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

February 2013 - Torbjørn Kjus

“Hey, I’m you life

I’m the one who took you there

Hey, I’m your life

And I no longer care”

Quote: Hetfield, Ulrich, Alan – “Sad but true”

Torbjørn Kjus – [email protected] – Telephone: +47 24 16 91 66

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

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•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.”

Torbjørn Kjus – [email protected] – Telephone: +47 24 16 91 66 3

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

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)Global Oil Demand - Price Matters

Oil price change (real terms) Global oil demand Fwd looking oil demand DNB

Source: BP Statistical Review, DNB Markets

Supply shock:

• Yom Kippur

Supply shock:

• Iran vs Iraq

• Revolution in Iran

Demand «shock»:

•China and emerging markets

•Weak non-OPEC supply growth


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

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OECD Oil Demand Seasonally Adjusted

Source: IEA

•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.

OECD Oil Demand (kbd) 2005 2012 Change

LPG and Ethane 4776 4787 11

Naphtha 3274 3187 -87

Motor Gasoline 14836 13870 -966

Jet and Kerosene 4263 3672 -591

Diesel 8519 9546 1027

Other Gasoil 4590 2983 -1607

Residual Fuels 4504 2779 -1725

Other Products 5124 4472 -652

Total Products 49888 45297 -4591


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

y = 0.5492x + 33004R² = 0.9221

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Advanced Economies GDP - Purchasing Power Parity

Advanced Economies GDP vs Oil Demand(Yearly data 1980-2005)

Source: DNB Markets, BP stats, IMF

y = 0.3364x + 36484R² = 0.6984

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y = -0.6813x + 73546R² = 0.5911

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OECD Oil Demand vs OECD Economic Growth

Advanced economies GDP (PPP) Advanced Economies Oil Demand

Source: BP stats, DNB Markets, IMF


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))

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Source: BP stats, IEA, IMF, DNB Markets


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

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US CAFE Standards(Source: EIA)

Passenger cars Passenger cars new CAFE Light Trucks 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

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WTI & Henry Hub

Henry Hub WTI 1st monthSource: Reuters


How Large Is This Change In US Crude Output Really? - Last year Texas was still below Norwegian crude oil production – Not anymore…

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Norway Monthly Crude Oil Production

Source: EA

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Texas & Norway Monthly Crude Oil Production

Texas crude oil production Norway crude oil productionSource: US DOE, IEA


Conventional vs Unconventional - Moving to the “kitchen” instead of the “living room” (Source: USGS)


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

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US/Canadian Oil Liquids Production Forecast(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

Mississippi Lime

Permian Basin Shales

Bakken

Eagle Ford

Ethanol

Non-Shale Crude & Condensate


Type Curve Have Similar Shapes Across Plays - Source: PIRA Study – Road to US energy independence


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


US Recoverable Shale Oil Reserves - 113 billion barrels - Source: PIRA Study – Road to US energy independence


US Shale Resources vs Other Resources - US shale resources larger than conventional reserves in Kuwait/UAE/Russia

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US Shale Reserves Relative To Others(Source BP stats and PIRA shale study)


Reserves Growth Set To Accelerate? - There is already visible reserves growth but will the shale oil revolution lead to an acceleration in coming years?

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Historical Assessment Of Proven Oil Reserves(Source BP stats 2012)


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

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Source: US DOE

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World Population By Country (Sources 2009-2011)

54% of the world: •China (1.34b) •India (1.2b) •Indonesia (238m) •Pakistan (176m) •Bangladesh (150m) •Japan (127m) •Philippines (94m) •Vietnam (87m) •Thailand (67m) •Burma (50m) •South Korea (49m) •Nepal (29m) •Malaysia (28m) •North Korea (24m) •Taiwan (23m) •Sri Lanka (20m) •Cambodia (13m)

USA (311m)

Brazil (191m)

Nigeria (158m)

Russia (142m)

•Germany (82m) •France (66m) •UK (62m) •Italy (61m) •Spain (46m) •Poland (38m) •Romania (21m)

Kenya (39m)

Egypt (80m)

Ethiopia (80m)

Congo (68m)

South Africa (50m)

Mexico (112m)

Iran (75m)

Turkey (74m)

Colombia (46m)

Morocco (32m)

Sudan (43m)

Tanzania (43m)

Ukraine (46m)

Argentina (40m)

Canada (34m)

Australia (23m)

Algeria (36m)

Saudi (27m)

Peru (29m)

Venezuela (29m)

Iraq (31m)

Yemen (22m)


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

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Non-OECD Oil Demand

Source: IEA


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

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Chinese Calculated Gasoline Demand(Adjusted for inventory change since June-2009)

