1. Oil Price Factors If you use these images, please credit L. A. Starks, author 13 DAYS: THE PYTHAGORAS CONSPIRACY lastarksbooks.com

2. Crude Oil Price

3. Four Macro Factors 1) US Dollar Weakness; Oil denominated in Dollars 2) Oil as Inflation Hedge 3) Demand for ALL Commodities (Real Assets Excluding Real Estate) 4) Oil is Single-Source Fuel for Transportation; Undiversified

4. Dollar Weakness and Oil Price

5. Oil Supply Demand Inflection Point 2-2.4 MMBPD of spare supply capacity, 3% of total All in Saudi Arabia OPEC not meeting until September Short-term marginal cost of supply is very large ($110-$120/bbl) Rut of Upward Momentum

6. Short Term Disruptions Fog on the Houston Ship Channel; GOM hurricanes Weekly oil and gasoline inventory changes Conflict involving oil assets anywhere Forties pipeline shutdown due to Scottish refinery strike Nigerian bombings and strike Attack on Japanese oil tanker

7. Longer Term Supply Estimates 3.4 to 6 trillion bbls; used 1 trillion Total geologic estimates dont matter; political & economic limits frame availability Practical peak or plateau; 65% of reserves owned by NOCs IOCs have full access to 7% NOCs revenue-rich; resources as patrimony; different development incentives some starved of capital by govt (Venezuela, Nigeria, Iran)

8. January 2008 Oil Production

9. US Crude Oil Imports Aug-07Sep-07Oct-07Nov-07Dec-07Jan-08 Canada1,9501,9601,8891,9191,7841,944 Saudi Arabia1,4681,4411,3701,5301,6751,479 Mexico1,3811,2931,3221,4841,2341,198 Nigeria1,1841,1371,1841,2451,2101,163 Venezuela1,1381,1461,2211,2271,2461,135 Angola400578342408439566 Iraq520603490508378543 Algeria572503213184348366 Ecuador240234222154195247 Kuwait139143150154158239 Colombia152165164197113171 Brazil25021317278171169

10. Impediments

11. Reserves (less available or costly) Projects coming on this year w/total peaks 3 MMBPD Saudi Arabia not above 12.5 MMBPD - Al-Naimi Russiachanging terms, (New Cold War), production plateau Mexico (Constitution), Cantarell declining from 2.0 to 1.3 MMBPD Venezuela (political), declining Iraq (War) Nigeria (MEND, tax regime)

12. Other Reserves (less available or costly) cont. 40 billion barrels in US off limits (political) US Alaska Prudhoe declining Some Brazil (hostile geology) Canadian tar sands, $65/bbl Ultra Deepwater GOM Arctic seabed (hostile geology) Lack of good field data for Saudi Arabia, Russia

13. Reserves (more available) US-Bakken Shale Some Brazil Saudi Arabia Khurais Iraqi discussions with IOCs Kashagan USGC (Jack field; Lower Tertiary play)

14. Drilling and Transport Costs All drilling costs much higher (Rig shortage for deepwater GOM like Jack field) Credit crunch has limited access to capital Transport more expensive: Russia 2007 cutoff through Belarus Ethanol (US, Brazil Esso news) Oil sands to USGC Alaskan gas to US; KEY to Alaska oil field development; TransCanada only licensee

15. Refining Oil without refining is a swimming pool without water Supply of refining capacity is 2nd-level effect most miss US refining at capacity; no new refineries NIMBY, long payback, regulatory step function changes Debottlenecking secret Port Arthur Motiva (Shell-Aramco), 275 to 600 KBPD Change in crude quality Increasing imports of gasoline, other petroleum products

17. Demand Forecast reduced, 86.6 MMBPD Level of effect from US economic weakness *Price signals in US are key Increasing fuel efficiency (rolling stock turnover) Story is China, India, Middle East *No price signals, Middle East and Asia Western consumption a target

18. Increasing Asian Car Demand

19. Alternatives Ethanol: hero to zero Food prices up 83%; law of unintended consequences BPs prescience Ethanol mandate Higher CAFÉ standards Biofuels not from foodstocks (no drinkable jet fuel) Hybrids & Electric

20. Factors That Could Bring Down Oil Prices (Short Term) Change in Fed monetary direction (stop rate drop) Move of speculative/investment funds away from commodities Corn-derived ethanol Price signals are powerful; invisible hand (millions) US conservation, consumer and industrial Transport substitutes: videoconferencing, carpooling, mass transit

21. Factors That Could Bring Down Oil Prices (Long Term) Short-term factors plus capital investment Drop levy on imported ethanol Non-food biofuels Other non-petroleum transport fuel and cars that can use it US fleet meeting higher CAFÉ standards Meaningful number of hybrids and electric Other countries reduce subsidies

22. Oil Price Predictions $50-$80 If dollar strengthens to level of euro, $70/bbl Rubins estimate of $120/bbl Traders betting own money; NYMEX collected wisdom

23. NYMEX Forward Price Curve