jan stuart, global oil economist +1 212 713 1074 [email protected] global oil fundamentals &...

Jan Stuart, Global Oil Economist+1 212 713 [email protected]

Global Oil Fundamentals & Price Forecasts

Energy Forum January 16th, 2008 – New York

Analyst certification and required disclosures begin on page 64

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This material has been prepared by UBS Securities LLC

Below par demand growth eases price lower; but supply constraints drive them up in later years

2Jan Stuart +1-212-713-1074 [email protected]

UBS Oil price forecast: Cyclical downturn …

Source: Bloomberg, Thompson First Call and UBS

UBS Oil price forecast by year and quarter

Brent WTI

Old 50.00$ 51.00$

2008E 63.00$ 65.00$

2010E 68.00$ 70.00$

2012E 73.00$ 75.00$

UBS Normalized Oil prices

Normalized

1Q07A 2Q07A 3Q07A 4Q07E 2007E 1Q08A 2Q08E 3Q08E 4Q08E 2008E 2009E 2010E 2011E 2012E 2012Brent 58.62$ 68.66$ 74.55$ 82.30$ 71.00$ 76.00$ 75.00$ 73.00$ 72.00$ 74.00$ 74.00$ 75.00$ 78.00$ 81.00$ 73.00$ Markets (swaps/futures)* 79.00$ 76.50$ 75.00$ 74.10$ 74.00$

WTI 58.23$ 65.02$ 75.15$ 86.00$ 71.10$ 77.00$ 75.00$ 72.00$ 72.00$ 74.00$ 73.25$ 76.00$ 79.00$ 82.00$ 75.00$ Markets (swaps/futures)* 77.10$ 75.10$ 74.50$ 74.40$ 74.50$ *100-day moving average on December 3rd


UBS Oil price forecast Continued…

Source: Bloomberg, Thompson First Call and UBS

UBS Medium-term Brent forecast is quite bullish

$40

$45

$50

$55

$60

$65

$70

$75

$80

$85

$90

J an M ar M ay J uly Sept Nov

M ean Low

High UBS Forecast

$/b

…Our view on 2008 again moves up in street's range

$60

$65

$70

$75

$80

$85

2007E 2008E 2009E 2010E 2011E 2012E

UBS Brent SwapsThompson First Call UBS Normalised

$/b


Outline – why cyclical downturn in secular uptrend Our oil price forecasts are “structurally” bullish

— (but first the near term and why we’re below spot prices ($85-$90)— Forecasting 5-years into the future— Normalised: Pushing the envelope on “normal” and “supply-led”

Supply is the straight-forward part (with a surprise or two)— Non-Opec oil supplies go into decline from 2010 onward— Opec capacity growth should suffice, but it …— … hinges on Iraq and Nigeria; Saudi Arabia is in the driver’s seat

Demand grows through next 5-years, but at less than trend— It’s the economy: the looming economic slowdown is a big deal for

oil— then “demand management” takes over (>2010) …

— … or ELSE

Risks


The shorter term, latest data …

Inventories are low— Crude oil stocks are falling still (normal in Q4, early January)— …but higher refiner runs are refilling downstream stocks

Supplies remain tight — Opec did its bit …— … while from non-Opec underperformance is the rule

Demand is growing — Especially in Asia, the Mideast and probably S America too— However, the economic news is not good, growth is decelerating … — … economies and oil demand have yet to feel the full impact

Risks short-term— Weather (both sides); the economy; and more supply issues


UBS Global Oil Supply/Demand Balance

Source: IEA, DoE, OPEC; national energy statistics agencies including OMV, AFP, UP, ANP, PTT, CERI; national oil companies, including PEMEX, international oil companies including BP and its Statistical Review of World Energy; Reuters, Bloomberg; and UBS estimates and forecasts.

Highlights of our latest global oil demand/supply balance

MMBbld 2005 2006 2007 Q1-'08E Q2-'08E Q3-'08E Q4-'08E 2008E 2009E

TOTAL DEMAND 83.9 84.7 85.6 87.3 86.5 86.5 87.9 87.0 88.1

% YoY Growth 1.5% 1.6% 1.1% 1.6% 1.9% 1.7% 1.3% 1.6% 1.2%of which:N America YoY % 0.5% -1.1% 0.9% -0.9% 0.1% 0.3% 0.6% 0.0% -0.4%China YoY % 2.2% 5.3% 5.5% 5.0% 7.0% 6.4% 3.0% 5.3% 5.0%Mideast YoY % 6.3% 2.9% 5.2% 4.4% 4.5% 4.5% 4.4% 4.4% 3.4%

TOTAL SUPPLY 83.9 84.7 84.9 86.5 86.5 87.0 87.8 87.0 88.6

YoY Growth +1.0 +0.9 +0.2 +1.7 +2.0 +2.6 +1.8 +2.0 +1.6of which:YoY Non Opec Chg. -0.2 +0.9 +0.4 +0.0 -0.0 +0.4 +0.4 +0.2 +0.3YoY Opec Crude Oil +0.7 -0.0 -0.4 +1.1 +1.4 +1.3 +0.6 +1.1 +0.8

BALANCE +0.0 +0.0 -0.7 -0.8 +0.0 +0.5 -0.1 -0.1 +0.4

OECD Stock Cover 51.5 54.3 51.2 51.9 51.4 50.5 50.5 50.5 51.8


OECD Inventories: Latest data show no surplus

Source: IEA and UBS

A relatively big inventory surplus is gone, both in demand cover terms ….

… and even in simple volume measures

46

48

50

52

54

56

Jan

Feb

Mar Ap

r

May Ju

n

Jul

Aug

Sep

Oct

Nov

Dec

-2%

0%

2%

4%

6%

8%

% surplus '06 (rhs) '07 % surplus (rhs) Stock C ov er '06

Stock C ov er '07 5y r av g

day s

-60

-20

20

60

100

140

J an Feb M ar Apr M ay J un J ul Aug Sep Oct NovProducts Crude oil

OECD oil inv entory surplus to 5-y r av erage (mmbls)


We foresee more crude oil draws in Q4

Source: IEA and UBS

OECD oil-product inventories fell below their five year average …

… crude oil inventories could revisit an average of 2000; -’03 and-’04

850

880

910

940

970

1,000

Dec Feb Apr Jun Aug Oct Dec

2007 5 y r av g 2007ETight markets 2006

mmbls

1,550

1,600

1,650

1,700

1,750

1,800

Dec Feb Apr Jun Aug Oct Dec

2007 5 y r av g 2006

mmbls


Bottom-Line: Inventories to remain low

Source: IEA, UBS estimates

Historical and forecasted OECD oil inventory cover of demand

46

49

52

55

58

61

64J-

93

J-94

J-95

J-96

J-97

J-98

J-99

J-00

J-01

J-02

J-03

J-04

J-05

J-06

J-07

08-E

46

49

52

55

58

61

64

normal Data+Est 5y r av g

Day s OEC D stock cov er


Oil Prices, relationships that did not work

Source: Nymex, US Dept of Energy and UBS

Level of oil inventories again correlates with level of oil prices

y = -0.2683x + 106.82

R2 = 0.7333

y = -0.4582x + 230.31

R2 = 0.7455

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

250 270 290 310 330 350 370MMBbls of commercial US crude oil inv entories

$/Bb

l

In H2 of 2007, the red dots, the

old relationship is back (albeit on

a higher price-plane).


The supply side: Core crude oil production flatlines

Source: UBS

Global crude oil supply growth stalls from October ’06 onward

OPEC Crude Oil Production

20,000

25,000

30,000

35,000

40,000

45,000

50,000

60,000

62,500

65,000

67,500

70,000

72,500

75,000

77,500

80,000

82,500

85,000

Non-Opec Opec Crude Global Supply (rhs)

kbd

OPEC-10 SUPPLY (Actuals, UBS Projections) Spare (MMBblsd) Increase Capacity

Q3-'06 Q4-'06 Q1-'07 Q2-'07 Q3-'07 Q4-'07E Q4 to Q3 Sept.'07Algeria 1.39 1.36 1.32 1.39 1.35 1.36 0.01 Indonesia 0.87 0.86 0.85 0.84 0.83 0.82 (0.01) Iran 4.10 3.90 4.12 4.00 3.90 4.04 0.14 (0.1) Kuwait 2.71 2.61 2.56 2.56 2.58 2.61 0.03 (0.0) Libya 1.77 1.69 1.64 1.64 1.65 1.69 0.05 Nigeria 2.13 2.23 2.11 1.94 2.19 2.36 0.17 Qatar 0.83 0.80 0.82 0.79 0.80 0.82 0.02 Saudi Arabia 9.28 8.95 8.61 8.59 8.71 9.11 0.40 2.6 UAE 2.67 2.58 2.60 2.56 2.57 2.35 (0.22) 0.4 Venezuela 2.47 2.53 2.45 2.49 2.47 2.46 (0.02) Opec-10 28.2 27.5 27.1 26.8 27.1 27.6 0.6 Spare Cap 1.9 2.6 2.5 2.8 3.0 3.0 (0.0) 2.9 Production cutsDelivered since Oct'06: -0.7 -1.2 -1.4 -1.2 +0.1Capacity 30.1 30.1 29.6 29.7 30.1 30.6


The supply side Continued..

Source: UBS

Oil Supply is down y/y, so far in 2007 Global crude oil supply: faltering growth after 2004 … declines in 2007

Year-to-date oil production changesTop-5 increases Top-5 declines Top-5 non-Opec

kbd kbd kbdAngola +315 Saudi Arabia -630 Mexico -220Russia +259 Mexico -220 Norway -210Azerbaijan +216 Norway -210 UK -20Kazakhstan +160 Venezuela -150 ?Canada +148 Indonesia -110Global Oil -66 Opec-10 -928 Non-Opec +464

67

68

69

70

71

72

73

74

Jan Apr Jul Oct

2003 2004 2005

2006 2007 07E

mmb/d



Source: UBS

Russia's oil production is about to stop growing (y/y)

(200)

-

200

400

600

800

1,000

Jan-04 Jan-05 Jan-06 Jan-07 Jan-08

Russia - total Oil majors Linear (Russia - total)

kbd


Global oil demand growth

Source: UBS

Global oil demand growth picks up as declines in Europe and Japan fade

-500

0

500

1000

1500

2000

Demand GrowthH1'07

Demand GrowthH2'07E

Africa

FSU

Asia

M iddle East

South America

North America

Europe

Global

kbd


Global oil demand growth continued..