Source: China OGP, Xinhua News, The Chinese General Administration & Customs, National Bureau of Statistics

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Chinese Calculated Diesel Demand(Adjusted for inventory change since June-2009)

Source: China OGP, Xinhua News, The Chinese General Administration & Customs, National Bureau of Statistics


Look What The Chinese Have Done With Wind Power - Increase from zero to 1 million b/d (211 TWh) in 5 years…

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(assuming 30% utilization rate)

Source: BP stats, Global Wind Energy Council

•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


OPEC Spare Capacity Reduced Since 2009 - This is the flip side of the increased Saudi production

Source: IEA Monthly Oil Market Reports

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OPEC Spare Capacity (IEA Monthly)

Core OPEC (Saudi/UEA/Kuwait) Rest of OPECSource: IEA, DNB Markets


MENA: Sex Ratio – Unemployment - Young Population - A recipe for social unrest

Source: International Labor Organization, UN Population Division, Gapminder

Skewed Sex Ratio in The Middel East

Very Young Population In MENA

Low Labor Force Participation In MENA


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

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Saudi Break Even Budget Oil Price

Annual Break Even 4% Spendin g Growth (cu rre nt rate)

12% Spending Growth (10 year avg) No spending growthSource: PIRA, IMF


Long Term Oil Price Forecast (The forecast is for the average of the rolling 1st month ICE Brent future contract)

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Possible range FWD (nominal)

Forecast nominal Historical

Forecast real (2012 USD)Source: Reuters, DNB Markets

Historical Historical

Nominal $/b Real (2011) $/b

2001 24.9 31.1

2002 25.1 31.3

2003 28.5 35.3

2004 38.1 46.6

2005 55.0 62.8

2006 66.2 72.7

2007 72.7 78.5

2008 98.7 101.6

2009 62.6 64.7

2010 80.4 82.0

2011 110.8 110.8

2012 111.7 111.7

Forecast Forecast

Nominal $/b Real (2012) $/b

Q1-13 112 112

Q2-13 109 109

Q3-13 105 105

Q4-13 103 103

2013 107 107

2014 102 100

2015 100 96

2016 98 92

2017 96 89

2018 94 85

2019 92 81

2020 90 78


Backup


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)

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Global Oil Supply vs Demand(latest 12-month mavg)

Total supply historical Total global oil demand historical

Total supply trend fwd Total global oil demand trend fwdSource: IEA, DNB Markets

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Current Trend Line Figures Trend Line Growth 2012 2013 2014 2015 2012-15 change

OECD demand -0.7% 46.0 45.7 45.4 45.1 -1.0

Non-OECD demand: 3.3% 43.8 45.3 46.7 48.3 4.5

Total demand 89.8 91.0 92.1 93.4 3.5

Demand change: 1.1 1.2 1.2 1.2

Non-OPEC (incl. non-core OPEC) 2.2% 75.6 77.3 79.0 80.7 5.1

Call on core-OPEC crude 14.2 13.7 13.1 12.6 -1.6

Change in Call on core-OPEC crude -0.5 -0.5 -0.5


Source: DNB Markets, IEA, Rystad Energy, Goldman Sachs 360 projects - March 2012, Harvard Kennedy School – Belfer Center

Existing Projects Will Cover Most Of The Oil Need By 2020

•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.

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(Assuming 2.5% net decline rate and below trend line oil demand grow th (0.8% vs trend line 1.5%)

Global Liquids supply (excl. biofules and processing gains)

Below trendline demand growth

Lost output

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Source: IEA, Rystad Energy, DNB Markets

•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.

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.


The Most Expensive Barrels Risk Being Pushed Out By Shale Oil - How expensive will it be to develop oil projects in the Barents Sea?

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% of Supply

Marginal Supply vs Oil Price(If OPEC spare capacity not large enough to push Non-OPEC marginal supply out of the market)

OPEC Middle East SupplyNon-OPEC Onshore SupplyNon-OPEC Offshore SupplyNon-OPEC Deepwater, Oil Sands, GTL, CTL, Biofuel Supply, Arctic (Barents Sea)OPEC Spare CapacityNo Shale LiquidsDemand

Source. DNB Markets

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Marginal Supply vs Oil Price(Large OPEC Spare Capacity could bring prices down)

OPEC Middle East Supply

Non-OPEC Onshore SupplyNon-OPEC Offshore SupplyOPEC Spare CapacityShale Liquids

Non-OPEC Deepwater, Oil Sands, GTL, CTL, Biofuel Supply, Arctic (Barents Sea)Demand

Source. DNB Markets

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.


