) South Africa (50m) Thailand (67m) Burma (50m) South Korea (49m) Nepal (29m) Malaysia (28m) North Korea (24m) Taiwan (23m) Sri Lanka (20m) Cambodia (13m) Torbjrn Kjus torbjorn.kjus@dnb.no Telephone: +47 24 16 91 66
54% of the world:
Australia (23m)
19
Non-OECD Oil Demand Will Continue To Grow

- We do however expect the growth rate to decrease in the current decade
Non-OECD Oil Demand

46 44
42
Million b/d
40
38 36 34
32 30
28 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: IEA
20
Chinese Oil Demand Growth To Favor Personal Consumption

- Oil products more tilted towards industrial production and the investment cycle may grow much slower in coming years
Chinese Calculated Gasoline Demand

(Adjusted for inventory change since June-2009)
2.2 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 Jan-00
Million b/d
Jan-02
Jan-04
Jan-06
Jan-08
Jan-10
Jan-12
Source: China OGP, Xinhua News, The Chinese General Administration & Customs, National Bureau of Statistics
Chinese Calculated Diesel Demand

(Adjusted for inventory change since June-2009)
4.1 3.6
Million b/d
3.1
2.6 2.1 1.6 1.1

0.6 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12
Source: China OGP, Xinhua News, The Chinese General Administration & Customs, National Bureau of Statistics
21
Look What The Chinese Have Done With Wind Power

- Increase from zero to 1 million b/d (211 TWh) in 5 years
Chinese Wind Power Output

(assuming 30% utilization rate)
1.20
Oil equivalents, Million b/d
1.00
0.80 0.60
0.40 0.20
Installed wind capacity to increase by 30% in China in 2013 (from 63GW to 81 GW) Will equal about 211 TWh (1 million b/d) with a 30% utilization factor Total German electricity consumption is about 600 TWh
0.00 1997 1999 2001 2003 2005 2007 2009 2011

Source: BP stats, Global Wind Energy Council
22
OPEC Spare Capacity Reduced Since 2009

- This is the flip side of the increased Saudi production
OPEC Spare Capacity (IEA Monthly)

9 8 7 6 5 4 3 2 1 0 Nov-01
Million b/d
Nov-03
Nov-05
Nov-07
Nov-09
Nov-11
Nov-13
Source: IEA, DNB Markets
Core OPEC (Saudi/UEA/Kuwait)
Rest of OPEC
Source: IEA Monthly Oil Market Reports
23
MENA: Sex Ratio Unemployment - Young Population

- A recipe for social unrest
Skewed Sex Ratio in The Middel East Low Labor Force Participation In MENA
Very Young Population In MENA
Source: International Labor Organization, UN Population Division, Gapminder
24
Saudi Requires Higher Oil Prices To Balance The Budget

- Saudi exports assumed to be: 2013-2017 in million b/d: 8.3 8.0 7.8 7.5 7.3
Saudi Break Even Budget Oil Price

200 180 160 140 120 100 80 60 40 20 0 2000
Source: PIRA, IMF
$/b
2002
2004
2006
2008
2010
2012
2014
2016
Annual Break Even 12% Spending Gr owth ( 10 year avg)
4% Spendin g Gr owth ( cu rre nt rate) No spending gr owth
25
Long Term Oil Price Forecast

(The forecast is for the average of the rolling 1st month ICE Brent future contract)
Historical Nominal $/b 24.9 25.1 28.5 38.1 55.0 66.2 72.7 98.7 62.6 80.4 110.8 111.7 Forecast Nominal $/b 112 109 105 103 107 102 100 98 96 94 92 90 Historical Real (2011) $/b 31.1 31.3 35.3 46.6 62.8 72.7 78.5 101.6 64.7 82.0 110.8 111.7 Forecast Real (2012) $/b 112 109 105 103 107 100 96 92 89 85 81 78
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Spot Brent History & FWD looking

200
160
120
$/b
80 40
0 1993
Q1-13 Q2-13 Q3-13 Q4-13 2013 2014 2015 2016 2017 2018 2019 2020
1996
1999
2002
2005
2008
2011
2014
2017
2020
Source: Reuters, DNB Markets
Possible range Forecast nominal Forecast real (2012 USD)
FWD (nominal) Historical
26
Backup
27
Global Supply-Demand Trends