Source: UBS

Global oil demand growth-pace picked up mid-year, but has moderated since

OECD demand: still no growth

In our near term outlook we see a blip up this winter, then modest growth only

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07

YoY Grow th 3 Mth Av g YoY

-2%

-1%

0%

1%

2%

Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07

Global OECD

-2%

-1%

0%

1%

2%

3%

Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09

Global OECD

Our outlook >>>


Latest data for oil demand in key economies


Oil demand growth (quarterly/annual), the 2006 base and a 10 year average trend

2006 2006 Q1-'07 Q2-'07 Q3-'07 Q4-'07E YTD 2007E 2008E 2009E 10 yr avg 5 yr avgOil Demand y/y % y/y % y/y %

in MBblsd Growth Growth Growth CAGR:

Global 84,837 1.0% 0.4% 1.3% 1.1% 1.8% 1.0% 1.2% 1.7% 1.2% 1.5% 1.8%

N America 25,293 -0.8 +1.9 +1.3 +0.3 +0.4 +1.0 +1.0 +0.0 -0.4 +1.3 +1.0Canada 2,252 -2.0 +3.6 +3.8 +6.5 +2.0 +4.3 +4.0 +1.0 +1.0 +1.9 +1.9Mexico 1,997 -2.4 +0.1 +4.2 +1.3 +4.9 +2.6 +2.6 +1.0 -1.4 +1.1 -0.1USA 20,687 -0.6 +2.0 +0.7 -0.5 -0.3 +0.4 +0.5 -0.2 -0.5 +1.2 +1.0S America 5,177 +2.7 +3.0 +2.4 +2.0 +1.9 +2.4 +2.3 +1.1 +2.9 +1.5 +0.8Brazil 2,282 +2.4 +3.2 +2.2 +1.3 +1.0 +2.0 +1.9 -0.4 +3.7 +1.7 -0.1Europe 16,373 +0.2 -4.3 -1.5 -1.1 -0.2 -2.1 -1.8 +0.6 -0.2 +0.4 +0.4France 1,961 -1.4 -5.7 -1.5 -0.4 +0.0 -2.2 -1.9 -0.5 -0.6 +0.1 -0.9Germany 2,665 +0.7 -8.1 -7.5 -7.0 -4.3 -7.7 -6.7 -0.6 -0.7 -0.9 -1.1Italy 1,732 -1.3 -10.4 +1.0 -3.0 -0.3 -3.6 -3.3 -0.1 +0.3 -1.0 -1.1UK 1,830 -0.2 -5.8 -2.3 -1.6 -1.1 -2.8 -2.7 -1.0 -0.9 -0.1 +1.0Other Europe 8,184 +0.9 -1.0 +0.0 +1.2 +1.3 +0.2 +0.4 +1.6 +0.1 +1.5 +1.5FSU 4,119 +5.5 -3.1 -1.9 -3.2 +0.5 -2.1 -1.9 +2.7 +2.0 -1.4 +1.1Mideast 6,488 +6.1 +5.1 +5.2 +5.2 +5.1 +5.2 +5.2 +4.4 +3.4 +3.8 +5.0Africa 2,955 +1.7 +2.9 +3.0 +3.3 +3.4 +3.1 +3.2 +3.6 +3.7 +2.8 +3.1Asia-Pac 24,432 +1.1 +0.4 +2.3 +2.7 +3.9 +2.2 +2.3 +3.1 +2.4 +2.6 +3.0China 7,206 +6.2 +5.8 +6.6 +6.2 +4.9 +5.7 +5.9 +5.5 +5.0 +7.3 +8.7India 2,754 +5.9 +4.5 +1.3 +3.3 +7.4 +4.2 +4.0 +3.0 +3.0 +4.5 +3.6Japan 5,159 -2.7 -8.6 -2.2 -1.6 +2.5 -3.3 -2.6 +0.6 -0.6 -1.0 -0.9South Korea 2,174 -0.8 +2.5 +3.5 +0.8 +1.7 +2.3 +2.1 +2.2 -1.4 +0.5 +0.4OECD 49,320 -0.7 -1.3 +0.1 -0.3 +0.5 -0.5 -0.3 +0.4 -0.4 +0.7 +0.6

Non-OECD 35,516 +3.6 +2.8 +3.0 +3.1 +3.7 +3.1 +3.2 +3.5 +3.4 +2.9 +3.7


Two engines of global oil demand growth

Source: UBS

China’s apparent oil demand growth remains robust

Transport-fuel demand growth in North America drifts below trend

-5%

5%

15%

25%

Jan-04 Jan-05 Jan-06 Jan-07

mthly y /y 3 mth av g y /y 12 mth av g y /y

-2.0%

0.0%

2.0%

4.0%

6.0%

Jan-04 Jan-05 Jan-06 Jan-07

mthly y /y 3mth av g y /y 12 mth av g y /y


More detailed data …


OECD oil demand by Fuel

Source: IEA and UBS

The basis of our “drive” and “burn” categories 2005 through Q2’07E(1,000 Bblsd) 1996 Share Q3-'06 Q4-'06 2006 Share Q1-'07 Q2-'07 Q3-'07 Q4-'07E 2007E Q1-'08E Q2-'08E

OECD All fuels 45,980 48,966 49,799 49,320 49,753 48,141 48,807 50,039 49,185 49,872 48,382 "Burn" Total 19,399 42% 17,388 18,150 18,094 37% 18,478 16,664 16,802 18,307 17,560 18,853 16,904 of which Fuel Oil 5,066 26% 3,818 3,878 4,045 22% 4,198 3,866 3,779 4,017 3,964 4,271 3,951 Process Naph EU+AP only 2,221 5% 2,671 2,865 2,722 6% 2,962 2,614 2,719 2,798 2,773 2,923 2,578 "Drive" Total 24,361 53% 28,907 28,783 28,504 58% 28,313 28,864 29,286 28,933 28,852 28,096 28,900

Gasoline 13,678 56% 15,238 14,924 14,861 52% 14,460 15,059 15,265 14,903 14,924 14,315 14,971 Jet Fuel 2,738 11% 3,294 3,139 3,181 11% 3,126 3,160 3,300 3,158 3,187 3,071 3,142 Diesel 6,319 26% 9,174 9,332 9,019 32% 9,054 9,464 9,710 9,766 9,501 9,446 9,735

OECDNorth America All fuels 22,218 48% 25,516 25,367 25,293 51% 25,714 25,378 25,597 25,465 25,538 25,470 25,415 "Burn" Total 7,202 32% 7,543 7,428 7,491 30% 7,830 7,436 7,512 7,434 7,552 7,840 7,511 of which Fuel Oil 1,489 21% 1,160 1,094 1,197 16% 1,377 1,261 1,199 1,209 1,261 1,315 1,269 "Drive" Total 15,016 68% 17,973 17,939 17,802 70% 17,884 17,942 18,085 18,031 17,986 17,630 17,903

Gasoline 9,049 37% 10,970 10,776 10,718 38% 10,538 10,930 11,044 10,794 10,828 10,418 10,867 Diesel 2,517 10% 3,867 3,895 3,726 13% 3,766 3,950 4,121 4,238 4,020 4,110 4,133

OECD Europe All fuels 14,968 33% 15,598 15,719 15,623 32% 15,214 14,960 15,396 15,667 15,311 15,400 15,003 "Burn" Total 7,165 48% 6,389 6,622 6,612 42% 6,330 5,788 5,955 6,575 6,162 6,558 5,832 of which Other Gasoil 2,739 38% 2,043 2,296 2,194 33% 2,122 1,483 1,711 2,293 1,902 2,288 1,552

Fuel Oil 2,232 31% 1,766 1,812 1,864 28% 1,833 1,718 1,680 1,776 1,751 1,861 1,718 Process Naphtha 1,120 16% 1,081 1,142 1,117 7% 1,213 1,047 1,084 1,115 1,114 1,184 1,018 "Drive" Total 6,684 45% 8,128 7,954 7,894 51% 7,671 8,126 8,357 7,977 8,034 7,659 8,152 of which Gasoline 3,183 13% 2,655 2,550 2,571 9% 2,388 2,591 2,592 2,496 2,517 2,343 2,546

Diesel 2,586 11% 4,113 4,146 4,056 14% 4,064 4,256 4,375 4,214 4,228 4,084 4,317 OECDAsia Pacific All fuels 8,794 19% 7,852 8,713 8,404 17% 8,826 7,803 7,814 8,907 8,336 9,002 7,965 "Burn" Total 5,032 57% 3,456 4,100 3,991 47% 4,319 3,440 3,336 4,298 3,847 4,455 3,560

Fuel Oil 1,345 27% 893 972 984 25% 988 887 900 1,031 952 1,096 964 Kerosine 1,097 22% 670 1,099 982 25% 1,245 730 650 1,143 941 1,262 746

Process Naphtha 1,101 13% 1,590 1,724 1,605 19% 1,748 1,567 1,635 1,683 1,658 1,740 1,560 "Drive" Total 2,661 30% 2,806 2,890 2,808 33% 2,758 2,796 2,843 2,926 2,831 2,807 2,844 *International Energy Agency's OECD demand data categories are: LPG; Naphtha; Motor Gasoline; Jet + Kerosine; Diesel; Heating Oil; Fuel Oil; and Other Products.

Share of transport fuel demand grows 500bp in 10 years -- mostly in N Am.

