Project ‘Minyak’

Warren Leow

“85m barrels of oil a day is all the world can produce, and the demand is 87m,” Boones Pickens, May 2008

In Perspective

1998: $12.21

$113/bbl

Impact

• OPEC producer earnings to reach $1.251 trillion in 2008 (from $671b in 2007)

• Growth of Sovereign Wealth Funds• Exxon- $40b annual profit• Fuel/Food riots

Geo-Political Risks

IraqIranVenezuelaNigeria

Declining Output

RussiaMexicoUnited KingdomNorway

Cost Inflation

2007 Production

Price Inelasticity

• Global oil demand remains relatively resilient despite high prices.

• Much of the growth will come from markets with regulated prices that insulate consumers from record high oil prices.

• E.G. China, India, Indonesia, Malaysia

• “[T]here’s no news of a pipe bursting in Nigeria,” “There’s no news of a facility being … attacked in Iraq. We don’t know why it’s up and that’s the point. What is causing oil to go up and down?”

• Lehman Brothers said for every $100 million in new inflows by institutional investors, the price of West Texas Intermediate increased by 1.6%.

• Late July, CFTC re-classified one large unidentified commercial hedger as a speculator- raising NYMEX open interest from 38% to 49%.

• Since July 3rd, commodities have tumbled 21% on average.

• SemGroup, July 2008 - $3b• Amaranth, fall 2006 - $6b

• BP, Shell, Total, Lukoil• Glencore, Vitol, Trafigura• Goldman Sachs, Morgan Stanley, Barcaps

• Crude oil is the new gold. • Weak USD has turned oil into the "new gold,"

to hedge against inflation and mitigate losses during equity & credit market downturns.

• Prices of commodities quoted in USD are inversely related to USD movements

• With the USD strengthening, oil has been falling.

Conclusion

• Power shifts from Oil consumers to producers• Negative impact in ST due to lagged effect• Economic planning becomes difficult

High oil prices is the solution