-12 month moving average based on the latest monthly data suggest decreasing Call on OPEC in coming years - In 2011 the situation was different (see the graph to the left)
Global Oil Supply vs Demand

(latest 12-month mavg) 95
Million b/d
90
85
80
75 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Total supply historical
Total global oil demand historical Total global oil demand trend fwd
Total supply trend fwd
Current Trend Line Figures OECD demand Non-OECD demand: Total demand Demand change: Non-OPEC (incl. non-core OPEC) Call on core-OPEC crude Change in Call on core-OPEC crude
Trend Line Growth -0.7% 3.3%
2012 46.0 43.8 89.8 75.6 14.2
2.2%
2013 45.7 45.3 91.0 1.1 77.3 13.7 -0.5
2014 45.4 46.7 92.1 1.2 79.0 13.1 -0.5
2015 45.1 48.3 93.4 1.2 80.7 12.6 -0.5
2012-15 change -1.0 4.5 3.5 1.2 5.1 -1.6
28
Existing Projects Will Cover Most Of The Oil Need By 2020

Net Oil Need Of 23 Million b/d Before 2020??
(Assuming 2.5% net decline rate and below trend line oil demand grow th (0.8% vs trend line 1.5%) 95
Conclusion: The gap (23-17-16 ??) by 2020 will be covered by existing projects. No need for new discoveries to cover the gap by 2020.
85
23
Million b/d
75
65
55
45 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Global Liquids supply (excl. biofules and processing gains) Below trendline demand growth
Source: IEA, Rystad Energy, DNB Markets
Lost output
Net need of new barrels by 2020 in million b/d: 17+6 =23? 11+6 =17?, 10+6 =16? Lost supply from decline rates: 17 million b/d (2.5%)- source Rystad Energy 11 million b/d (1.6%)- Harvard report. 10 million b/d (1.5%) IEA WEO 1212 (page 102). Trend line demand growth (1.5%) will almost be cut in half (0.8%): 6 million b/d.
How much can supply increase?: Rystad Energy: 27 million b/d GS top 360: Estimated growth in world oil liquids supply from the worlds top 360 projects 2011-2020 (page 41): 38-12 =26 million b/d. (18 million b/d if adjusting for normal project slippage) Harvard study: 29 million b/d.
Source: DNB Markets, IEA, Rystad Energy, Goldman Sachs 360 projects - March 2012, Harvard Kennedy School Belfer Center
29
The Most Expensive Barrels Risk Being Pushed Out By Shale Oil
- How expensive will it be to develop oil projects in the Barents Sea?
Marginal Supply vs Oil Price
(If OPEC spare capacity not large enough to push Non-OPEC marginal supply out of the market) 200 180 160 140 120
$/b
100 80 60
40
20 0 1% 10% 19% 28% 37% 46% 55% % of Supply

OPEC Middle East Supply Non-OPEC Onshore Supply Non-O PEC Of fshore Supply Non-OPEC Deepwater, Oil Sands, GTL, CTL, Biofuel Supply, Arctic (Barents Sea) OPEC Spare Capacity No Shale Liquids Demand
64%
73%
82%
91%
100%
Source. DNB Markets
Marginal Supply vs Oil Price

(Large OPEC Spare Capacity could bring prices down) 160
The most expensive barrels risk being pushed out of the market. The best example of this in real life is Shtokman in the Barents sea.
140
120
100
$/b
80
60
40
20
0 1% 10% 19% 28% 37% 46% 55% % of Supply
OPEC Middle East Supply Non-OPEC Onshore Supply Non-OPEC Offshore Supply OPEC Spare Capacity Shale Liquids Non-OPEC Deepwater, Oil Sands, GTL, CTL, Biofuel Supply, Arctic (Barents Sea) Demand
64%
73%
82%
91%
100%
Source. DNB Markets
30
The Hydraulic Fracturing Technique
31
Investments Cannot Continue @ 50% Of GDP Growth In China

- The consumption part of GDP growth must soon start to climb Zero growth in China's investments will halve the GDP growth
China: GDP Percent change y/y

15 12 9 6 3 0 -3 2001
2003
2005
2007
2009
2011 Investments GDP
Source: Thomson Datastream/DNB M arkets
Consumption Net exports
32
Short Term
33
Financial Oil Positions NYMEX (WTI, RBOB, Heating Oil)

