Energy Markets Outlook

1. Wronger for Longer: A
Sideways Look at
North American
Energy Supply
National Ethanol Conference • February 16, 2016 • New
Orleans
Tom Kloza
Global Head of
Energy Analysis
732-730-2558
tkloza@opisnet.
com
@tomkloza

2. National Ethanol Conference • February 16, 2016 • New Orleans
Quick Political Disclosure

3. National Ethanol Conference • February 16, 2016 • New Orleans
Myth: There are true energy price
experts
SEPTEMBER 22, 2014 (Jim Volker, CEO of Whiting Petroleum)
“Let’s not panic over the first little decline in oil prices.”
NOVEMBER 5, 2014 (T. Boone Pickens, Chairman & CEO of BP Capital)
“This has only been going on for 30 days. The world hasn’t changed. OPEC has got to have a better
price for oil than $80 a barrel.”
NOVEMBER 10, 2014 (John Hess, CEO of Hess Corp.)
“We have an $80 Brent case; that is what we call our stress test. We don’t think $80 Brent is likely.”
NOVEMBER 26, 2014 (Tom Kloza, Global Head of Energy Analysis at OPIS, via CNBC)
“Oil could plummet to $35 a barrel in 2015 if OPEC doesn’t reach an agreement by the spring.”
JANUARY 1, 2015 (Andy Hall, Crude Trader and Commodities Hedge Fund Manager)
Proclaimed that $40 a barrel represented an “absolute price floor,” saying that crude couldn’t sell
for long below the marginal cost of supply.
FEBRUARY 17, 2015 (John Catsimatidis, Chairman at Red Apple Group & CEO of United Refining)
“You’re going to see $85 or $90 oil in the next 3-6 months.”
APRIL 7, 2015 (Tom Kloza, Global Head of Energy Analysis at OPIS, via CNBC)
“Don’t trust this oil bounce.”

4. National Ethanol Conference • February 16, 2016 • New Orleans
Spring WTI Crude Oil Price Estimates,
2015 – 2016
Bank/Entity 2H 2015 Outlook 2016 Projection
WTI Futures $60.25 bbl $63.10 bbl
Bank of America ML $54.00 bbl $57.00 bbl
Barclays $49.50 bbl $57.00 bbl
CIBC $66.00 bbl $70.50 bbl
Citi $51.00 bbl $61.00 bbl
EIA $56.85 bbl $70.00 bbl
Goldman Sachs $40-$65 bbl $65.00 bbl
Raymond James $60.25 bbl $65.00 bbl
TD $52.50 bbl $65.00 bbl
Average $55.87 bbl $63.73 bbl

5. National Ethanol Conference • February 16, 2016 • New Orleans
WTI Brent Brent-WTI Diff
2016 2016 2016
Goldman Sachs $45.00 $45.00 $0.00
Citi $48.00 $51.00 $3.00
Socitie Generale $40.50 $42.50 $2.00
BAML $45.00 $46.00 $1.00
Barclays $35.50 $34.30 -$1.20
PK Verleger LLC $39.50 $39.50 $0.00
BNP Paribas $36.00 $37.00 $1.00
Moody's $33.00 $33.00 $0.00
Morgan Stanley $46.00 $48.00 $2.00
Raymond James $50.00 $53.00 $3.00
Genscape $40.00 $42.00 $2.00
EIA $37.59 $37.52 $0.00
OPIS $37.50 $38.50 $1.00
Average $41.05 $42.10 $1.06
*Forecasts as of
Jan. 9, 2016
Source: Various bank reports
and best sources, but numbers
cannot be guaranteed
AND TODAY’S VIEWPOINTS FROM THE PEANUT GALLERY

6. National Ethanol Conference • February 16, 2016 • New Orleans
Game Changes

7. National Ethanol Conference • February 16, 2016 • New Orleans
N. American Diversity in Crude - 2013
•ANS - $102/bbl
• WCS – Hardisty, Alberta - $57/bbl
• Bakken - $80/bbl
• West African - $111/bbl
•LLS Sweet Crude - $96.00/bbl
WTI – Cushing, OK- $92/bbl •
WTI – West Texas - $88/bbl •
WTS – West Texas - $87/bbl

8. National Ethanol Conference • February 16, 2016 • New Orleans
N. American Diversity Crude –Mid-Feb
2016
WTI – Cushing, OK- $29.45/bbl •
WTI – West Texas - $29.45/bbl •
WTS – West Texas - $29.00/bbl
• WCS – Hardisty, Alberta - $16/bbl
• Bakken - $26/bbl
•ANS - $30/bbl
•LLS Sweet Crude - $30.25/bbl
• West African - $30/bbl

