Copyright 2002 Global Insight, Inc.

Post-War Oil Markets: Everything Is OK, Right?

Dennis Eklof - Executive Managing Director,

Global Energy

Bruce Cavella – Senior Economist

June 12, 2003

2Copyright 2003 Global Insight, Inc.

Global Oil Markets 2003½ : Where Do We Stand?

Little damage to Iraqi oil infrastructure from war. Demand Growth: SARS, weak economic environment:

wait until next year. Non-OPEC: The taps are WIDE OPEN. OPEC: The taps are (nearly) WIDE OPEN. Prices: Prices fell prior to and during war, but bombings

in Riyadh, low inventories, and slow Iraqi recovery have pushed up prices.

The Outlook: Low inventories, slow Iraqi return, natural gas worries in the United States, and production adjustments by OPEC will support prices in coming months.

3Copyright 2003 Global Insight, Inc.

Global Oil Markets 2003½ : Where Have We Been?

15

20

25

30

35

40

9/4/01 12/28/01 4/22/02 8/12/02 12/2/02 3/25/2003

Market re-opens following 9/11

Russia rejects export cuts

OPEC quota cut

Escalation of Arab/Israeli violence, Iraq halts exports

Venezuelan Strike

Anticipation, beginning, and end of war in Iraq

Weapons inspectors return to Iraq

U.S./Iraqi Rhetoric Heats Up

4Copyright 2003 Global Insight, Inc.

Global Oil Markets 2003½ : Where Do We Stand?Demand Growth Stronger in 2004

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2,500

Asia

Africa

Mideast

Russia

Europe

L. America

N. America

Total World

Thousand Barrels per Day

1.1%

1.9%

0.4%

5Copyright 2003 Global Insight, Inc.

Natural Gas Prices: Supporting Limited Oil Demand Growth

Current US short to mid-term gas/oil switching capacity about 0.65 to 0.70 mbd

At least two thirds has already switched, a major factor contributing 0.5 mbd to recent growth in resid and distillate demand

High gas prices almost certain to continue through 1H2004 so some additional switching possible

Important long-term issue is whether higher long-term gas prices will provide oil demand growth or merely reduced industrial activity and import substitution

6Copyright 2003 Global Insight, Inc.

US Natural Gas Prices: Continued Upward Trend for Now

Monthly and Long-term Average Natural Gas Spot Prices(Henry Hub)

0

2

4

6

8

10

12

Jan

-87

Jan

-88

Jan

-89

Jan

-90

Jan

-91

Jan

-92

Jan

-93

Jan

-94

Jan

-95

Jan

-96

Jan

-97

Jan

-98

Jan

-99

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Dollarsper

MillionBTU

$1.62 $2.18 $4.06

Forecast Average Price Range for June 03 Through December 04

7Copyright 2003 Global Insight, Inc.

Global Oil Markets 2003½ : Where Do We Stand?OECD Commercial Stocks and Forward Supply

2.3

2.4

2.5

2.6

2.7

2.8

Jan90

Jul91

Jan93

Jul94

Jan96

Jul97

Jan99

Jul00

Jan02

Jul03

Billion barrels

30

40

50

60

70

80

Days

OECD Commercial Stocks (left scale)

Forward Supply (right scale)

8Copyright 2003 Global Insight, Inc.

Global Oil Markets 2003½ : Where Do We Stand?Non-OPEC Production Growing

Non-OPEC production growing by nearly 1 million b/d this year.

Growth in non-OPEC production meets all of expected demand growth in 2003.

Non-OPEC production increases by nearly 1 million b/d again in 2004.

Little room for OPEC-10 to expand production in 2004 particularly with return of Iraqi oil.

9Copyright 2003 Global Insight, Inc.

Non-OPEC Production Growth

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

2001 2002 2003 2004

Million Barrels per

Day

Canada

Mexico

N. Sea

Russia

US

Other

10

Copyright 2003 Global Insight, Inc.

Iraqi Oil Production

Iraqi Oil Production

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Sep98

Sep99

Sep00

Sep01

Sep02

Sep03

Barrels per Day

11

Copyright 2003 Global Insight, Inc.

Global Oil Markets 2003½ : Where Does OPEC Stand?

OPEC, OPEC-10 Share of Global Market

32%

34%

36%

38%

40%

42%

44%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

OPEC OPEC-10

12

Copyright 2003 Global Insight, Inc.

Global Oil Markets 2003½ : OPEC Continues To Manage the Market and Prices

5

10

15

20

25

30

35

40

Apr97

Oct97

Apr98

Oct98

Apr99

Oct99

Apr00

Oct00

Apr01

Oct01

Apr02

Oct02

Apr03

Dollars per barrel

OPEC Quota Decrease OPEC Quota Increase

13

Copyright 2003 Global Insight, Inc.

OPEC Basket Price

OPEC's Basket Price

16

18

20

22

24

26

28

30

32

May00

Nov00

May01

Nov01

May02

Nov02

May03

Dollars per Barrel

OPEC's target range

14

Copyright 2003 Global Insight, Inc.

“OPEC Taps Are Open And Oil Is On The Way!” – March teleconference.

Saudi Arabia chartered 20-25 ships to bring extra crude to market in mid- to late-January and again in late March.

Six-week sailing time to the U.S. meant that a wave of oil was on the way.

15

Copyright 2003 Global Insight, Inc.

Where Is the Oil?

Oil may be “slow-steaming”. Oil may have been diverted to

Caribbean storage or to other destinations.

16

Copyright 2003 Global Insight, Inc.

Global Oil Markets 2003½ : Where Do We Stand?U.S. Commercial Stocks and Forward Supply

0.8

0.9

1.0

1.1

1.2

Jan95

Jan96

Jan97

Jan98

Jan99

Jan00

Jan01

Jan02

Jan03

Billion barrels

30

40

50

60

70

Days

U.S. Commercial Oil Stocks (left scale)

Forward Supply (right scale)

17

Copyright 2003 Global Insight, Inc.

Near-Term Price Scenarios

WTI Price Scenarios 6/03

18

20

22

24

26

28

30

32

34

36

38

1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05

Dollars per barrel

Slow Return of Iraqi Oil and a Disciplined OPEC-10

Gradual Return of Iraqi Oil, Moderate Discipline by OPEC-10

Quick Return of Iraqi Oil, Too Much From OPEC-10