Non-Commercial Net Oil Length
(Non-Commercial total net length of WTI, RBOB & Heat - Futures & Options)
500 400 300
155 135 115
Million barrels
95 200 75 100 55 0 -100 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 35 15
Source: CFTC
$/b
34
Financial Oil Positions NYMEX (WTI, RBOB, Heating Oil)

Managed Money Net Oil Length & WTI
(CFTC - WTI, RBOB & Heat - Futures & Options)
450 400
115
105 350
Million barrels $/b
300 250 85 95
200 150 100 65 50 0 Dec-08 55 Dec-09 Dec-10 Dec-11

CFTC Total Oil Net Length
75
Dec-12
WTI 1st Month
Source: CFTC
35
Net 'Money Managers' Exposure on ICE Brent

ICE London Managed Money Net Brent Oil Length & Brent Price
(Net length of Brent Futures) 200 180 160 140 120 100 80 60 40 20 0 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13
ICE Brent Futures Net Length
130 125 120 115 110 105 100 95 90
Million barrels
Source: Reuters
Brent 1st Month
$/b
36
Modeled Brent Price Based On Time Spread

- Has provided early market signals several times.
Modelled Brent Price Based On Time Spread (1 vs 3)

(Based on daily correlation since 2009) 150 140 130
120
Weak macro economy, European debt crisis
110 100
$/b
Building risk premium due to Arab spring
90 80 70 60 50 40 30 20 Nov/2008 Nov/2009 Nov/2010 Nov/2011 Nov/2012

Real Brent Price
Iran tensions lead to a risk premium
Nov/2013
Modeled Brent Price, 20 days rolling avg
37
Brent, Forties, Oseberg Ekofisk (BFOE) Loading Programs

- Structural production decline still on-going. In addition about 160 kbd (equals 20% of the current BFOE program) on average has left for South Korea in 2012 due to the EU free trade agreement (which gives South Korean refiners a 3% discount).
BFOE Loadings
1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Apr-09
Million b/d
Oct-09
Apr-10
Oct-10
Apr-11
Oct-11
Apr-12
Oct-12
Source: DNB Markets, Reuters
Brent
Forties
Oseberg
Ekofisk
Source: PIRA Torbjrn Kjus torbjorn.kjus@dnb.no Telephone: +47 24 16 91 66
38
Dubai Market (Asia) Is Weakening

- Is it giving us an early warning signal?
Dubai 1-3 Month and Brent

4 3 2 1 0 -1 -2 -3 -4 -5 Jan/06 Jan/07 Jan/08 Jan/09 Jan/10 Jan/11 Jan/12 Jan/13 160
Dubai time spread - $/b
140 100
80 60 40 20
Source: Platts
Dubai 1st vs 3rd
Brent
Brent Dated - $/b

39
120
Modeled Dubai Price Based On Time Spread

- Has provided early market signals several times.
Modelled Dubai Price Based On Time Spread (1 vs 3)

(Based on weekly correlation since 2006) 150 140 130
120
110 100
$/b
90 80 70 60 50 40 30 20 Nov/2008 Nov/2009 Nov/2010

Modeled Dubai price
Nov/2011
Nov/2012
Nov/2013
Real Dubai Price
40
Fundamental Balances DNB Markets vs IEA, OPEC, EIA

DNB Markets World Oil Supply-Demand Balance:
OECD Demand Non-OECD Demand Total Demand Non-OPEC Supply OPEC NGL's and non-conventional oil Global Biofuels Total Non-OPEC supply Call on OPEC crude (and stocks) OPEC Crude Oil Supply (Last known number dragged fwd) Implied World Oil Stock Change
2008
48.1 37.7 85.8 49.2 4.5 1.4 55.1 30.6 31.6 1.0
Change
-2.1 1.2 -0.9 0.6 0.4 0.2 1.2 -2.0 -2.5
2009
46.0 38.9 84.9 49.8 4.9 1.6 56.3 28.6 29.1 0.5
Change
0.6 2.1 2.7 1.0 0.5 0.2 1.7 1.0 0.1
2010
46.6 41.1 87.7 50.8 5.4 1.8 58.0 29.6 29.2 -0.4
Change
-0.4 1.3 0.9 0.1 0.4 0.0 0.5 0.4 0.6
2011
46.2 42.4 88.5 50.9 5.8 1.9 58.5 30.0 29.9 -0.1
Change
-0.4 1.4 1.0 0.6 0.4 0.0 1.0 0.0 1.5
2012
45.7 43.8 89.5 51.5 6.2 1.9 59.5 30.0 31.4 1.3
Change
-0.4 1.4 1.0 1.2 0.3 0.1 1.7 -0.6 -1.0
2013
45.3 45.3 90.6 52.7 6.5 2.0 61.2 29.4 30.3 1.0
IEA World Oil Supply-Demand Balance (Feb 2012):

