US crude exports: re-shaping Asia’s trade flows & pricing Shanghai Alejandro Barbajosa May 2017

Global crude re-balancing and trade flow implications Stockpiles may keep rising even with extended OPEC cuts Atlantic basin crude benchmark prices converge at USGC US crude exports become key marginal barrel: Argus WTI Dubai benchmark’s strength helps North American flows to Asia Arbitrage to Asia only makes sense comparing delivered prices Conclusion: USGC gains traction as global crude pricing hub

Crude prices finding support at $50/bl on OPEC cuts Copyright © 2017 Argus Media Ltd. All rights reserved.

Iran crude exports top +2.1mn b/d, retain Asia focus Source: Argus Global Markets Copyright © 2017 Argus Media Ltd. All rights reserved.

Iran + Iraq now rivaling Saudis as OPEC superpowers Source: Argus Fundamentals Copyright © 2017 Argus Media Ltd. All rights reserved.

Iraq was 2nd largest supplier to China in September Copyright © 2017 Argus Media Ltd. All rights reserved.

Atlantic Basin + ESPO outpacing Middle East into China Source: Argus China Petroleum Copyright © 2017 Argus Media Ltd. All rights reserved.

Atlantic basin crude benchmarks converge at USGC Copyright © 2017 Argus Media Ltd. All rights reserved.

US crude exports beyond Canada soar after ban lifted Copyright © 2017 Argus Media Ltd. All rights reserved.

Permian basin output rising strongly with higher prices Copyright © 2017 Argus Media Ltd. All rights reserved.

Argus WTI Midland open interest doubled on exports Copyright © 2017 Argus Media group. All rights reserved.

WTI Midland open interest matches Dubai OI levels Copyright © 2017 Argus Media group. All rights reserved.

Argus WTI Houston priced at Magellan East Houston Copyright © 2017 Argus Media Ltd. All rights reserved.

US crude exports likely to jump again with Bakken Texas Bakken will change the Atlantic Basin market this year Will deliver 250,000 b/d of light crude to Texas coast (Nederland) by June 2017 May reach 400,000 b/d by year end Bakken has stable quality, it’s not a blended grade Trump administration ordered permits to be issued first week of February Pipeline is nearly complete – lacks only river crossing THE IMPACT OF THIS PARTICULAR FLOW CANNOT BE UNDERESTIMATED ON PRICE ON ATLANTIC BASIN MARKETS COULD GREATLY INCREASE THE VOLUME OF EXPORTS HOW WILL IT BE PRICED? WHAT IMPACT ON THE SWEET/SOUR SPREAD? NEEDS TO BE TESTED IN REFINERIES AROUND THE WORLD Copyright © 2017 Argus Media group. All rights reserved.

US may import +600,000 b/d Canadian sour by 2020 Copyright © 2017 Argus Media group. All rights reserved.

Strong Dubai: direct impact on US crude arb to Asia US crude exporters convert WTI Midland prices to Dubai, adding freight costs, to determine competitiveness of WTI & Eagle Ford into Asia-Pacific Dubai strength can have knock-on effect on Brent, making US crude more attractive than North Sea or west African for Asian refiners Copyright © 2017 Argus Media Ltd. All rights reserved.

Arbitrage only makes sense comparing delivered prices WTI arbitrage to Asia opens in relation to North Sea & west African light sweets and light Middle East grades like Murban, competitor with Forties Copyright © 2017 Argus Media Ltd. All rights reserved.

Canadian WCS can beat similar-quality Iraqi Basrah H. WCS arbitrage to Asia opens in relation to Middle Eastern heavy sour grades like Iraq’s Basrah Heavy Long-haul freight economics make it easier for WCS to reach China than India, which benefits from short-haul Middle East crude Copyright © 2017 Argus Media Ltd. All rights reserved.

Asian refiners can use Argus US delivered crude prices Competing Relative values from multiple source regions to Asia Integrates export costs & freight rates Based on transparent & liquid spot markets Benchmarking WTI Houston: global light sweet seaborne marker WCS Houston: global heavy sour seaborne marker Hedging WTI futures liquidity CME, ICE derivatives Long-term reliability Copyright © 2017 Argus Media Ltd. All rights reserved.

US crude pricing volumes surpassing 1.3mn b/d Copyright © 2017 Argus Media group. All rights reserved.

Market structure & liquidity favor USGC benchmarks Copyright © 2017 Argus Media group. All rights reserved.

USGC has potential to become global crude pricing hub Light Sweet Medium Sour Heavy Sour ALL OF THESE BENCHMARKS ARE ARGUS BENCHMARKS ALL ARE UNDERGIRDED BY DEEP FINANCIAL FUTURES MARKETS WHAT’S NOT TO LIKE? IN TEXAS THIS IS OUR 3RD OR 4TH OIL BOOM/BUST AND NO ONE GOT FOOLED THIS TIME TEXAS HAS COME BACK FAR STRONGER THAN BEFORE THE PRICE COLLAPSE Copyright © 2017 Argus Media group. All rights reserved.

Copyright © 2017 Argus Media group. All rights reserved.

Alejandro Barbajosa VP crude & LPG, Middle East & Asia-Pacific Email: Phone: Office: Web: Blog: Alejandro.barbajosa@argusmedia.com +65 8223 6525 Singapore www.argusmedia.com http://blog.argusmedia.com Stay Connected @ArgusMedia Argus-media +Argusmediaplus argusmediavideo Copyright notice Copyright © 2017 Argus Media group. All rights reserved. All intellectual property rights in this presentation and the information herein are the exclusive property of Argus and and/or its licensors and may only be used under licence from Argus. Without limiting the foregoing, by reading this presentation you agree that you will not copy or reproduce any part of its contents (including, but not limited to, single prices or any other individual items of data) in any form or for any purpose whatsoever without the prior written consent of Argus.   Trademark notice ARGUS, the ARGUS logo, ARGUS MEDIA, ARGUS DIRECT, ARGUS OPEN MARKETS, AOM, FMB, DEWITT, JIM JORDAN & ASSOCIATES, JJ&A, FUNDALYTICS, METAL-PAGES, METALPRICES.COM, Argus publication titles and Argus index names are trademarks of Argus Media Ltd. Disclaimer All data and other information presented (the “Data”) are provided on an “as is” basis. Argus makes no warranties, express or implied, as to the accuracy, adequacy, timeliness, or completeness of the Data or fitness for any particular purpose. Argus shall not be liable for any loss or damage arising from any party’s reliance on the Data and disclaims any and all liability related to or arising out of use of the Data to the full extent permissible by law.