Petroleum Outlook: More Volatility? John Cook Energy Information Administration NPRA Annual Meeting New Orleans, Louisiana March 19, 2001

Product Price Volatility This Year and in the Future Crude Oil -- Continued tight balance leaves world on thin edge Distillate Winter Price Retrospective – Why a price spike last winter and not this winter? Gasoline Price Volatility – Again this summer? Longer Term EIA Concerns– Volatility, imports, and specification changes –Product import availability –Ultra low sulfur diesel

WTI Crude Oil Price: Potential for Volatility Around Base Case Sources: History: EIA; Projections: Short-Term Energy Outlook, March 2001.

OPEC Crude Oil Production History Projections Sources: History: EIA; Projections: Short-Term Energy Outlook, March 2001.

Annual World Oil Demand Growth by Region, Forecast History * Other includes Australia, New Zealand, the Middle East, and Africa. Sources: History: EIA; Projections: Short-Term Energy Outlook, March 2001.

Low Total OECD Oil Stocks* Keep Market Balance Tight *Total includes commercial and government stocks. Sources: History: EIA; Projections: Short-Term Energy Outlook, March 2001.

Fundamentals Explain High Crude Oil Prices Source: EIA and OECD

Product Price Spreads Over Crude Oil Reflect Product Market-Based Volatility Source: Reuters

U.S. Distillate Inventories Source: EIA

Distillate Winter Demand Stronger Than Temperatures Would Imply Source: EIA

High Production Offset Lack of Inventory Source: EIA

High Production Came From High Yields & High Inputs Source: EIA Petroleum Supply Monthly

Source: EIA High Margins Bring High Imports

Gasoline Price Volatility Is a Concern This Summer Source: Reuters

Gasoline Volatility Source: EIA

Low Stocks Mean Tight Markets Sources: History: EIA; Projections: Short-Term Energy Outlook, March 2001.

Regional Stocks Source: EIA

Gasoline Demand Growth Respite Not Expected to Last Sources: History: EIA; Projections: Short-Term Energy Outlook, March 2001.

Utilization Highest in Summer When Gasoline Production is High Source: EIA

Gasoline Production Not Projected to Be Much Higher than Last Summer Sources: History: EIA; Projections: Short-Term Energy Outlook, March 2001.

Strong Margins Could Mean High Imports Source: EIA

Retail Motor Gasoline Price* Forecast Doesn’t Reflect Potential Volatility * Regular self-service Sources: History: EIA; Projections: Short-Term Energy Outlook, March 2001.

Issues for Petroleum Market This year may bring continued volatility –Lean stocks likely to continue –Little excess U.S. gasoline production capacity What about longer term? –Imports were relief valve historically, but demand, capacity, and spec changes here and abroad may affect import availability –Future spec transitions in gasoline and diesel could result in temporary supply problems

Excess Capacity is Gone Source : EIA Annual Energy Review

U.S. is Dependent on Gasoline Imports Source: EIA Data for Year 2000

Product Imports Projected to Grow Source: EIA 2001 Annual Energy Outlook

Atlantic Basin is Important Source of Gasoline Imports Source: EIA

Europe Growing demand and shifting slate Refinery rationalization Changing product specifications – Different from those in the United States

EU-15 Gasoline & Distillate Demand Source: IEA

Supply Implications European export gasoline volumes likely to remain unchanged –Uncertainties are weighted towards less availability But the quality of the available exports will diminish Unlikely to have extra capability to export 10 ppm diesel –50 ppm sulfur can be met with little investment, creative blendstock trading, changing feedstocks –10 ppm incentives in several countries will likely “use up” any European ability to produce extra 10 ppm during U.S. ULSD diesel transition Wildcards: MidEast refineries, EC diesel specifications, gasoline demand growth, early move to 10 ppm, MTBE ban