OECD Demand Non-OECD Demand Total Demand Non-OPEC Supply OPEC NGL's and non-conventional oil Global Biofuels Total Non-OPEC supply Call on OPEC crude (and stocks) OPEC Crude Oil Supply (Last known number dragged fwd) Implied World Oil Stock Change
2008
48.4 37.9 86.2 49.2 4.5 1.4 55.1 31.1 31.6 0.5
Change
-2.1 1.2 -0.8 0.6 0.4 0.2 1.2 -2.0 -2.5
2009
46.3 39.1 85.4 49.8 4.9 1.6 56.3 29.1 29.1 0.0
Change
0.6 2.1 2.7 1.0 0.5 0.2 1.7 1.0 0.1
2010
46.9 41.2 88.1 50.8 5.4 1.8 58.0 30.0 29.2 -0.8
Change
-0.4 1.2 0.8 0.1 0.4 0.0 0.5 0.2 0.6
2011
46.5 42.4 88.8 50.9 5.8 1.9 58.5 30.3 29.9 -0.4
Change
-0.4 1.4 1.0 0.6 0.4 0.0 1.0 0.0 1.5
2012
46.0 43.8 89.8 51.5 6.2 1.9 59.5 30.3 31.4 1.0
Change
-0.4 1.2 0.8 0.9 0.3 0.1 1.3 -0.5 -1.0
2013
45.6 45.1 90.7 52.4 6.4 2.0 60.8 29.8 30.3 0.5
OPEC World Oil Supply-Demand Balance (Feb 2012):

OECD Demand Non-OECD Demand Total Demand Non-OPEC Supply (Incl all Biofuel) OPEC NGL's and non-conventional oil Total Non-OPEC supply Call on OPEC crude (and stocks) OPEC Crude Oil Supply (Last known number dragged fwd) Implied World Oil Stock Change
2008
48.4 37.7 86.1 50.4 4.1 54.5 31.6 31.2 -0.4
Change
-2.1 0.8 -1.3 0.7 0.2 0.9 -2.2 -2.5
2009
46.3 38.5 84.8 51.1 4.3 55.4 29.4 28.7 -0.7
Change
0.6 1.7 2.3 1.2 0.7 1.9 0.4
2010
46.9 40.2 87.1 52.3 5.0 57.3 29.8 29.2 -0.6
Change
-0.4 1.3 0.9 0.1 0.4 0.5 0.4
2011
46.5 41.5 88.0 52.4 5.4 57.8 30.2 29.9 -0.3
Change
-0.4 1.2 0.8 0.6 0.3 0.9 -0.1
2012
46.1 42.7 88.8 53.0 5.7 58.7 30.1 31.4 1.3
Change
-0.2 1.1 0.9 0.9 0.3 1.2 -0.3
2013
45.9 43.8 89.7 53.9 6.0 59.9 29.8 30.3 0.5
EIA World Oil Supply-Demand balance (Feb 2012):

OECD Demand Non-OECD Demand Total Demand Non-OPEC Supply (Incl all Biofuel) OPEC NGL's and non-conventional oil Total Non-OPEC supply Call on OPEC crude (and stocks) OPEC Crude Oil Supply (Last known number dragged fwd) Implied World Oil Stock Change
2008
47.6 38.2 85.8 49.7 4.5 54.1 31.7 31.3 -0.4
Change
-2.2 0.7 -1.5 0.8 0.3 1.1 -2.6 -2.2
2009
45.4 38.9 84.3 50.5 4.8 55.2 29.1 29.1 0.0
Change
0.7 2.1 2.7 1.3 0.8 2.1 0.7 0.1
2010
46.1 41.0 87.1 51.8 5.5 57.3 29.8 29.2 -0.5
Change
-0.3 1.5 1.2 0.2 -0.3 -0.1 1.3 0.6
2011
45.8 42.5 88.3 52.0 5.3 57.2 31.1 29.9 -1.2
Change
0.2 0.7 0.9 0.5 0.3 0.8 0.1 1.5
2012
46.0 43.2 89.2 52.5 5.6 58.0 31.1 31.4 0.2
Change
-0.3 1.3 1.1 1.2 0.2 1.4 -0.4 -1.0
2013
45.8 44.5 90.2 53.7 5.8 59.5 30.8 30.3 -0.4
41
DNB Markets Global Fundamental Oil Balance