9. National Ethanol Conference • February 16, 2016 • New Orleans
Observations on U.S. Refining Trends
• Refineries are much more valuable assets these days, and are
sophisticated. That means the maintenance cycles are longer,
and breakdowns during periods of high runs are more plentiful.
• Another 200,000 b/d of U.S. refining capacity comes online in
2016, so by year’s end we’ll have added 2-million b/d of
capacity in the 21st century. Most of the recent production
additions have been tilted toward maximizing diesel output and
minimizing gasoline production.
• One can make a case that worldwide additions to diesel and jet
fuel production have been too ambitious, particularly given
slowdowns in EM countries.
• Gasoline is now the marquee product, or the make-or-break
product. Diesel had that stature from 2007-2015.

10. National Ethanol Conference • February 16, 2016 • New Orleans
Key Drivers of Oil Price Volatility
in the Next 14 Months
• Outright crude oil prices
• North American crude oil logistics
• Variable gasoline recipes
• Export & Import Dynamics . . .RINs?
• Financial Fund Flows
• The Madness of Crowds
• And one key driver that deserves its own slide…

11. National Ethanol Conference • February 16, 2016 • New Orleans
The Problem with Just-In-Time Inventory
• Shallow product inventories are quick-to-fill, but also quick-to-
empty
• Storage per capita is a mere fraction of what it was in 1975-1985
• Refinery turnarounds, maintenance, and projects accent the tidal
swings.

12. National Ethanol Conference • February 16, 2016 • New Orleans
Gallons Per Guys & Gals
• Gasoline Storage
Per Person
• Diesel Storage
Per Person
1980 Summer
2016 ?
PADD 5 38.5gal 18.5gal
PADD4 43.0gal 21.4gal
PADD 3 110.0gal 70.2gal
PADD 2 48.6gal 23.8gal
PADD 1 36.0gal 20.7gal
Total 49.8gal 28.0gal
1980 Summer
2016?
PADD 5 16.5gal 9.5gal
PADD4 24.3gal 13.0gal
PADD 3 63.4gal 41.9gal
PADD 2 36.2gal 15.7gal
PADD 1 46.1gal 18.8gal
Total 49.8gal 19.2gal*
All of this data was pulled out of my ass!

13. National Ethanol Conference • February 16, 2016 • New Orleans
Downstream Demand

14. National Ethanol Conference • February 16, 2016 • New Orleans
Whatwethought...TwoYearsAgo

15. National Ethanol Conference • February 16, 2016 • New Orleans
Future Gasoline Demand

16. National Ethanol Conference • February 16, 2016 • New Orleans
Predictions
• North America will have slightly cheaper crude than the rest of
the world in this decade. But the natural gas edge has
dwindled.
• The seasonality of gasoline will continue as time goes on.
There are fundamental reasons why this market is bipolar.
• Do-it-yourself futures’ hedging is troublesome. Can you
imagine if you sold ethanol as a discount to RBOB?
• The world is still a very dangerous place, but the U.S. has
several layers of insulation. Impact of exports?.

17. National Ethanol Conference • February 16, 2016 • New Orleans
Annual Household Dollars Spent on Fuel
(in Billions)
255.7
317.0
364.5
395.6
447.1
323.3
383.5
473.7 478.5
467.9
462.0
330.5
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

18. National Ethanol Conference • February 16, 2016 • New Orleans
Estimated Percent of Income Spent on Gasoline
$216
$335
$343
$235
$332
$238
$141
$325
$272
$163
$194
$294
$344
$276
4.0%
4.5%
5.3%
6.2%
6.8%
7.0%
7.9%
5.7%
6.7%
8.3% 8.2%
8.0%
7.5%
5.0%
$0.0
$50.0
$100.0
$150.0
$200.0
$250.0
$300.0
$350.0
$400.0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
Cost Per Household
Percent of Monthly Income Spent on Gas

19. National Ethanol Conference • February 16, 2016 • New Orleans

20. National Ethanol Conference • February 16, 2016 • New Orleans
Barrels of Crude Oil Per Capita
5.250
5.750
6.250
6.750
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Barrels per Person

21. National Ethanol Conference • February 16, 2016 • New Orleans
Has Diesel Lost its Mojo?

22. National Ethanol Conference • February 16, 2016 • New Orleans
No Longer the Magic Molecule?
• Refiners have tilted production toward making more diesel. US
Gulf Coast refineries are the most privileged in the world.
• Gasoline crack spreads have been very strong this past summer.
• This may be the start of a new normal. “Cheap crude” and
refinery downtime help push the gasoline crack spreads.
• New refining capacity coming on internationally (Middle East,
Asia) are geared toward producing and exporting diesel.
• Case in Point (OPIS Alert August 19th, 2015) Saudi Arabia's
distillate exports increased by 30% in the first six months of this
year, from a year earlier, according to data released by the Joint
Organisations Data Initiative (JODI) today.

