A harsh winter has turned into a benign spring with little obvious change in oil market sentiment. The big bucks are still backing a significant economic recovery and much higher oil demand'particularly in the non- OECD world. Speculative activity is at a high level, in spite of threats to boost regulation. Gasoline is already looking to be a strong market in 2010, even though we are several weeks away from receiving representative demand data. Demand projections for 2010 continued to firm up during the opening quarter, even though the jury is still out regarding the strength and sustainability of the economic recovery. Stormy weather early in the year has done little to disturb the calm of oil markets, where prices have made steady progress. Even inventories, which have represented the Achilles' heel of the oil market for some time, are perceived to be less of a threat thanks to increased demand and ongoing OPEC production restraint. Having been propped up by weather factors in late 2009, oil prices looked set for a rough ride in early 2010 as the first phase of the cold winter seemed to fade. Weekly OPEC average prices tumbled from more than US$78 per barrel (bbl) as the year began to not much more than US$70/bbl in the middle of February. Oil market bears came out of hibernation early and proclaimed that the bull-run was over. More snow then fell, the bears ducked for cover and crude rallied to almost US$78/bbl by mid-March. The price made further gains to break above US$80/bbl in early April and has been finding good support in spite of bearish US inventory data. The improvement seen in the Q1 global inventory position was modest and, given recent stock trends, it is clear that over-supply here is a major threat to price stability. According to the International Energy Agency (IEA)'s April 2010 monthly Oil Market Report (OMR), OECD end-February commercial oil inventories stood at 2,685mn bbl, down 38.4mn bbl from January levels. Over the past five years, February stocks have been drawn down by an average of 25.5mn bbl. Total refined products stocks declined by 26.5mn bbl, however, against the 'usual' fall of 32.6mn bbl. This means that good progress was made by crude as stocks fell at a time when they generally rise. Products, however, took a different path, meaning that there is little cause for celebration. Indeed, the March data gathered by the IEA point to an increase in OECD inventories of some 8mn bbl during a month that typically sees a fall of 12.5mn bbl. Small changes to small numbers imply that little is happening to improve the underlying position. March crude oil stocks rose by 24.1mn bbl, beating the normal monthly increase, but product inventories decreased by 16mn bbl'falling short of the traditional March monthly draw. Short-term crude floating storage rose to 65mn bbl, but products floating storage moved from 74mn bbl at the end of February to an estimated 52mn bbl. These mixed signals tell us relatively little about the health of the market. In terms of production, the worrying OPEC output trend was reversed in March, but not as a result of the cartel's efforts to achieve better market balance. So far in 2010, it has been a story of ignored quotas and rising volumes. The March ministerial meeting again left the production ceiling unchanged but there was little evidence of a determination to bring actual output closer to the agreed level. Overall OPEC production, including Iraq, averaged 29.04mn b/d in January and 29.17mn b/d in February. It declined to slightly under 29mn b/d in March as Iraqi shipments were reduced. The core 11 members actually increased their supply to 26.73mn b/d, compared with 26.62mn b/d in January. Repeated calls by ministerial meetings to improve discipline have fallen on deaf ears. OPEC seems to have given up trying and will now hope that excesses in certain quarters will be countered by unplanned shortfalls elsewhere. OPEC compliance with output targets stood at about 55% in Marc

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BMI Global Oil Market Report Q310: Is the Price Right'
Published on May 2010
Report Summary
A harsh winter has turned into a benign spring with little obvious change in oil market sentiment. The big bucks are still backing a
significant economic recovery and much higher oil demand'particularly in the non- OECD world. Speculative activity is at a high level,
in spite of threats to boost regulation. Gasoline is already looking to be a strong market in 2010, even though we are several weeks
away from receiving representative demand data.
Demand projections for 2010 continued to firm up during the opening quarter, even though the jury is still out regarding the strength
and sustainability of the economic recovery. Stormy weather early in the year has done little to disturb the calm of oil markets, where
prices have made steady progress. Even inventories, which have represented the Achilles' heel of the oil market for some time, are
perceived to be less of a threat thanks to increased demand and ongoing OPEC production restraint.
Having been propped up by weather factors in late 2009, oil prices looked set for a rough ride in early 2010 as the first phase of the
cold winter seemed to fade. Weekly OPEC average prices tumbled from more than US$78 per barrel (bbl) as the year began to not
much more than US$70/bbl in the middle of February. Oil market bears came out of hibernation early and proclaimed that the bull-run
was over. More snow then fell, the bears ducked for cover and crude rallied to almost US$78/bbl by mid-March. The price made
further gains to break above US$80/bbl in early April and has been finding good support in spite of bearish US inventory data.