- If OPEC continue to produce at the latest known level (from the IEA-database)
DNB Markets World Oil Supply-Demand Balance Tim e Phased

3.0 2.0
Million b/d
1.0 0.0 -1.0
-2.0 Jan Feb Mar Apr May

5 yea r ra nge
Jun
Jul
Aug
Sep
Oct
20 12
Nov
Dec
20 13
5 yea r a vg
42 Torbjrn Kjus torbjorn.kjus@dnb.no Telephone: +47 24 16 91 66
Oversupplied Market In 2013 If OPEC (Saudi) Do Not Cut

Global Oil Supply vs Demand
94 92 90 88 86 84 82 80 78 76 74 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Glob al sup ply Glob al de mand
Million b/d
43
Fundamentals (Supply vs Do Still Matter For Oil Prices

Call on OPEC vs Price Change
2.0
1.5
36
26
1.0
Call on OPEC Change - Million b/d
16
0.5
0.0
-5 -0.5
-15
-1.0
-1.5
-25
-2.0 -2.5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
-35
-45
Brent Price Change
IEA Call on OPEC Change
DNB Markets Call on OPEC Change
Brent Price Change - $/b
44
2013 Oil Price Scorecard Brent Forecast Maintained @ 107 $/b

2013 Oil Price Scorecard
Overall Outlook Fundamentals
Global Fundamental Balance Crude vs Product Balance (Margins) OECD Stock levels OPEC Spare Capacity US Oil Statistics - Fundamentals
We forecast 'Call on OPEC' will decrease by 0.7 million b/d on a combination of strong growth in non-OPEC supply (particularly from North-America) and weaker net oil demand growth. More refinery capacity will be added next year than net growth in global oil demand. IEA estimate that more than 4 million b/d of capacity will be added in 2013 if we include desulphurization capacity, upgrading units and CDU expansions. Most of the additions will be in Asia, the Middle East and Former Soviet Union (FSU). OECD stock levels are high when measured in days of demand coverage. Unless OPEC cuts back output next year, OECD stocks will continue to grow. Since we believe there will be a need for OPEC to cut production next year and since we believe Saudi Arabia will defend oil prices in the 80-100 $/b range, the implication of lower output from OPEC is higher spare capacity. In addition the production capacity is expected to grow in Iraq, Libya and Angola. US oil demand is expected to fall 0.1 million b/d next year while liquids supply is expected to grow 0.7 million b/d on the back of the new shale liquids industry. This means US crude imports should continue to decrease, hence making more crude oil available for other consumers. We believe global oil demand growth will be weak also in 2013. A high oil burden normally provides less "bang for the buck" with respect to the intensity factor vs economic growth. Instead of growing 0.5 percent for every percent growth in global GDP, we believe 2013, just as 2012, will offer significantly lower oil demand growth per unit GDP-growth than the long-term average of 0.5. Chinese oil demand growth has been weak so far in 2012 and with expectations of weaker economic growth next year there is probably no reason to expect trend-line growth of Chinese oil demand in 2013 either. We think net global oil demand will grow only 0.7% in 2013 which is very similar to 2012. Chinese oil demand is expected to grow 366 kbd next year vs 271 kbd in 2012. This is meaningfully weaker than the ten-year average growth of 500 kbd. European oil demand will continue to fall, next year by 0.4 million b/d, slightly less than in 2012. OECD Asia oil demand growth, which has been so strong in 2012 (+358 kbd ytd) due to oil used in the power sector in Japan, is expected to fall to about zero in 2013. That could even prove to be optimistic as the 2012-numbers have been inflated by all the nuclear outages (and if many of these reactors return to service next year, oil demand in Japan will start falling). Total OECD demand is expected to fall 0.5 million b/d next year while total non-OECD demand is expected to rise by 1.2 million b/d, providing net global oil demand growth of 0.6 million b/d. We still forecast decent demand growth in Asia, Latin America and most of the Middle-East, but the expected weakness in OECD offsets much of the demand growth in nonOECD. We think OPEC will reduce its production meaningfully in 2013, both since Saudi Arabia will cut its output to balance the market but also since the Iranian conflict is not set to be resolved and hence Iranian capacity is not set to be fully restored in 2013. Non-OPEC production including biofuels is expected to increase by 1.1 million b/d in 2013. 