North American transport fuels are the core of OECD growth

Micro Economy slow down


OECD oil demand by Fuel year-to-year % growth

Source: IEA and UBS

Six quarters of steep declines in the “burn” category come to an end in Q2’07E

1996 Q3-'06 Q4-'06 2006 Q1-'07 Q2-'07 Q3-'07 Q4-'07E 2007E Q1-'08E Q2-'08EOECD All fuels 2.4% -0.6% -0.6% -0.7% -1.3% 0.1% -0.3% 0.5% -0.3% 0.2% 0.5%"Burn" Total 2.6% -3.3% -4.6% -3.3% -6.6% -2.4% -3.4% 0.9% -3.0% 2.0% 1.4% of which Fuel Oil -2.6% -12.0% -14.1% -9.4% -10.2% 1.2% -1.0% 3.6% -2.0% 1.8% 2.2%Process Naph EU+AP only 0.8% -1.3% 4.0% -0.2% 4.4% 4.0% 1.8% -2.3% 1.9% -1.3% -1.4%"Drive" Total 2.4% 1.2% 1.7% 1.0% 1.9% 1.2% 1.3% 0.5% 1.2% -0.8% 0.1%

Gasoline 1.2% 0.5% 1.2% 0.3% 0.8% 0.9% 0.2% -0.1% 0.4% -1.0% -0.6%Jet Fuel 5.9% -1.2% -3.6% -2.2% -2.6% -1.8% -0.3% 1.5% -0.8% -0.9% 0.0%Diesel 3.9% 5.5% 7.4% 4.7% 6.2% 4.8% 5.8% 4.6% 5.3% 4.3% 2.9%

North America All fuels 2.8% -0.2% -0.7% -0.8% 1.9% 1.3% 0.3% 0.4% 1.0% -0.9% 0.1%"Burn" Total 3.7% -4.0% -4.8% -4.5% 2.2% 1.4% -0.4% 0.1% 0.8% 0.1% 1.0% of which Fuel Oil -0.8% -27.2% -32.2% -22.4% -2.7% 12.3% 3.4% 10.5% 5.4% -4.5% 0.7%"Drive" Total 2.4% 1.5% 1.1% 0.8% 1.8% 1.2% 0.6% 0.5% 1.0% -1.4% -0.2%

Gasoline 1.0% 1.8% 1.8% 1.3% 1.8% 1.5% 0.7% 0.2% 1.0% -1.1% -0.6%Diesel 6.5% 8.9% 10.5% 5.9% 8.7% 7.6% 6.6% 8.8% 7.9% 9.1% 4.6%

Oecd Europe 2.1% -0.4% -0.5% 0.1% -4.6% -1.7% -1.3% -0.3% -2.0% 1.2% 0.3%Burn Total 2.4% -1.8% -4.0% -1.2% -12.9% -6.4% -6.8% -0.7% -6.8% 3.6% 0.8% of which Other Gasoil 7.7% -3.9% -6.8% -2.8% -20.2% -16.8% -16.2% -0.1% -13.3% 7.8% 4.6%

Fuel Oil -2.6% -0.8% -2.2% -0.9% -13.4% -2.8% -4.9% -1.9% -6.1% 1.5% 0.0%Process Naptha 0.3% -4.5% -4.1% -3.5% 1.2% 0.1% 0.3% -2.4% -0.2% -2.4% -2.8%"Drive" Total 2.0% 1.2% 3.2% 1.7% 2.5% 1.6% 2.8% 0.3% 1.8% -0.2% 0.3% of which Gasoline 0.6% -3.3% -0.8% -3.0% -2.6% -1.3% -2.4% -2.1% -2.1% -1.9% -1.7%

Diesel 2.4% 3.9% 6.0% 4.8% 5.3% 3.7% 6.4% 1.6% 4.2% 0.5% 1.4%OECD Asia Pacific 1.9% -2.1% -0.3% -1.9% -4.5% -0.2% -0.5% 2.2% -0.8% 2.0% 2.1%Burn Total 1.5% -4.6% -5.4% -4.6% -11.1% -3.5% -3.5% 4.8% -3.6% 3.2% 3.5%

Fuel Oil -4.5% -12.9% -11.3% -5.8% -14.2% -10.8% -9.5% -2.2% -3.3% -0.9% -1.0%Kerosine 7.3% -4.2% -7.2% -5.9% -11.9% -2.7% -3.0% 4.0% -4.1% 1.3% 2.2%

Process Naphtha 1.2% 1.1% 10.1% 2.2% 6.8% 6.8% 2.8% -2.3% 3.3% -0.5% -0.4%"Drive" Total 2.9% -0.8% 1.7% -0.3% 0.4% 0.3% 1.3% 1.2% 0.8% 1.8% 1.7%

Fuel oil declines turn into modest growth from Q2 onward.

Data is still distorted, as more heating oil becomes "diesel".

Natural gas price-driven substitution in US, but sharp falls in Mexico and Canada too.

Solid diesel demand reflects economy and lower gains for bio-diesel (in Germany as

Implies a naphtha drain on the Atlantic-Basin gasoline pool


OECD oil demand growth by fuel, volume change

Source: IEA and UBS

Look for gains in the “drive” category to lift total OECD oil demand this quarter

year to year change (+/- 1,000blsd)2005 Q1-'06 Q2-'06 Q3-'06 Q4-'06 2006 Q1-'07 Q2-'07 Q3-'07 Q4-'07E 2007E Q1-'08E Q2-'08E

OECD All fuels 316 (355) (482) (296) (279) (353) (667) 35 (159) 240 (135) 119 241"Burn" Total (44) (535) (475) (596) (883) (623) (1,309) (414) (586) 156 (534) 375 240 of which Fuel Oil (3) (113) (408) (522) (638) (422) (475) 46 (40) 139 (81) 73 85Process Naph EU+AP only 59 6 (105) (34) 110 (6) 125 101 48 (67) 51 (38) (36)"Drive" Total 301 174 98 334 494 276 516 348 379 151 348 (218) 36North America All fuels 124 (352) (225) (59) (174) (202) 490 316 81 98 245 (243) 37"Burn" Total (116) (377) (340) (316) (372) (351) 168 103 (31) 6 61 10 76 of which Fuel Oil 49 (127) (296) (432) (519) (345) (38) 138 40 115 64 (62) 8"Drive" Total 240 25 114 257 197 149 322 213 112 92 184 (254) (39)Oecd Europe 124 235 (36) (67) (78) 12 (740) (265) (202) (52) (312) 186 42Burn Total 36 30 43 (115) (278) (81) (938) (393) (434) (47) (451) 228 44Process Naptha 12 14 (78) (51) (49) (41) 14 1 3 (27) (2) (30) (29)"Drive" Total 76 191 (1) 99 248 134 184 127 229 22 140 (13) 27 of which Diesel 126 263 86 154 234 184 205 153 262 68 172 20 60OECD Asia Pacific 68 (238) (220) (171) (26) (163) (418) (16) (39) 194 (68) 176 162Burn Total 35 (188) (178) (165) (233) (191) (539) (124) (120) 198 (144) 136 120Process Naphtha 47 (9) (27) 17 158 35 111 100 44 (40) 53 (9) (7)"Drive" Total (15) (41) (15) (23) 49 (7) 10 8 37 36 23 49 48


UBS global oil balance detail

Source: See next page

Demand 2005 Q3-'06 Q4-'06 2006 Q1-'07 Q2-'07 Q3-'07 Q4-'07E 2007E Q1-'08E Q2-'08E 2008E 2009E

OECD America 25.5 25.5 25.4 25.3 25.7 25.4 25.6 25.5 25.5 25.5 25.4 25.5 25.4OECD Europe 15.6 15.6 15.7 15.6 15.2 15.0 15.4 15.7 15.3 15.4 15.0 15.4 15.3OECD Asia Pac 8.6 7.9 8.7 8.4 8.8 7.8 7.8 8.9 8.3 9.0 8.0 8.4 8.4OECD 49.7 49.0 49.8 49.3 49.8 48.1 48.8 50.0 49.2 49.9 48.4 49.4 49.2FSU 3.9 4.1 4.4 4.1 4.0 3.8 4.0 4.4 4.0 4.0 3.9 4.2 4.2 China 6.8 7.1 7.3 7.2 7.5 7.8 7.6 7.7 7.6 7.8 8.4 8.0 8.5 Other Asia 8.8 8.4 8.6 8.8 9.1 9.4 8.6 9.0 9.0 9.4 9.7 9.3 9.6 South America 5.0 5.3 5.2 5.2 5.1 5.3 5.4 5.3 5.3 5.2 5.4 5.4 5.5 Mideast 6.1 6.7 6.4 6.5 6.7 6.8 7.0 6.8 6.8 7.0 7.1 7.1 7.4 Africa 2.9 2.9 2.9 3.0 3.1 3.1 3.0 3.0 3.0 3.2 3.2 3.2 3.3 Non-OECD 34.3 35.3 35.7 35.5 36.3 36.9 36.4 37.0 36.6 37.5 38.4 37.9 39.2 TOTAL DEMAND 84.0 84.2 85.5 84.8 86.1 85.0 85.2 87.0 85.8 87.4 86.8 87.3 88.4 SupplyAmericas 17.7 17.9 17.9 17.9 18.0 18.1 17.8 18.0 18.0 18.2 18.1 18.1 18.3 Europe 5.7 5.0 5.2 5.2 5.3 4.9 4.7 5.0 5.0 5.0 4.7 4.7 4.4 FSU 11.7 12.3 12.5 12.2 12.7 12.7 12.7 12.8 12.7 12.9 12.9 12.9 13.1

O/w Russia 9.6 9.9 10.0 9.8 10.1 10.0 10.1 10.1 10.1 10.1 10.0 10.0 9.9 Africa 2.4 2.6 2.8 2.6 2.8 2.7 2.7 2.8 2.8 2.8 2.8 2.8 2.9 Mideast 1.8 1.7 1.7 1.7 1.6 1.6 1.6 1.6 1.6 1.6 1.5 1.5 1.5 Asia 6.8 7.0 6.9 6.9 6.9 6.9 6.8 6.9 6.9 7.0 7.1 7.1 7.3 Non-Opec 46.2 46.5 47.0 46.6 47.4 47.1 46.4 47.0 47.0 47.4 47.0 47.2 47.5 Opec Crude Oil 31.4 32.3 31.3 31.7 31.0 30.9 31.3 32.1 31.3 32.1 32.3 32.4 33.3

Opec 10 27.8 28.2 27.5 27.8 27.1 26.8 27.1 27.6 27.1 27.7 27.9 27.9 28.5 Opec non-crude 4.3 4.4 4.4 4.4 4.4 4.4 4.5 4.6 4.5 4.8 5.0 5.1 5.5 Processing Gain 2.1 2.2 2.2 2.1 2.0 2.1 2.2 2.2 2.1 2.1 2.1 2.2 2.3 TOTAL SUPPLY 83.9 85.3 84.9 84.7 84.8 84.5 84.4 86.0 84.9 86.5 86.5 87.0 88.6 To BalanceImplied global stock change -0.0 +1.1 -0.6 -0.1 -1.2 -0.6 -0.8 -1.0 -0.9 -0.9 -0.3 -0.3 +0.2OECD stock change +0.1 +1.1 -0.9 +0.2 -0.8 +0.8 -0.0OECD stock cover 51.5 55.5 53.8 53.8 54.1 54.8 53.4 51.1 51.1 51.7 50.8 49.5 49.8