The Hydraulic Fracturing Technique


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

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Consumption InvestmentsNet exports GDPSource: Thomson Datastream/DNB M arkets


Short Term


Financial Oil Positions NYMEX (WTI, RBOB, Heating Oil)

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Non-Commercial Net Oil Length(Non-Commercial total net length of WTI, RBOB & Heat - Futures & Options)

Source: CFTC


Financial Oil Positions NYMEX (WTI, RBOB, Heating Oil)

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Managed Money Net Oil Length & WTI(CFTC - WTI, RBOB & Heat - Futures & Options)

CFTC Total Oil Net Length WTI 1st MonthSource: CFTC


Net 'Money Managers' Exposure on ICE Brent

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ICE London Managed Money Net Brent Oil Length & Brent Price

(Net length of Brent Futures)

ICE Brent Futures Net Length Brent 1st MonthSource: Reuters

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Modeled Brent Price Based On Time Spread - Has provided early market signals several times.

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Modelled Brent Price Based On Time Spread (1 vs 3)(Based on daily correlation since 2009)

Modeled Brent Price, 20 days rolling avg Real Brent Price

Building risk premium due to Arab spring

Weak macro economy, European debt crisis

Iran tensions lead to a risk premium


Source: PIRA

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).

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BFOE Loadings

Brent Forties Oseberg EkofiskSource: DNB Markets, Reuters

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Dubai Market (Asia) Is Weakening - Is it giving us an early warning signal?

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Dubai 1-3 Month and Brent

Dubai 1st vs 3rd BrentSource: Platts


Modeled Dubai Price Based On Time Spread - Has provided early market signals several times.

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Modelled Dubai Price Based On Time Spread (1 vs 3)(Based on weekly correlation since 2006)

Modeled Dubai price Real Dubai Price


Fundamental Balances DNB Markets vs IEA, OPEC, EIA DNB Markets World Oil Supply-Demand Balance: 2008 Change 2009 Change 2010 Change 2011 Change 2012 Change 2013

OECD Demand 48.1 -2.1 46.0 0.6 46.6 -0.4 46.2 -0.4 45.7 -0.4 45.3

Non-OECD Demand 37.7 1.2 38.9 2.1 41.1 1.3 42.4 1.4 43.8 1.4 45.3

Total Demand 85.8 -0.9 84.9 2.7 87.7 0.9 88.5 1.0 89.5 1.0 90.6

Non-OPEC Supply 49.2 0.6 49.8 1.0 50.8 0.1 50.9 0.6 51.5 1.2 52.7

OPEC NGL's and non-conventional oil 4.5 0.4 4.9 0.5 5.4 0.4 5.8 0.4 6.2 0.3 6.5

Global Biofuels 1.4 0.2 1.6 0.2 1.8 0.0 1.9 0.0 1.9 0.1 2.0

Total Non-OPEC supply 55.1 1.2 56.3 1.7 58.0 0.5 58.5 1.0 59.5 1.7 61.2

Call on OPEC crude (and stocks) 30.6 -2.0 28.6 1.0 29.6 0.4 30.0 0.0 30.0 -0.6 29.4

OPEC Crude Oil Supply (Last known number dragged fwd) 31.6 -2.5 29.1 0.1 29.2 0.6 29.9 1.5 31.4 -1.0 30.3

Implied World Oil Stock Change 1.0 0.5 -0.4 -0.1 1.3 1.0

IEA World Oil Supply-Demand Balance (Feb 2012): 2008 Change 2009 Change 2010 Change 2011 Change 2012 Change 2013

OECD Demand 48.4 -2.1 46.3 0.6 46.9 -0.4 46.5 -0.4 46.0 -0.4 45.6

Non-OECD Demand 37.9 1.2 39.1 2.1 41.2 1.2 42.4 1.4 43.8 1.2 45.1

Total Demand 86.2 -0.8 85.4 2.7 88.1 0.8 88.8 1.0 89.8 0.8 90.7

Non-OPEC Supply 49.2 0.6 49.8 1.0 50.8 0.1 50.9 0.6 51.5 0.9 52.4


Global Biofuels 1.4 0.2 1.6 0.2 1.8 0.0 1.9 0.0 1.9 0.1 2.0




Implied World Oil Stock Change 0.5 0.0 -0.8 -0.4 1.0 0.5

OPEC World Oil Supply-Demand Balance (Feb 2012): 2008 Change 2009 Change 2010 Change 2011 Change 2012 Change 2013