70% of this growth is expected to come in North-America, due to the shale liquids revolution. OPEC NGLs production is expected to increase by 0.3 million b/d. This is normally added to the non-OPEC supply category since it is not part of OPEC's production target system. This means total non-OPEC production including OPEC NGLs is expected to increase by 1.4 million b/d. We do not expect unplanned supply outages caused by accidents, strikes, security issues, technical problems and weather to be as high in 2013 as we have seen in 2012. The largest part of the unplanned outages in 2012 was due to reduced production in Sudan/South-Sudan, Syria, Yemen and the UK (the Buzzard field). The largest reduction in outage is expected from South-Sudan which we estimate will see a gradual return during 2013 starting in February to reach pre-conflict level if above 300 kbd by the end of next year.
Comments
There will be powerful forces working in different directions for the oil market in 2013. Geopolitics and increased liquidity poured into the system from central banks should pose positive elements for oil prices but fundamentally the market will not look strong. After the change of the millennium we have seen two incidents of a decreasing 'Call on OPEC' (2000-02 and 2008-09). Oil prices fell back in both cases. Since we believe the 'Call on OPEC' will decrease significantly in 2013 the average oil price should be falling compared with 2012. We do however still believe it will trade above 100 $/b, supported by the mentioned geopolitical and liquidity factors.
Oil Price Average price 107 $/b
Weight
BEARISH BEARISH BEARISH BEARISH BEARISH
HIGH MEDIUM LOW MEDIUM MEDIUM
Global Demand Growth
BEARISH
MEDIUM
OPEC Supply
BULLISH
LOW
Non-OPEC Supply
BEARISH
MEDIUM
Political Risk
The largest risk is connected to Iran's nuclear program and the fact that EU has decided an oil embargo vs the country and US has imposed financial sanctions. Officials in Iran have threatened to close the strait of Hormuz where 35-40% of the worlds traded oil passes through. We do not think Iran will choose to close the strait. It is rational to threat to close it but irrational to carry through with it. Iran does not have the military muscles to match the US fifth fleet which is based in Bahrain. We always believed there was only a very small chance that Israel would attack Iran in 2012, even though it seemed several players placed some bets on that to happen. Now after the US elections there is however a larger chance for a physical attack since the US will need to be part of this to make any action successful. There is also constant risk for output disruptions in the whole of Middle-East/North-Africa as the "Arab spring" is not at all over in our view. The continuous demonstrations in Egypt illustrate the point. The on-going unrest in Syria, which some view as a proxy war between Iran and Saudi, risks spilling over in a wider sunni-shiite conflict that could threaten stability in the whole region. We hence believe geopolitical risk still justifies a sizeable price premium in the oil market for 2013.
Iraq, Iran, Nigeria, Venezuela, US, Russia, Israel, MENA, etc
BULLISH
HIGH
Other Factors
Financial Money Flow
The US has had its quantitative easing (QE) nr 1, nr 2 and nr 3. All have been supportive for oil prices. Also the European LTRO-program launched last December was positive for oil prices. Generally any increased liquidity is short term positive for oil prices. The final solution to the European debt crisis could end up being that the ECB will have to help European countries inflate out of the debt problem. This could be serious trouble for the real economy and physical oil demand but could still (temporarily) support oil prices through financial demand for oil (both through increased investment in paper oil and as a hedge vs inflation). We believe the US "fiscal cliff" will be "solved" by last minute compromises between republicans/democrats and that could cause a liquidity rally as we start 2013. The rally will however be relatively short lived as weak global oil fundamentals start making their negative impact on the market.
BULLISH
MEDIUM
45
CONTACTS & DISCLAIMER