UBS global oil balance, year-to-year changes


2005 Q3-'06 Q4-'06 2006 Q1-'07 Q2-'07 Q3-'07 Q4-'07E 2007E Q1-'08E Q2-'08E 2008E 2009EOECD America 0.5% -0.2% -0.7% -0.8% 1.9% 1.3% 0.3% 0.4% 1.0% -0.9% 0.1% 0.0% -0.4%OECD Europe 0.8% -0.4% -0.5% 0.1% -4.6% -1.7% -1.3% -0.3% -2.0% 1.2% 0.3% 0.4% -0.3%OECD Asia Pac 0.8% -2.1% -0.3% -1.9% -4.5% -0.2% -0.5% 2.2% -0.8% 2.0% 2.1% 1.2% -0.5%OECD 0.6% -0.6% -0.6% -0.7% -1.3% 0.1% -0.3% 0.5% -0.3% 0.2% 0.5% 0.4% -0.4%FSU 0.8% 5.3% 9.4% 5.5% -3.1% -1.9% -3.2% 0.5% -1.9% 1.9% 3.5% 2.7% 2.0%China 2.9% 5.2% 4.7% 6.2% 5.8% 6.6% 6.2% 4.9% 5.9% 5.0% 8.0% 5.5% 5.0%Other Asia 1.9% -0.4% 1.0% 0.2% 1.2% 1.1% 2.7% 4.6% 2.4% 2.8% 2.8% 2.8% 2.8%South America 1.3% 2.5% 3.5% 2.7% 3.0% 2.4% 2.0% 1.9% 2.3% 1.6% 1.7% 1.1% 2.9%Mideast 6.3% 5.9% 6.0% 6.1% 5.1% 5.2% 5.2% 5.1% 5.2% 4.4% 4.5% 4.4% 3.4%Africa 4.8% 1.8% 3.1% 1.7% 2.9% 3.0% 3.3% 3.4% 3.2% 3.6% 3.6% 3.6% 3.7%Non-OECD 2.9% 3.2% 4.2% 3.6% 2.8% 3.0% 3.1% 3.7% 3.2% 3.4% 4.2% 3.5% 3.4%TOTAL DEMAND 1.6% 1.0% 1.4% 1.0% 0.4% 1.3% 1.1% 1.8% 1.2% 1.6% 2.1% 1.7% 1.2%Supply (MMBbld change Y-o-Y)

2005 Q3-'06 Q4-'06 2006 Q1-'07 Q2-'07 Q3-'07 Q4-'07E 2007E Q1-'08E Q2-'08E 2008E 2009EAmericas -0.3 +0.6 +0.5 +0.2 +0.2 +0.2 -0.1 +0.1 +0.1 +0.2 -0.0 +0.1 +0.2Europe -0.4 -0.5 -0.3 -0.5 -0.3 -0.3 -0.3 -0.2 -0.3 -0.3 -0.3 -0.3 -0.3FSU +0.4 +0.5 +0.5 +0.5 +0.9 +0.6 +0.4 +0.3 +0.5 +0.1 +0.2 +0.2 +0.1 ow Russia +0.3 +0.2 +0.2 +0.2 +0.4 +0.2 +0.2 +0.1 +0.2 -0.0 -0.0 -0.1 -0.1Africa +0.1 +0.2 +0.3 +0.2 +0.2 +0.1 +0.1 -0.0 +0.1 +0.0 +0.1 +0.1 +0.1Mideast -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.0Asia +0.1 +0.1 +0.1 +0.1 +0.1 +0.1 -0.1 +0.0 +0.0 +0.1 +0.1 +0.2 +0.2Non-Opec Supply -0.2 +0.8 +1.0 +0.3 +1.0 +0.7 -0.1 +0.0 +0.4 +0.0 -0.0 +0.2 +0.3Opec Crude Oil +0.7 +0.6 -0.2 +0.3 -0.7 -0.6 -1.0 +0.8 -0.4 +1.1 +1.4 +1.1 +0.8 Opec without Iraq, Angola +0.8 +0.3 -0.4 +0.0 -0.9 -0.8 -1.2 +0.1 -0.7 +0.6 +1.1 +0.8 +0.6Opec non-crude +0.3 +0.1 +0.1 +0.1 +0.1 +0.1 +0.1 +0.2 +0.1 +0.4 +0.6 +0.6 +0.4Processing Gain +0.1 +0.1 +0.1 +0.1 +0.0 +0.0 +0.0 +0.0 +0.0 +0.1 +0.0 +0.1 +0.1TOTAL SUPPLY +1.0 +1.6 +1.0 +0.8 +0.4 +0.3 -1.0 +1.1 +0.2 +1.7 +2.0 +2.0 +1.6


Global Oil Balances of IEA and Opec …

Source: International Energy Agency and Organization of Petroleum Exporting Countries

* Opec's "call on Opec" calculation = total demand - non-Opec supply - Opec non-crude. The Secretariat also includes Angola in Opec as of January 1 2007

International Energy AgencyMMBbld 2005 1Q06 2Q06 3Q06 4Q06 2006 1Q07 2Q07 3Q07 4Q07E 2007E 1Q08E 2Q08E 3Q08E 4Q08E 2008EDEMANDOECD 49.7 50.4 48.1 49.0 49.8 49.3 49.7 48.2 48.8 50.0 49.2 50.8 48.7 49.3 50.5 49.8FSU 4.0 4.1 3.9 4.1 4.4 4.1 3.9 3.7 3.9 4.2 3.9 4.1 3.8 4.0 4.3 4.1China 6.7 7.0 7.3 7.2 7.2 7.2 7.3 7.7 7.5 7.7 7.5 7.7 8.1 7.9 8.1 8.0Non-OECD 34.2 35.1 35.3 35.4 35.9 35.4 36.1 36.6 36.5 36.9 36.5 37.5 38.0 38.0 38.4 38.0Global Demand 83.9 85.5 83.5 84.4 85.7 84.7 85.8 84.7 85.3 86.9 85.7 88.3 86.7 87.3 88.9 87.8SUPPLYNon-Opec Supply 49.3 49.6 49.5 49.6 50.1 49.7 50.4 50.2 49.7 50.5 50.2 51.3 51.0 51.0 51.8 50.2Opec Crude Oil 31.0 31.2 31.0 31.4 30.6 31.1 30.2 30.1Opec NGLs 4.3 4.5 4.5 4.5 4.6 4.5 4.7 4.7 4.7 4.9 4.8 5.0 5.2 5.4 5.8 4.8SUPPLY 84.6 85.4 85.1 85.7 85.4 85.4 85.4 85.1Implied Stockbuild +0.9 +0.3 +1.8 +1.5 -0.1 +0.9 -0.8 +0.8Call on Opec+stocks 30.8 31.1 30.4 30.0 32.1 30.9 30.9 29.5 31.4 32.7 31.1 32.3 30.9 31.5 32.4 31.8Change in Call on Opec+Stocks 0.1 0.2 0.7Opec Secretariat*DEMAND 2005 1Q06 2Q06 3Q06 4Q06 2006 1Q07 2Q07 3Q07 4Q07E 2007E 1Q08E 2Q08E 3Q08E 4Q08E 2008EOECD 49.6 50.2 48.0 48.8 50.0 49.2 49.8 48.2 48.8 50.3 49.3 50.3 48.2 48.7 50.8 49.5FSU 3.8 3.7 3.8 3.8 4.0 3.9 3.9 3.7 4.0 4.3 4.0 3.9 3.8 4.1 4.4 4.0China 6.5 7.1 7.3 7.2 7.0 7.1 7.5 7.8 7.7 7.4 7.6 7.8 8.1 8.2 7.8 8.0Non-OECD 33.7 34.5 35.0 35.1 35.0 35.3 36.0 36.4 36.7 36.8 36.4 37.1 37.4 37.8 37.9 37.6Global Demand 83.3 84.7 83.0 83.9 85.0 84.5 85.8 84.6 85.5 87.1 85.7 87.4 85.6 86.5 88.7 87.1SUPPLYNon-Opec Supply 48.9 50.6 50.8 51.4 52.7 49.4 50.3 50.0 49.8 50.8 50.2 51.3 50.8 50.9 52.1 51.3Opec Crude Oil 31.1 31.1 30.9 31.2 30.4 30.9 30.0 30.1 30.5Opec non-Crude 4.0 4.2 4.2 4.2 4.3 4.1 4.2 4.3 4.4 4.6 4.4 4.7 4.8 5.0 5.2 4.9Total Supply 84.1 84.5 84.3 85.0 85.1 84.4 84.5 84.5 84.5Implied Stockbuild +0.8 -0.2 +1.3 +1.1 +0.1 -0.1 -1.3 -0.1 -1.0Call on Opec*+Stocks 30.4 29.9 28.0 28.3 28.0 31.0 31.3 30.3 31.3 31.7 31.1 31.4 30.0 30.6 31.4 30.9Change in Call on Opec+Stocks 0.6 0.1 -0.2