OECD Demand 48.4 -2.1 46.3 0.6 46.9 -0.4 46.5 -0.4 46.1 -0.2 45.9

Non-OECD Demand 37.7 0.8 38.5 1.7 40.2 1.3 41.5 1.2 42.7 1.1 43.8

Total Demand 86.1 -1.3 84.8 2.3 87.1 0.9 88.0 0.8 88.8 0.9 89.7

Non-OPEC Supply (Incl all Biofuel) 50.4 0.7 51.1 1.2 52.3 0.1 52.4 0.6 53.0 0.9 53.9



Call on OPEC crude (and stocks) 31.6 -2.2 29.4 0.4 29.8 0.4 30.2 -0.1 30.1 -0.3 29.8

OPEC Crude Oil Supply (Last known number dragged fwd) 31.2 -2.5 28.7 29.2 29.9 31.4 30.3

Implied World Oil Stock Change -0.4 -0.7 -0.6 -0.3 1.3 0.5

EIA World Oil Supply-Demand balance (Feb 2012): 2008 Change 2009 Change 2010 Change 2011 Change 2012 Change 2013

OECD Demand 47.6 -2.2 45.4 0.7 46.1 -0.3 45.8 0.2 46.0 -0.3 45.8

Non-OECD Demand 38.2 0.7 38.9 2.1 41.0 1.5 42.5 0.7 43.2 1.3 44.5

Total Demand 85.8 -1.5 84.3 2.7 87.1 1.2 88.3 0.9 89.2 1.1 90.2

Non-OPEC Supply (Incl all Biofuel) 49.7 0.8 50.5 1.3 51.8 0.2 52.0 0.5 52.5 1.2 53.7

OPEC NGL's and non-conventional oil 4.5 0.3 4.8 0.8 5.5 -0.3 5.3 0.3 5.6 0.2 5.8

Total Non-OPEC supply 54.1 1.1 55.2 2.1 57.3 -0.1 57.2 0.8 58.0 1.4 59.5



Implied World Oil Stock Change -0.4 0.0 -0.5 -1.2 0.2 -0.4


42

DNB Markets Global Fundamental Oil Balance - If OPEC continue to produce at the latest known level (from the IEA-database)

-2.0

-1.0

0.0

1.0

2.0

3.0

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Millio

n b/d

DNB Markets World Oil Supply-Demand Balance -Time Phased

5 year range 5 year avg 2012 2013Source: IEA, DNB Markets


Oversupplied Market In 2013 If OPEC (Saudi) Do Not Cut

74

76

78

80

82

84

86

88

90

92

94

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Millio

n b

/dGlobal Oil Supply vs Demand

Global supply Global demandSource: IEA, DNB Markets


Fundamentals (Supply vs Do Still Matter For Oil Prices

-45

-35

-25

-15

-5

6

16

26

36

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Bre

nt

Pri

ce

Ch

an

ge

-$

/b

Ca

ll o

n O

PE

C C

ha

ng

e -

Millio

n

b/d

Call on OPEC vs Price Change

Brent Price Change IEA Call on OPEC Change DNB Markets Call on OPEC Change


2013 Oil Price Scorecard – Brent Forecast Maintained @ 107 $/b

2013 Oil Price Scorecard Comments Oil Price Weight

Overall Outlook

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.

Average

price

107 $/b

Fundamentals

Global Fundamental BalanceWe 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. BEARISH HIGH

Crude vs Product Balance (Margins)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). BEARISH MEDIUM

OECD Stock levels 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. BEARISH LOW

OPEC Spare CapacitySince 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. BEARISH MEDIUM

US Oil Statistics - FundamentalsUS 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. BEARISH MEDIUM

Global Demand Growth

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 non-

OECD.

BEARISH MEDIUM

OPEC SupplyWe 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. BULLISH LOW

Non-OPEC Supply

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.

BEARISH MEDIUM

Political Risk

Iraq, Iran, Nigeria, Venezuela,

US, Russia, Israel, MENA, etc

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.

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


Oslo, Sales & Trading London, Sales Oslo, Research

Nils Fredrik Hvatum +47 24 16 91 59 André Rørheim +44(0) 20 7621 6082 Torbjørn Kjus +47 24 16 91 66

Fredrik Sagen Andersen +47 24 16 91 48 Singapore, Sales Karl Magnus Maribu +47 24 16 91 57

Jesper Meyer Hatletveit +47 24 16 91 53 Seng Leong Ong +65 622 480 22

Nils Wierli Nilsen +47 24 16 91 61 New York, Sales

Ane Tobiassen +47 24 16 91 44 Kenneth Tveter +1 212 681 3888

Erik Warren +47 24 16 91 46

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2013 DNB Torbjørn Kjus presentasjon

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