23. National Ethanol Conference • February 16, 2016 • New Orleans
The Magic Molecule
24.97
22.92
28.07
11.94
15.54
34.47
39.10
32.19
29.37
25.84
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

24. National Ethanol Conference • February 16, 2016 • New Orleans
Myth: International Data Integrity

25. National Ethanol Conference • February 16, 2016 • New Orleans
“He uses statistics as a drunken man uses lamp-
posts… for support rather than illumination.”
– Andrew Lang

26. National Ethanol Conference • February 16, 2016 • New Orleans
Predictions
• Crude oil prices remain under pressure as long as Middle East troika
maintains market share strategy. Shale costs extremely variable but
expenses are dropping.
• Return to $70 bbl crude would bring 10-million b/d or more of U.S. crude
oil output.
• Don’t simply write off an effort to impose an oil tax, or perhaps more
workable, an oil import fee. Dramatic consequences.
• The seasonality of gasoline will continue as time goes on. There are
fundamental reasons why this market is bipolar.
• The magic days of the diesel molecule are over. Watch for tighter refining
margins – refineries committed to projects that will maximize diesel
yields. China is vital.

27. National Ethanol Conference • February 16, 2016 • New Orleans
Chicago Gasoline vs. Ethanol
50.0
125.0
200.0
275.0
350.0
425.0
Gasoline Ethanol

28. National Ethanol Conference • February 16, 2016 • New Orleans
The Premium for Premium Gasoline
27.8
27.1
29.1
33.3
36.6
44.0
51.6
26.0
30.0
34.0
38.0
42.0
46.0
50.0
54.0
2010 2011 2012 2013 2014 2015 2016
Pre-Unl Differential (cts/gal)

29. National Ethanol Conference • February 16, 2016 • New Orleans
SOME RANDOM OBSERVATIONS . . .
• The first instances where WTI crude settled above $40 barrel came on October 9 and October 11, 1990. Not until May 11,
2004 did WTI again settle above $40 barrel - if you are keeping score, that was a span of 4961 days.
• Last Wednesday, futures contracts representing approximately 1.7-billion barrels of oil traded on the CME. That is more
than half the U.S. output in 2016, and doesn’t even include trades for Brent, financial WTI contracts, or any of the action
on the InterContinentalExchange.
• Energy prices can go negative. In January 2014, we saw Edmonton propane trade for $4.50 gal. In May 2015, that propane
was available at Minus-5cts gal.
• I hate the Dallas Cowboys and especially their owner Jerry Jones. If they were playing Boko Haram or Al Qaeda, I would
seriously have to contemplate who I would root for.
• Top executives from Shell & BP have both recognized global warming, and have indicated that the world needs to more
aggressively cut back on fossil fuel consumption.
• The planet will have many more cars in the next five years. Car penetration rates in developed countries run around 54
percent, versus about 14 percent in emerging countries. If China matched the developed rate, it would require the sale of
another 580-million vehicles there.
• Oil producers lack flexibility and finesse and with the exception of the years where the OPEC cartel has real clout, they
have little choice but to continue pumping. Oil refineries do not face the same Hobson’s Choice.
• Don’t write off the Obama Administration’s efforts to impose an additional fee on oil. It may look little like the $10.25 bbl
tax, but there are other options.
• Believeit ornot,thereis agroup(thatmeetsregularly)calledtheAmericanStripperAssociation.

30. National Ethanol Conference • February 16, 2016 • New Orleans
The Premium for Premium Gasoline
27.8
27.1
29.1
33.3
36.6
44.0
51.6
26.0
30.0
34.0
38.0
42.0
46.0
50.0
54.0
2010 2011 2012 2013 2014 2015 2016
Pre-Unl Differential (cts/gal)

31. National Ethanol Conference • February 16, 2016 • New Orleans
Questions & Answers