Global oil balance of the US DoE ,UBS

Source: US Department of Energy

US Dept of EnergyDEMAND 2005 1Q06 2Q06 3Q06 4Q06 2006 1Q07 2Q07 3Q07 4Q07E 2007E 1Q08E 2Q08E 3Q08E 4Q08E 2008EOECD 49.6 20.8 20.6 20.7 20.8 20.7 21.0 20.8 21.0 21.0 21.0 21.2 21.1 21.2 21.3 21.2FSU 4.3 0.8 0.8 0.7 0.8 0.8 0.9 0.8 0.7 0.8 0.8 0.9 0.8 0.8 0.8 0.8China 6.9 8.7 8.8 8.6 8.9 8.8 8.9 8.9 8.7 9.0 8.9 9.0 9.1 8.8 9.1 9.0Non-OECD 34.1 4.4 4.5 4.4 4.5 4.4 4.5 4.6 4.5 4.6 4.6 4.6 4.8 4.7 4.7 4.7TOTAL DEMAND 83.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0SUPPLYNon-Opec Supply 50.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Opec Crude Oil 30.1 4.6 4.5 4.5 4.6 4.5 4.6 4.8 5.0 5.1 4.9 5.3 5.6 5.7 5.8 5.6Opec Non Crude 4.0 12.6 12.6 12.6 12.7 12.6 12.8 12.9 13.1 13.3 13.0 13.4 13.6 14.0 14.1 13.8Total Supply 84.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Implied Stockbuild -0.5 +0.0 +0.0 +0.0 +0.0 +0.0 +0.0 +0.0 +0.0 +0.0 +0.0 +0.0 +0.0 +0.0 +0.0 +0.0Call on Opec*+Stocks 29.6 -12.6 -12.6 -12.6 -12.7 -12.6 -12.8 -12.9 -13.1 -13.3 -13.0 -13.4 -13.6 -14.0 -14.1 -13.8Change in Call on Opec+Stocks -42.2 -0.4 -0.8UBSDEMAND 2005 1Q06 2Q06 3Q06 4Q06 2006 1Q07 2Q07 3Q07 4Q07E 2007E 1Q08E 2Q08E 3Q08E 4Q08E 2008EOECD 49.7 50.4 48.1 49.0 49.8 49.3 49.8 48.1 48.8 50.0 49.2 49.9 48.4 49.0 50.2 49.4FSU 3.9 4.1 3.8 4.1 4.4 4.1 4.0 3.8 4.0 4.4 4.0 4.0 3.9 4.1 4.5 4.2China 6.8 7.1 7.3 7.1 7.3 7.2 7.5 7.8 7.6 7.7 7.6 7.8 8.4 8.1 7.8 8.0Non-OECD 34.3 35.3 35.8 35.3 35.7 35.5 36.3 36.9 36.4 37.0 36.6 37.5 38.4 37.8 38.0 37.9TOTAL DEMAND 84.0 85.8 83.9 84.2 85.5 84.8 86.1 85.0 85.2 87.0 85.8 87.4 86.8 86.8 88.2 87.3SUPPLYNon-Opec Supply 48.3 48.4 48.4 48.7 49.2 48.7 49.4 49.1 48.6 49.3 49.1 49.6 49.2 49.2 49.7 49.4Opec Crude Oil 31.4 31.7 31.5 32.3 31.3 31.7 31.0 30.9 31.3 32.1 31.3 32.1 32.3 32.6 32.7 32.4OPEC Non Crude 4.3 4.3 4.3 4.4 4.4 4.4 4.4 4.4 4.5 4.6 4.5 4.8 5.0 5.2 5.4 5.1Total Supply 83.9 84.4 84.2 85.3 84.9 84.7 84.8 84.5 84.4 86.0 84.9 86.5 86.5 87.0 87.8 87.0Call on Opec*+Stocks 31.4 33.0 31.1 31.2 31.9 31.8 32.2 31.5 32.1 33.2 32.2 33.0 32.6 32.4 33.1 32.8Change in Call on Opec+Stocks 0.4 0.4 0.5


OECD Europe inventories

Source: IEA

Crude Oil inventory Products inventory

Crude Oil demand Cover Products demand Cover

300

320

340

360

Jan Mar May Jul Sep Nov

2002-06 06 5 y r av g 07

560

580

600

620

640

660


2002-06 06 5 y r av g 07

22

23

24

25

26

27


2002-06 06 5 y r av g 07

35

37

39

41

43

45


2002-06 06 5 y r av g 07


OECD North America inventories

Source: IEA



350

380

410

440

470

500


2002-06 06 5 y r av g 07

670

710

750

790

830

870


2002-06 06 5 y r av g 07

20

22

24

26

28


2002-06 06 5 y r av g 07

27

29

31

33

35

37


2002-06 06 5 y r av g 07


OECD Asia inventories

Source: IEA



150

160

170

180

190

200


2002-06 06 5 y r av g 07

210

230

250

270

290


Norm 06 5 y r av g 07

19

21

23

25

27

29

31


2002-06 06 5 y r av g 07

23

25

27

29

31

33

35

37


2002-06 06 5 y r av g 07


Latest inventory data, levels and changes detailed

Source: IEA, DoE; national energy statistics agencies including OMV, AFP, UP, ANP, PTT, CERI; national oil companies, including PEMEX; international oil companies, including BP and its Statistical Review of World Energy; Reuters; UBS estimates and forecasts

OECD upstream and downstream crude oil and product inventories in barrels and demand cover, by region. Levels at end month ( Aug-Oct, 2007) compared with year ago and five year average and stock changes Stock-levels in Nov-07 Nov-07 Stock-changes in

(mmbls) Deficit/Surplus (kbd)OECD Sep-07 Oct-07 Nov-07 YoY 5 y avg Oct-07 Nov-07 Q3'07North AmericaTotal Industry 1,290 1,275 1,251 -55 -4% +3 0% -503 -808 -43 Demand cover (days) 51.0 50.1 48.9 -1.8 -4% -0.1 -0% -0.9 -1.2 +0.3

Crude Oil 456 452 442 -25 -5% +15 3% -112 -354 -385 Refinery run cvr (days) 24.9 24.2 23.2 -1.7 -7% +0.2 1% -0.7 -1.0 -0.3Oil Products 835 823 809 -31 -4% -11 -1% -391 -453 +342 Demand cover (days) 33.4 32.4 31.7 -1.3 -4% -0.5 -2% -1.0 -0.7 +2.0EuropeTotal Industry 951 927 914 -45 -5% -28 -3% -752 -458 -46 Demand cover (days) 60.3 59.5 59.2 -3.7 -6% -1.0 -2% -0.8 -0.3 -1.3Crude Oil 322 317 314 -21 -6% -16 -5% -161 -83 -142 Refinery run cvr (days) 23.3 22.5 22.1 -2.1 -9% -1.6 -7% -0.8 -0.4 -0.4Oil Products 629 610 599 -24 -4% -12 -2% -590 -375 +96 Demand cover (days) 40.0 38.2 38.5 -2.5 -6% -0.6 -1% -1.8 +0.3 -0.1Asia PacificTotal Industry 429 433 416 -40 -9% -26 -6% +120 -589 +39 Demand cover (days) 48.0 47.3 44.8 -5.4 -11% -0.5 -1% -0.7 -2.5 -5.9Crude Oil 161 175 174 -10 -6% +2 1% +441 -14 -106 Refinery run cvr (days) 24.5 24.7 23.6 -1.3 -5% +0.5 2% +0.2 -1.2 +0.9Oil Products 269 259 241 -30 -11% -28 -10% -321 -575 +145 Demand cover (days) 32.8 29.2 24.7 -3.8 -13% -2.9 -10% -3.6 -4.5 -0.4

OECDTotal Industry 2,671 2,635 2,580 -141 -5% -51 -2% -1,135 -1,854 -50 Demand cover (days) 53.4 52.5 51.3 -3.0 -6% -0.9 -2% -0.9 -1.2 -1.3


One price-to-inventories relationship that works


… what does still work is how the level of inventories puts a premium or discount on prompt prices. In the below we co-relate US commercial crude oil inventories with the price-spread between the prompt futures contract – the two-year out futures contract. This relationship has not changed in the last 4 years.

y = -0.1729x + 56.204

R2 = 0.5759

$(13)

$(7)

$-

$7

$13

250 270 290 310 330 350 370MMBbls

$/Bb

l

Ltst Wk:

283mmbls = $8.01

Time-spread = spot futures contract -

the tw o y ear out WTI ftrs contract


Recent structural shifts in crude oil markets

Source: Bloomberg

WTI futures reflect US issues…

… Globally more relevant is Brent. And this curve is backwardated …

$80

$85

$90

$95

$100

1 3 5 7 9 11 13 15 17 19 21 23

1-Nov -07 23-Nov -07 6-Dec-07

Months till ex piry

Brent $/b

$/bbl

$80

$85

$90

$95

$100

1 3 5 7 9 11 13 15 17 19 21 23

1-Nov -07 23-Nov -07 6-Dec-07

Months till ex piry

WTI $/b


Oil Prices, relationships that did not work


Level of oil inventories again correlates with level of oil prices

y = -0.2683x + 106.82

R2 = 0.7333

y = -0.4582x + 230.31

R2 = 0.7455

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

250 270 290 310 330 350 370MMBbls of commercial US crude oil inv entories

$/Bb

l

In H2 of 2007, the red dots, the

old relationship is back (albeit on

a higher price-plane).


Part of the reason of how we got to these prices

0

20

40

60

80

100

120Ja

n-90

Jan-

92

Jan-

94

Jan-

96

Jan-

98

Jan-

00

Jan-

02

Jan-

04

Jan-

06

20

30

40

50

60

70

80

Total index funds ($ billions) WTI Prompt Futures ($/Bbl, rhs)

Oil Price, $/bbl

Source: BME, Goldman Sachs, DJ-AIG, Industry Documents, Nymex and Bloomberg

Fund flows into commodities …


Growing market for long-dated futures

Source: Nymex and UBS

Time series of settlement of the roughly two-year out December contract on the first trading day of the month (with corresponding level open interest = size of bubble)

10/1/04; $39.15 ; 26,394

10/3/05; $63.09 ; 47,204

10/1/07; $71.80 ; 99,394

2/1/07; $62.89 ; 103,068

11/1/01; $20.67 ; 13,987

10/1/03; $25.24 ; 16,705

9/2/03; $24.32 ; 9,537

10/2/06; $68.46 ; 67,894

$10

$20

$30

$40

$50

$60

$70

$80

S-00

M-0

1

S-01

M-0

2

S-02

M-0

3

S-03

M-0

4

S-04

M-0

5

S-05

M-0

6

S-06

M-0

7

S-07

Settlement + open interest of approx imate 2 y ear out Dec WTI crude futures contract (Sep'00 to present), and its 200-day mov ing av erage

Settle $/Bbl

Minister Ali al-Naimi introduces "free protection to the

dow nside"


The easy part of our medium-term forecast

Source: UBS

Cumulative changes in global oil production-capacity by significant producers through 2012, annual averages set against demand-growth scenarios

1.4%

0.9%

2%

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0Sa

udi A

rabia Ira

q

Iran+

Kuwa

it

UAE

Qata

r

Nige

ria

Indo

n+V

nzula

Libya

Alge

ria

Ango

la

Mex

ico

Cana

da US

Eur

ope

Russ

ia

Othe

r FSU

Asia

Pac

Braz

il

Othe

r L A

mer

ica

Suda

n

Othe

r Afri

ca

Dem

and

Base

Dem

and

Low

Dem

and

High

OPEC Non-OPECmmb/d


UBS base case supply growth 2007-12— Saudi Arabia ‘s much publicized expansion plan is on track, we project a net gain of some

1.9mmb/d by 2011 including Natural Gas Liquilds (NGLs);

— Iraq’s increment assumes three full years of intense development spending starting at some point in 2009. Only modest growth comes about until then;

