October 27-29, 2008 The 28 th Annual Fuel Oil/Energy Buyers’ Conference Miami Beach, Florida Ocean Transportation’s Role in Fuel Oil Arbitrage © Poten & Partners 2008

2 Overview Fuel oil moved on the spot market by vessel class Top routes for fuel oil spot shipments Volatility of freight rates Regional supply and demand – opportunity for arbitrage

3 Fuel Oil Share of Spot Tanker Fixtures * Reported spot fixtures, which do not include time charter vessels. ** Other dirty product includes: VGO, Carbon black feedstock, dirty condensate, and Orimulsion.

4 Oil Tankers Vessel Classes

5 Fuel Oil Moved in the Spot Market by Vessel Class

6 Top Routes Spot Fuel Oil Cargo Moved January - September 2008 *SE Asia – Brunei, Indonesia, Malaysia, Myanmar, Papua New Guinea, Southeast China, Thailand, Timor, Singapore, Vietnam ** Far East – Japan, North/Central China, Korea, Taiwan, East Russia

7 Top VLCC Fuel Oil Spot Trades by Volume (Jan-Sep 2008)

8 Top Aframax Fuel Oil Spot Trades by Volume (Jan-Sep 2008)

9 Volatility of VLCC Freight Rates Caribbean to Southeast Asia Spot Fuel Oil Cargo For arbitrage to work, product price differential between different regions has to cover the freight cost and reward the trader for taking a risk. Freight rates could help open and close arbitrage opportunities.

10 Freight Rates Caribbean/US Gulf to Southeast Asia/Far East Route Although the lumpsum cost for VLCCs exceeds that of Aframaxes and Suezmaxes, VLCCs provide the lowest unit cost of transportation. However, lightering and additional time to load/unload fuel oil could generate additional costs when chartering VLCCs on the spot market. In the first nine months of 2008 compared to the same period 2007, VLCC rates nearly doubled. Concurrently, fuel oil shipped by VLCCs increased from 6.1 million mt to 13.2 million mt.

11 Supply & Demand Opportunities for Arbitrage The difference between Far East fuel oil deficit and South America/Caribbean fuel oil surplus will widen from about 63 million mt in 2007 to about 74 million mt by 2013, increasing the possibility for arbitrage. As a result: Either more FO will be shipped from the Caribbean to the Far East Or The Far East will be forced to seek alternative fuels or import FO from other areas.

12 Summary & Conclusions Tankers are used to capitalize on regional demand imbalances and price arbitrage opportunities Competition for freight will be driven by demand in the crude and dirty refined products trades Spot VLCC fixtures are the vessels of choice on long-haul voyages, as their low per-ton costs generally offset additional trans-shipment costs for West-East movements Regional supply and demand imbalance would provide opportunities for arbitrage fuel oil spot cargo movement from West to East Going forward we see the potential for growth in long-haul fuel oil movements to bridge supply and demand imbalances between regions

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