Oslo, Sales & Trading Nils Fredrik Hvatum Fredrik Sagen Andersen Jesper Meyer Hatletveit Nils Wierli Nilsen Ane Tobiassen Erik Warren +47 +47 +47 +47 +47 +47 24 16 91 59 24 16 91 48 24 16 91 53 24 16 91 61 24 16 91 44 24 16 91 46 London, Sales Andr Rrheim Singapore, Sales Seng Leong Ong New York, Sales Kenneth Tveter +44(0) 20 7621 6082 +65 622 480 22 +1 212 681 3888 Oslo, Research Torbjrn Kjus Karl Magnus Maribu +47 24 16 91 66 +47 24 16 91 57
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2013 DNB Torbjørn Kjus Presentasjon

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Oil Market Outlook

The Fat Lady Has Started To Sing

February 2013 - Torbjrn Kjus

The Limit Of Oil Production Is Being Reached - Not

MIT professor Morris Adelman:

Torbjrn Kjus torbjorn.kjus@dnb.no Telephone: +47 24 16 91 66

Trend Line Demand Growth Weakening On High Prices

Global Oil Demand - Price Matters

Global Oil Demand (mbd)

Supply shock: Iran vs Iraq Revolution in Iran

Global oil demand

Fwd looking oil demand DNB

Oil price change in percent

Torbjrn Kjus torbjorn.kjus@dnb.no Telephone: +47 24 16 91 66

Peak Oil Has Already Happened

OECD Oil Demand Seasonally Adjusted

Torbjrn Kjus torbjorn.kjus@dnb.no Telephone: +47 24 16 91 66

GDP Growth In OECD No Longer Provide Growth In Oil Demand

Advanced Economies GDP vs Oil Demand (Yearly data 1980-2012)

51 y = 0.5492x + 33004 R = 0.9221

y = 0.3364x + 36484 R = 0.6984

Advanced Economies GDP - Purchasing Power Parity

Advanced Economies GDP - Purchasing Power Parity

Advanced Economies GDP vs Oil Demand (Yearly data 2006-2012)

OECD Oil Demand vs OECD Economic Growth

Avanced Economies - Oil demand Million b/d

49 48 47 y = -0.6813x + 73546 R = 0.5911

Advanced Economies GDP - Purchasing Power Parity

Advanced economies GDP (PPP)

Advanced Economies Oil Demand

Torbjrn Kjus torbjorn.kjus@dnb.no Telephone: +47 24 16 91 66

Source: BP stats, IEA, IMF, DNB Markets

Global Oil Burden

Torbjrn Kjus torbjorn.kjus@dnb.no Telephone: +47 24 16 91 66

Torbjrn Kjus torbjorn.kjus@dnb.no Telephone: +47 24 16 91 66

US Fuel Efficiency Standards To Significantly Improve By 2025

2008 Light Trucks

Passenger cars new CAFE

Light Trucks new CAFE

Torbjrn Kjus torbjorn.kjus@dnb.no Telephone: +47 24 16 91 66

The Huge US Oil-Gas Spread Provides Substitution Possibilities

WTI & Henry Hub

WTI 1st month

Torbjrn Kjus torbjorn.kjus@dnb.no Telephone: +47 24 16 91 66

How Large Is This Change In US Crude Output Really?

Texas crude oil production

Norway crude oil production

Torbjrn Kjus torbjorn.kjus@dnb.no Telephone: +47 24 16 91 66

Torbjrn Kjus torbjorn.kjus@dnb.no Telephone: +47 24 16 91 66

North American Shale Crude Production Growing Very Quickly

US/Canadian Oil Liquids Production Forecast

Torbjrn Kjus torbjorn.kjus@dnb.no Telephone: +47 24 16 91 66

Type Curve Have Similar Shapes Across Plays

Torbjrn Kjus torbjorn.kjus@dnb.no Telephone: +47 24 16 91 66

But Decline Rates Per Well Not Interesting In This Industry

Torbjrn Kjus torbjorn.kjus@dnb.no Telephone: +47 24 16 91 66

US Recoverable Shale Oil Reserves - 113 billion barrels

Torbjrn Kjus torbjorn.kjus@dnb.no Telephone: +47 24 16 91 66

US Shale Resources vs Other Resources

US Shale Reserves Relative To Others

EUR Billion barrels

200 150 100 50 0