— Iran and Kuwait manage only declines. In Iran foreign spending remains difficult, while Kuwait’s political paralysis resolves too late to matter in this time frame;

— Capacity growth in UAE and Qatar growth is driven by liquids spun-off from rapidly expanding, world-scale natural gas projects, augmented by oil in Abu Dhabi;

— Nigeria ‘s capacity growth we scaled back as even deepwater projects are getting delayed, while some 300kbd of western delta capacity appears lost permanently;

— Indonesia, Libya, Algeria and Venezuela produce a net-decline. Output in Algeria and Indonesia slips along existing trends. Slippage in Venezuela is accelerating following expropriations of JVs in the Orinoco tar-belt. New partners there will need time to produce growth. Libya’s potential is only modest medium term;

Non-Opec

— Angola’s capacity growth-profile is still fairly steep, but several of the multitude of projects are also delayed. Their pace is not hampered however, by Luanda’s so far only pro-forma joining of Opec. (We will add Angola to our Opec tally once the group formally includes its newest member in group output targets);

— Mexico manages no more than to keep decline rates modest. Constitutional reform, we think, is key and unlikely to yield fruit in the next 5-years already;

— Canada produces significant growth as a nealy 800kbd of new oil sands output overcomes declines in conventional supplies;

— US oil supplies slip only modestly thanks mostly to growing Gulf of Mexico deepwater flows and also biofuels additions, of another 100kbd;

— Western Europe’s dominant North Sea is in decline, which is only marginally made up for by growing biofuels output;

— The lack of production growth in Russia is among the bigger shifts to become clear this year. Until new policies on tax and foreign participation become clear it’s hard to expect significant new investments in Greenfield developments to come about soon. We see such a turn-around yielding fruit only late in our outlook;

— From the rest of the former Soviet Union it’s big expansions around he Caspian Basin. Many are on track, albeit delayed and over budget. Kashagan’s contribution, for instance, is now not pencilled in until 2012 (only 100kbd). In Azerbaijan, new discoveries vie for attention with setbacks and delays on older ones;

— In the Asia Pacific region we see modest increments from China, India and Malaysia, which in the case of China includes modest CTL flows;

— Brazil benefits from a large project pipeline for the deepwater as well as some 200kbd of biofuels additions in our view;

— Elsewhere in Latin America we see declines across the board;

— Sudan’s growth trajectory seems safe;

— Elsewhere in Africa we see only modest growth offshore and in Chad but those gains fail to make up for decline rates across mature basins.


How supply is constrained

Source: UBS

Non-opec oil supplies (including Angola) should fall…

… from 2010E onward

46

47

48

49

50

51mmb/d

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

2007E 2008E 2009E 2010E 2011E 2012E

mmb/d



Source: UBS

OPEC Crude Production

Spare Capacity

0

1

2

3

2007E 2008E 2009E 2010E 2011E 2012E

mmb/d

15

20

25

30

35

2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012EOpec crude other than Saudi Saudi CrudeOpec capacity

mmb/d


Focus in the Santos Basin

All to make sense of an enticing pre-salt picture…

… if Tupi is the smaller structure, what is that large hill?

The picture brings a couple of questions to the fore…

1. Are all the drilled wells connected?

2. What is this other structure?

3. Who has exposure to that?

Source: ANP Brasil


Global oil demand growth, we think slows down

Source: UBS and the BP Statistical Review of World Energy

Global GDP growth and global energy demand track each other nicely, but the dotted line that is oil does not…

As Global GDP growth takes a hit, oil demand growth too will diminish-in our forecast, both stay below trend

0%

1%

2%

3%

4%

5%

6%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

w ith total energy r2 = 0.5384

w ith oil r2 = 0.1458

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

2003 2005 2007E 2009E 2011E3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

Oil Dem (% y/y)

GDP (% y/y, rhs)

5-yr trends


Oil Demand and macro-cycles

Source: IEA, UBS

OECD Demand growth by categories, shows how in our forecast the premium fuels making up "Drive” won’t grow

In North America, the core of oil demand growth turns negative, after a rebound in “fuels we burn" turned growth positive in 2007

-800

-600

-400

-200

0

200

400

2005 2006 2007E 2008E

Burn Drive Other Total

kbd

-800

-600

-400

-200

0

200

400

2005 2006 2007E 2008E

Burn Drive Other Total

kbd


Global oil demand continued..Where do we see oil demand growing in the next five years

Source: UBS

6.2

0

1

2

3

4

5

6

7

OECD

NA

OECD

EU

OECD

AP

FSU

Chin

a

Othe

r Asia

Mid

east

Othe

rs

Cum

ulat

iv

mmb/d


Oil Intensity of GDP Growth

Source: UBS

0.0

1.0

2.0

3.0

4.0

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007

US EU12 Japan China India

Oil Intensity of GDP = boe/$1,000 of GDP

Oil sensitivity with Real GDP

0.0

0.4

0.8

1.2

1.6

2.0

1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007

US OECD Europe Japan China India

Oil Intensity of GDP = boe/$1,000 of GDP (PPP, in 1990 dollars)

Efficiency Gains of Oil Use Have Been Many, Further Gains Won’t Be Easy


Shifts in kind of oil demand

Source: UBS

Shifts in the kind of oil that is in demand, OECD 1984-2006

15000

20000

25000

30000

35000

1984 1987 1990 1993 1996 1999 2002 2005

0

5000

10000

15000

20000

Transport Fuels (jet fuel, gasoline, gas oil) Fuel Oil (rhs)

(1,000 b/d)


GDP per capita

Source: UBS

0

5,000

10,00015,000

20,000

25,000

30,00035,000

40,000

45,000

50 54 58 62 66 70 74 78 82 86 90 94 98 02

US RU CH IN BR

US $

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0 3,000 6,000 9,000 12,000 15,000 18,000

South Korea China India

GDP per capita, US$

Autos per House Hold

A history of GDP (real) per capita

…Suggests a threshold for accelerating car ownership


If China’s car-buying patterns follow precedent …

Source: UBS

0

5,000

10,000

15,000

20,000

2005 2008 2011 2014 2017 2020 2023 2026 2029

India China

GDP per capita, US$

0200

400600

8001000

12001400

1600

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

India China

Population, millions

China reaches that level in 2010,but…

… Following South Korea poses a big problem with a population 27x as big


Upside system risk

10-year of global energy demand growth (%y/y): Coal has captured the largest share of global energy growth from 2003-06; how long can that last?

Source: BP Statistical Review of World Energy

-3.0%

-1.0%

1.0%

3.0%

5.0%

7.0%

9.0%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Coal Oil Gas Total Energy

-3.0%

-1.0%

1.0%

3.0%

5.0%

7.0%

9.0%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Coal Oil Gas Total Energy


Global oil balance..

Source: UBS

UBS’s extended global oil balance (10 years, 2003 through 2012E) …

mmb/d 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012EDemandOECD America 24.5 25.4 25.5 25.3 25.5 25.5 25.4 25.6 25.9 26.1OECD Europe 15.4 15.5 15.6 15.6 15.3 15.4 15.3 15.2 15.1 15.1OECD Asia Pac 8.6 8.5 8.6 8.4 8.3 8.4 8.4 8.4 8.3 8.3OECD 48.6 49.4 49.7 49.3 49.2 49.4 49.2 49.2 49.2 49.5FSU 3.9 3.9 3.9 4.1 4.0 4.2 4.2 4.3 4.3 4.4China 5.6 6.6 6.8 7.2 7.6 8.0 8.5 8.8 9.1 9.4Other Asia 8.1 8.6 8.8 8.8 9.0 9.3 9.6 9.7 9.9 10.1South America 4.7 5.0 5.0 5.2 5.3 5.4 5.5 5.6 5.6 5.6Mideast 5.4 5.8 6.1 6.5 6.8 7.1 7.4 7.7 8.0 8.3Africa 2.7 2.8 2.9 3.0 3.0 3.2 3.3 3.3 3.4 3.5Non-OECD 31.1 33.3 34.3 35.5 36.6 37.9 39.2 40.2 41.1 42.0Total 79.7 82.7 84.0 84.8 85.8 87.3 88.4 89.4 90.4 91.5SupplyAmericas 18.1 18.0 17.7 17.9 18.0 18.1 18.3 18.2 18.5 18.5Europe 6.4 6.1 5.7 5.2 5.0 4.7 4.4 4.1 3.6 3.2FSU 10.4 11.3 11.7 12.2 12.7 12.9 13.1 13.2 13.2 13.3Africa 2.2 2.4 2.4 2.6 2.8 2.8 2.9 2.9 2.8 3.0Mideast 2.0 1.9 1.8 1.7 1.6 1.5 1.5 1.6 1.8 1.7Asia 6.6 6.7 6.8 6.9 6.9 7.1 7.3 7.6 7.7 7.7Non-Opec Supply 45.7 46.4 46.2 46.6 47.0 47.2 47.5 49.8 49.6 49.3Opec Crude Oil 28.6 30.6 31.4 31.7 31.3 32.4 33.3 32.0 32.7 33.5 Opec 10 25.9 27.0 27.8 27.8 27.1 27.9 28.5 29.3 29.8 30.3Opec non-crude 3.5 4.0 4.3 4.4 4.5 5.1 5.5 5.71 5.91 6.11Processing Gain 1.9 2.0 2.1 2.1 2.1 2.2 2.3 2.4 2.6 2.7Total 79.7 82.9 83.9 84.7 84.9 87.0 88.6 89.5 90.4 91.3Memo:Capacity 81.7 84.6 84.8 86.3 87.9 89.3 91.0 92.0 92.4 92.4

Spare 2.0 1.7 0.9 1.6 3.0 2.3 2.4 2.4 1.9 1.1Relative 2.5% 2.0% 1.1% 1.9% 3.6% 2.7% 2.7% 2.7% 2.1% 1.2%

To BalanceImplied stock change +0.0 +0.3 -0.0 -0.1 -0.9 -0.3 +0.2 +0.2 +0.1 -0.2OECD stock cover 53.6 50.1 51.5 53.8 51.1 49.5 49.8 50.0 49.9 48.7


Global oil balances 2003-’12, year by year

Source: IEA, DoE, OPEC; national energy statistics agencies including OMV, AFP, UP, ANP, PTT, CERI; national oil companies, including PEMEX, international oil companies including BP and its Statistical Review of World Energy; Reuters, Bloomberg; and UBS estimates.

