CRUDE OIL & FUELS

1. CRUDE OIL & FUELS “Outlook for 2013 and Beyond” 7th Annual Iowa Renewable Fuels Summit - Jan. 30, 2013Robert Gough- Director of Content Development Oil Price Information Service

2. OPIS 2013 Outlook: A Kinder, Gentler, Lower-Price Year for Gasoline • Good riddance 2012. • Welcome 2013! • Canada and the Midwest to the rescue! • Spring will find prices hopping but just not as high. • The West will remain wild. • Crudely speaking, we are a diverse nation.

3. Good riddance 2012! • Gasoline prices averaged a record $3.6035/gal last year ($2.348/gal and $2.78/gal in 2010 and 2009). • They hit a peak of $3.9357/gal on Apr. 5 and again Apr. 6. • The highest gasoline prices in nation were in California - $4.6707/gal in early October. • Americans spent ~$479 billion on gasoline last year; more than 2x $183 billion spent just 10 years ago.

4. Welcome 2013! • OPIS predicts 2013 average will be $3.25-$3.50/gal. • That’s 10cts lower than 2012’s average. • Possible peak of $3.90/gal. • The last calendar day the U.S. average price fell below $3/gal was Dec. 22, 2010. There’s a good chance this 25-month string will be broken in 2013.

5. Canada and the Midwest to the rescue! • Expect heavy discounts on crudes from Canada and Midwest. • Rising rig counts (particularly in the Bakken shale region of N. Dakota, the Eagle Ford shale play of south central Texas and numerous other North American “tight” oil supply points). • Sustained world prices above $90/bbl and technological improvements in drilling result in highest domestic crude oil output since spring 1993.

6. Canada and the Midwest to the rescue! • Barring a price collapse, early in the first quarter we should see U.S. crude oil production regularly top 7 million b/d. • Domestic crude output could top 8 million b/d in the next 15 months (not seen since 1988). • Domestic output could begin regularly exceeding imports. • BP’s recently published long-term outlook predicts U.S. 99% energy independent by 2030.

7. Spring will find prices hopping… • As is the norm, retail prices will begin their seasonal run-up to the summer driving season. • In the past 28 years, the fall-to-spring “seasonal” run-up boosts prices 58% compared to autumn/winter. • Midway through 1Q FY13 there’ll be extensive refinery turnarounds & production cuts + transition from winter to summertime RVP. • Usually the spring run-up peak is reached in April, sometimes May.

8. …but just not as high • There’ll be a spike this spring but probably with a lower trajectory. • Last spring’s European & Caribbean refinery issues likely won’t repeat nor will threats of East Coast refinery shutdowns (due to poor margins). • Look for a 30-35% seasonal ride with RBOB futures in the $3.30-$3.45/gal range.

9. The West will remain wild • Last October, California prices raced above $4.70/gal (locally $5/gal +). • Within 60 days, inventories were back up and prices fell off more than $1.50/gal. • California’s Low Carbon Fuel Standard continues to put pressure on fossil fuels and, by some estimates, could raise prices there as much as $2.50/gal by 2020.

10. Crudely speaking, we are a diverse nation • Western Canadian Select (WCS) crudes sold several times last year at a $40/bbl discount to WTI - the standard blend for delivery into the NYMEX at Cushing, Okla. • Price gap between WTI and Brent (the European crude contract supplying the East Coast) had been $14/bbl. • Crude costs may vary as much as $50/bbl between regions. • Midwest refiners capable of running heavy, sour crudes from Canada & WTI may be able to undersell coastal refineries by $1/gal.

11. Questions? Robert (Bob) Gough Director of Content Development Oil Price Information Service rgough@opisnet.com 301-287-2496