UBS’s extended global oil balance (10 years, 2003 through 2012E) …

2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012EOECD America 1.7% 3.4% 0.5% -0.8% 1.0% 0.0% -0.4% 0.7% 1.0% 1.0%OECD Europe 0.9% 0.3% 0.8% 0.1% -2.0% 0.4% -0.3% -0.6% -1.0% 0.0%OECD Asia Pac 1.8% -1.5% 0.8% -1.9% -0.8% 1.2% -0.5% -0.5% -1.0% -0.3%OECD 1.5% 1.6% 0.6% -0.7% -0.3% 0.4% -0.4% 0.1% 0.0% 0.5%FSU 1.5% 0.4% 0.8% 5.5% -1.9% 2.7% 2.0% 1.0% 1.0% 1.0%China 12.1% 16.9% 2.9% 6.2% 5.9% 5.5% 5.0% 4.0% 4.0% 3.0%Other Asia 1.2% 6.8% 1.9% 0.2% 2.4% 2.8% 2.8% 2.0% 2.0% 2.0%South America -2.0% 4.8% 1.3% 2.7% 2.3% 1.1% 2.9% 1.0% 0.0% 0.0%Mideast 2.8% 7.0% 6.3% 6.1% 5.2% 4.4% 3.4% 4.0% 4.0% 4.0%Africa 2.1% 3.0% 4.8% 1.7% 3.2% 3.6% 3.7% 2.0% 2.0% 2.0%Non-OECD 3.0% 7.1% 2.9% 3.6% 3.2% 3.5% 3.4% 2.5% 2.4% 2.2%TOTAL DEMAND 2.0% 3.7% 1.6% 1.0% 1.2% 1.7% 1.2% 1.1% 1.1% 1.3%Global GDP growth 4.0% 5.1% 4.6% 5.1% 4.8% 4.3% 4.1% 4.1% 4.2% 4.2%Supply Year to Year change in mmb/dAmericas 0 -0.2 -0.3 0.2 0.1 0.1 0.2 -0.1 0.3 0.0Europe -0.3 -0.3 -0.4 -0.5 -0.3 -0.3 -0.3 -0.3 -0.5 -0.4FSU 1.0 0.9 0.4 0.5 0.5 0.2 0.1 0.1 0.1 0.1Africa 0.1 0.2 0.1 0.2 0.1 0.1 0.1 -0.1 -0.1 0.2Mideast -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 0.0 0.2 0.1 0.0Asia 0.0 0.1 0.1 0.1 0.0 0.2 0.2 0.3 0.1 0.1Non-Opec Supply 0.8 0.7 -0.2 0.3 0.4 0.2 0.3 2.3 -0.2 -0.3Opec Crude Oil 1.0 2.0 0.7 0.3 -0.4 1.1 0.8 -1.3 0.7 0.8 Opec without Iraq 1.6 1.1 0.8 0.0 -0.7 0.8 0.6 0.8 0.5 0.5Opec non-crude 0.2 0.4 0.3 0.1 0.1 0.6 0.4 0.2 0.2 0.2Processing Gain 0.1 0.1 0.1 0.1 0.0 0.1 0.1 0.1 0.2 0.2TOTAL SUPPLY 2.1 3.2 1.0 0.8 0.2 2.0 1.6 1.0 0.9 0.8


What’s “normal” about oil-prices …


Key projects IRR sensitivity

Source: UBS

5%

10%

15%

20%

25%

30%

35%

$40 $45 $50 $55 $60

Brazil

Block-17(Angola)

GOM

Usan and Ukot (Nigeria)

Ethanol (Brazil)

Pearl GTL

Sakhalin2

CTL in China

Oil SandsAv erage Annual Oil Price (Brent $/b)

IRR %

IRR of key projects and their sensitivity to long-term oil price


Sovereign producers

Source: UBS

$20

$30

$40

$50

$60

Kuw

ait

UAE

Qat

ar

Liby

a

S Ar

abia

Rus

sia

Alge

ria

Mex

ico

Vene

zuel

a

Iran

Current 2011?

"Breakeven" oil prices for significant sovereign oil producers


Sovereign producers

Source: UBS

0

50

100

150

200

250

0 5 10 15 20End 2005 Reported oil reserv es per capita (mmb/c)

2005

Oil

prod

uctio

n pe

r cap

ita (b

/c)

GCC

SA

Liby a

Iraq

Iran

Venezuela

Angola

Oil reserves per capita

Production per capita

Kuwait 37.6 362.7UAE 23.8 264.6Qatar 19.1 529.1S Arabia 11.7 173.3Libya 8.9 146.5Iraq 6.0 34.5Venezuela 3.0 37.5Iran 2.0 21.9Angola 1.6 81.1Russia 0.5 24.2Algeria 0.4 26.4Mexico 0.1 13.1Nigeria 0.3 6.6GCC 14.5 202.1

Pressure is on sovereign oil producers with less wealth

Oil wealth per capita


Gross capacity additions

Source: UBS

72,000

76,000

80,000

84,000

88,000

92,000

2006 2007E 2008E 2009E 20010E 20011E

Biofuels

CTL

GTL

Oil Sands

Sov ereigns w / high + rising demands on publicspendingDeep Water

Saudi Capacity

Sov ereigns w / modest demands on publicspendingLow cost, mostly conv entional oil supply grow th

Baseline

(1,000b/d)

Gross new capacity additions in our 2006-11 base case for oil supply


What types of new capacity

Source: UBS

$30

$35

$39

$35-$48

$50-$55

$52$55+

0

4000

8000

12000

16000

2006-2011 Gross New Oil

Capacity in 1,000b/d

Biofuels

CTL (IRR = 12%)

GTL (Pearl = 15%)

Oil Sands (IRR = 11%)

Sov ereigns w / high + rising demands onpublic spendingDeep Water (20% IRR)

Saudi Capacity

Sov ereigns w / modest demands on publicspendingLow cost, mostly conv entional oil supplygrow th

What types of new capacity are coming on and at what "Cost"?


Normalized oil price inflated

Source: UBS

Global Oil Co.unit opex and oil price

Normalized price sensitivities vs. LT ROR assumption

21222324252627282

1994 1997 2000 2003 2006 2009E 2012E

Oil

pric

e (U

S$/b

)

2

3

4

5

6

7

8

9

Ope

ratin

g co

sts

(US$

/boe

)

Oil price Operating costs

50.00

55.00

60.00

65.00

70.00

75.00

80.00

85.00

2008E 2009E 2010E 2011E 2012E

Nor

mal

ised

oil

pric

e ($

/b)

11% 12% 13% 14% 15%


Normalized oil price inflated continued..

Source: UBS

Global OilCo.F&D costs actual and normalized

Oil prices 1998-'12E and inferred Global OilCo IRR's

1998

1999

2004

2000

2003

2002

20011997

20052006

2007E

2012E2008E

2011E2010E2009E

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

0.00 20.00 40.00 60.00 80.00 100.00

Oil price (US$/b)

IRR

0

5

10

15

20

25

1998 2000 2002 2004 2006 2008E 2010E 2012E

US$

F&D (US$/boe) Normalised F&D (US$/boe)


A key concept that’s still valid

Not Enough Skilled People

skilled workers (eg divers,welders etc)experienced project mgrsteamleaders(eg. Offshore drill-masters demographics

bulge in the high 50s) Environmental Concerns

Politics / Conflict •Iraq, Nigeria, Venezuela, Ecuador•Russia (?); Sudan (?); Chad (?) etc.

Industry's low project hurdle rates

LIMITED ACCESS

to the RESOURCE

Host Government ‘Greed‘,Or Resource NationalismFed/stoked by high prices

Global warming would pose more difficulties offshore / arcticand amplifies environmental concerns

Backlog Along Offshore Supply Chain

available deep-water rig too few pipelaying; heavy liftand specialized support vessels big-equipment (eg pressure vessels) large-diameter, high tensile steel pipe

mature field decline rates

Ageing infrastructure,Watch for headlines about pipelineand other infrastructure headaches/ opportunities

trend toward fewer, smaller discoveriesindustry's lean-ness

(great strategy, poor execution)

Scarcer refiner capacity,limits use for certain crude grades

consumer trends toward higher quality fuels

It is not just one thing depressing upstream capacity growth …

…so it won’t be one thing lifting the restraints either

Wall Street Earnings Pressure

ERA of LOW OIL PRICES (1985-1999)

Not Enough Skilled People

skilled workers (eg divers,welders etc)experienced project mgrsteamleaders(eg. Offshore drill-masters demographics

bulge in the high 50s) Environmental Concerns

Politics / Conflict •Iraq, Nigeria, Venezuela, Ecuador•Russia (?); Sudan (?); Chad (?) etc.

Industry's low project hurdle rates

LIMITED ACCESS

to the RESOURCE

Host Government ‘Greed‘,Or Resource NationalismFed/stoked by high prices

Global warming would pose more difficulties offshore / arcticand amplifies environmental concerns

Backlog Along Offshore Supply Chain

available deep-water rig too few pipelaying; heavy liftand specialized support vessels big-equipment (eg pressure vessels) large-diameter, high tensile steel pipe

mature field decline rates

Ageing infrastructure,Watch for headlines about pipelineand other infrastructure headaches/ opportunities

trend toward fewer, smaller discoveriesindustry's lean-ness

(great strategy, poor execution)

Scarcer refiner capacity,limits use for certain crude grades

consumer trends toward higher quality fuels

It is not just one thing depressing upstream capacity growth …

…so it won’t be one thing lifting the restraints either

Wall Street Earnings Pressure

ERA of LOW OIL PRICES (1985-1999)

Source: UBS


What Many Long-Term Oil Players “See”

80,000

85,000

90,000

95,000

100,000

105,000

2004 2006 2008 2010 2012 2014 2016 2018 2020

Optimistic Capacity Case Base Case Demand

Recession prolongued Steady trend (+1.7%=1986-2005)

1,000 b/d

Source: UBS


Remember the US consumer is not so badly off

Share of US disposable income going to "Oil and gasoline" and "total energy"

0

1

2

3

4

5

6

7

8

9

Mar-59

Mar-61

Mar-63

Mar-65

Mar-67

Mar-69

Mar-71

Mar-73

Mar-75

Mar-77

Mar-79

Mar-81

Mar-83

Mar-85

Mar-87

Mar-89

Mar-91

Mar-93

Mar-95

Mar-97

Mar-99

Mar-01

Mar-03

Mar-05

Mar-07

Gasoline & oil Consumer spending on energy goods & serv ices

%

Source: UBS macro economic research


Indeed, there are worse problems than oil prices

Adding non-energy share and the savings share of consumer spending

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Mar

-59

Mar

-61

Mar

-63

Mar

-65

Mar

-67

Mar

-69

Mar

-71

Mar

-73

Mar

-75

Mar

-77

Mar

-79

Mar

-81

Mar

-83

Mar

-85

Mar

-87

Mar

-89

Mar

-91

Mar

-93

Mar

-95

Mar

-97

Mar

-99

Mar

-01

Mar

-03

Mar

-05

Mar

-07

75.0

77.0

79.0

81.0

83.0

85.0

87.0

89.0

91.0

93.0

Saving Gasoline & oil Consumer spending on energy goods & services Consumer spending on nonenergy

Source: UBS macro economic research


Upside system riskTwo-year out WTI futures have averaged $71/b in the last two years. Their 100-day moving average has stayed within one standard deviation of that $70.75 average, despite significant volatility since April 2006. That this 100-day moving average is once again challenging its 1-standard deviation border may mean a break out to the upside is imminent. Some argue that the daily settle’s breakout through the 2-standard deviation range means the break out is there. We don’t think so, yet.

Source: Bloomberg and UBS

$20

$30

$40

$50

$60

$70

$80

$90

1/2/20

03

3/17/2

003

5/28/2

003

8/7/20

03

10/17

/2003

1/5/20

04

3/17/2

004

5/27/2

004

8/10/2

004

10/20

/2004

1/4/20

05

3/17/2

005

5/27/2

005

8/9/20

05

10/19

/2005

1/3/20

06

3/16/2

006

5/26/2

006

8/8/20

06

10/18

/2006

12/29

/2006

3/15/2

007

5/25/2

007

8/7/20

07

10/17

/2007

12/28

/2007

Q2 '08

$/b


ThailandPTT E&PPTT PublicThai OilRayong

Refinery

PhilippinesPetron

South AfricaSasol

KoreaGS HoldingsS-OilSK Corp

BrazilPetrobrasPetrobras Energia

EuropeAcergyAker KvaernerBG GroupBPBurren EnergyCairn EnergyCEPSACGG-VeritasDana PetroleumENIERGFred OlsenFugroImperial EnergyLotosMOLMotor OilNesteOMVPKN Orlen

RussiaBashneftGazpromGazprom NeftLukoilNovatekNovoilRosneft

Greater ChinaCITIC CNOOCCNPCFormosaPetrochinaSinopec

JapanCosmo OilINPEX HoldingsJAPEXNippon Mining HoldingsNippon OilShowa Shell SekiyuTonenGeneral SekiyuIdemitsu Kosan

AustraliaAED OilAustralian Worldwide ExplorationCaltex AustraliaHardman ResourcesOil SearchOrigin EnergyROCSantosTap OilWoodside Petroleum

Anadarko PetroleumApacheChesapeake EnergyCimarex EnergyDevon EnergyEOG ResourcesForest OilNewfield ExplorationNoble EnergyOcean EnergyPioneer Natural Res.Pogo ProducingQuicksilver ResourcesUltra PetroleumSouthwestern EnergySwift EnergyXTO Energy

Amerada HessChevronTexacoConocoPhillipsExxonMobilMarathon OilMurphy OilOccidental Petroleum

USABasic Energy ServicesBaker HughesBJ ServicesCal Dive Int’lChart IndustriesComplete Prod. Svcs.Cooper CameronDril-QuipEnsco InternationalFMC TechnologiesGlobal IndustriesGlobalSantaFeHalliburtonKBRNabors IndustriesNoble DrillingPrecision DrillingRowan CompaniesSchlumbergerSmith InternationalTidewaterTODCOTransocean OffshoreWeatherford Int’l

Niko ResourcesNuVista EnergyOilexcoOPTI CanadaPetro-CanadaRally EnergyReal ResourcesRider ResourcesSuncorTalisman EnergyTanganyikaTransGlobe EnergyUTS EnergyWestern Oil Sands

CanadaAddax PetroleumCanadian Natural Res.CalvalleyCenturion EnergyCompton PetroleumDuvernay OilEnCanaFirst CalgaryGalleon EnergyHusky OilImperial OilNexen

PetrofacPetroplusPGSPremier OilRepsol YPFRoyal Dutch/ShellSaipemSarasSBM OffshoreSeadrillSOCOStatoilTechnipTGS-WavefieldTOTALTullowTuprasUnipetrolVenture ProductionWood Group

SurgutneftegazTatneftTNK-BP HoldingTransneftUfa RefineryUfaneftekhimUrals Energy

KazakhstanKazMunaiGas EP

IndiaBharat Petroleum Hindustan PetroleumIndian Oil CorpONGCCairns EnergyReliance IndustriesReliance Petroleum

ARC Energy Trust Baytex Energy TrustBonavista Energy Trust Canadian Oil Sands TrustCanetic Resources Trust Crescent Point Energy Trust Enerplus Resources Fund Focus Energy Trust Harvest Energy Trust Pengrowth Energy Trust Penn West Energy Trust PrimeWest Energy Trust Progress Energy Trust Vermilion Energy Trust

Frontier OilHollySunocoTesoroValeroWestern Refining


UBS Global Oil Team

GlobalLouise Hough Global Research Marketing +44-20 7568 0448 [email protected] Hart Global Research Marketing +44-20 7568 4644 [email protected] Krill Global Research Marketing +1-212-713 9346 [email protected] Stuart Oil Economist +1-212-713-1074 [email protected] Rigby Integrated +44-20 7568 4168 [email protected] Reid Integrated +44-20 7568 4434 [email protected] Brooks Oilfield Services +44-20 7567 5804 [email protected] Wood Exploration & Production +44-20 7568 6485 [email protected] Kapadia Refiners +44-20 7568 1235 [email protected] Featherston Exploration & Production & Integrated +1-212-713 9701 [email protected]. David Anderson Exploration & Production, Oilfield Services +1-212-713-3343 [email protected] Mandrekar Refiners +1 212 713 8471 [email protected] Potter Integrated, Exploration & Production +1-403-695 3633 [email protected] Kont Exploration & Production +1-403-695-3631 [email protected] Hofer Oil & Gas Trust +1-403-695-3638 [email protected] Wong China +852-2971 6061 [email protected] Tan Asia +852-2971 7096 [email protected] Gastreich Thailand/South Korea +852 2971 6121 [email protected] Ito Japan +81-3-5208 6241 [email protected] Ramsay Australia +613-9242 6631 [email protected] Santiago Philippines +632 754 8812 [email protected] Katkar India 91 22 2286 2051 [email protected] Emerging MarketsMaria Radina Russia +7-495-648 2352 [email protected] Gattass Latin America +55-21-3262 9299 [email protected] Twyman South Africa +44-20 7568 1973 [email protected]


Risk Statement

Oil prices are extremely volatile in the short, medium and long term, as they are frequently affected by inherently unpredictable events, including natural disasters. In history, oil prices have proved consistently unpredictable because so many political, geological, and economic trends and events affect the supply of and demand for oil.


Required DisclosuresThis report has been prepared by UBS Securities LLC, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and affiliates are referred to herein as UBS.

For information on the ways in which UBS manages conflicts and maintains independence of its research product; historical performance information; and certain additional disclosures concerning UBS research recommendations, please visit www.ubs.com/disclosures.

UBS Investment Research: Global Equity Rating Allocations

UBS 12-Month Rating Rating Category Coverage1 IB Services2

Buy Buy 55% 40% Neutral Hold/Neutral 36% 35% Sell Sell 9% 22% UBS Short-Term Rating Rating Category Coverage3 IB Services4

Buy Buy less than 1% 29% Sell Sell less than 1% 0%

1:Percentage of companies under coverage globally within the 12-month rating category. 2:Percentage of companies within the 12-month rating category for which investment banking (IB) services were provided within the past 12 months. 3:Percentage of companies under coverage globally within the Short-Term rating category. 4:Percentage of companies within the Short-Term rating category for which investment banking (IB) services were provided within the past 12 months. Source: UBS. Rating allocations are as of 30 September 2007. UBS Investment Research: Global Equity Rating Definitions

UBS 12-Month Rating Definition

Buy FSR is > 6% above the MRA. Neutral FSR is between -6% and 6% of the MRA. Sell FSR is > 6% below the MRA.

UBS Short-Term Rating Definition

Buy Buy: Stock price expected to rise within three months from the time the rating was assigned because of a specific catalyst or event.

Sell Sell: Stock price expected to fall within three months from the time the rating was assigned because of a specific catalyst or event.


Required Disclosures (Continued)

Analyst CertificationEach research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers; and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report.

Unless otherwise indicated, please refer to the Valuation and Risk sections within the body of this report.

KEY DEFINITIONS

Forecast Stock Return (FSR) is defined as expected percentage price appreciation plus gross dividend yield over the next 12 months. Market Return Assumption (MRA) is defined as the one-year local market interest rate plus 5% (a proxy for, and not a forecast of, the equity risk premium). Under Review (UR) Stocks may be flagged as UR by the analyst, indicating that the stock's price target and/or rating are subject to possible change in the near term, usually in response to an event that may affect the investment case or valuation. Short-Term Ratings reflect the expected near-term (up to three months) performance of the stock and do not reflect any change in the fundamental view or investment case.

EXCEPTIONS AND SPECIAL CASES

US Closed-End Fund ratings and definitions are: Buy: Higher stability of principal and higher stability of dividends; Neutral: Potential loss of principal, stability of dividend; Reduce: High potential for loss of principal and dividend risk. UK and European Investment Fund ratings and definitions are: Buy: Positive on factors such as structure, management, performance record, discount; Neutral: Neutral on factors such as structure, management, performance record, discount; Reduce: Negative on factors such as structure, management, performance record, discount. Core Banding Exceptions (CBE): Exceptions to the standard +/-6% bands may be granted by the Investment Review Committee (IRC). Factors considered by the IRC include the stock's volatility and the credit spread of the respective company's debt. As a result, stocks deemed to be very high or low risk may be subject to higher or lower bands as they relate to the rating. When such exceptions apply, they will be identified in the Companies Mentioned or Company Disclosure table in the relevant research piece.


Additional disclosures (if needed)

For a complete set of disclosure statements associated with the companies discussed in this report, including information on valuation and risk, please contact:

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