The improvement seen in the Q1 global inventory position was modest and, given recent stock trends, it is clear that over-supply here
is a major threat to price stability. According to the International Energy Agency (IEA)'s April 2010 monthly Oil Market Report (OMR),
OECD end-February commercial oil inventories stood at 2,685mn bbl, down 38.4mn bbl from January levels. Over the past five years,
February stocks have been drawn down by an average of 25.5mn bbl. Total refined products stocks declined by 26.5mn bbl, however,
against the 'usual' fall of 32.6mn bbl. This means that good progress was made by crude as stocks fell at a time when they generally
rise. Products, however, took a different path, meaning that there is little cause for celebration.
Indeed, the March data gathered by the IEA point to an increase in OECD inventories of some 8mn bbl during a month that typically
sees a fall of 12.5mn bbl. Small changes to small numbers imply that little is happening to improve the underlying position. March
crude oil stocks rose by 24.1mn bbl, beating the normal monthly increase, but product inventories decreased by 16mn bbl'falling short
of the traditional March monthly draw. Short-term crude floating storage rose to 65mn bbl, but products floating storage moved from
74mn bbl at the end of February to an estimated 52mn bbl. These mixed signals tell us relatively little about the health of the market.
In terms of production, the worrying OPEC output trend was reversed in March, but not as a result of the cartel's efforts to achieve
better market balance. So far in 2010, it has been a story of ignored quotas and rising volumes. The March ministerial meeting again
left the production ceiling unchanged but there was little evidence of a determination to bring actual output closer to the agreed level.
Overall OPEC production, including Iraq, averaged 29.04mn b/d in January and 29.17mn b/d in February. It declined to slightly under
29mn b/d in March as Iraqi shipments were reduced. The core 11 members actually increased their supply to 26.73mn b/d, compared
with 26.62mn b/d in January. Repeated calls by ministerial meetings to improve discipline have fallen on deaf ears. OPEC seems to
have given up trying and will now hope that excesses in certain quarters will be countered by unplanned shortfalls elsewhere.
OPEC compliance with output targets stood at about 55% in March, compared with 56% the previous month and down dramatically
from the 83% seen in March 2009. As ever, a severe price shock is needed to concentrate the minds of OPEC members. The March
2009 OPEC basket price was just US$45.78/bbl, or some 41% below the level seen in March 2010. At present, the UAE, Saudi
Arabia and Kuwait are closest to their production targets, while Angola, Nigeria and Iran have moved further above their theoretical
output ceilings.
Non-OPEC supply in Q1 has been fairly stable, rising from January to February and then levelling out. March 2010 output averaged
around 52.5mn b/d, more or less unchanged from the February level. Average Q110 non- OPEC supply is put at around 52.3mn b/d,
compared with 51.3mn b/d a year earlier. North America, the former Soviet Union (FSU), Latin America and China have all made
positive progress.
BMI Global Oil Market Report Q310: Is the Price Right' Page 1/4

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Table of Content
Global Oil Market Review Q110 . 5
Riding Out The Calm ................5
Quarterly Trends .. 6
OPEC Losing Control' .. 6
Global Oil Market Outlook Q210 8
Is The Price Right' ....................8
Oil Price Forecasts ........ 8
Oil Supply, Demand And Price Outlook Q210 10
Short-Term Demand Outlook .10
Table: Global Oil Consumption (000b/d) ......10
indicators: Africa, Middle East, NW Europe, N America, Asia/Pa cific, Central/Eastern Europe,
Latin America, Total, OECD, Non-OECD, Demand growth %, OECD %, Non-OECD %
Short-Term Supply Outlook ................11
Table: Global Oil Production (000b/d) .........11
indicators: Africa, Middle East, NW Europe, N America, Asia/Pa cific, Central/Eastern Europe,
Latin America, OPEC NGL adjustment, Processing gains, Total, OPEC, OPEC inc NGLs, Non-OPEC,
Supply growth %, OPEC %, Non-OPEC %
Longer-Term Supply And Demand .... 12
Table: Crude Price Assumptions 2010 ..........12
indicators: Brent (US$/bbl), WTI (US$/bbl), OPEC basket (US$/bbl), Dubai (US$/bbl)
Oil Price Assumptions .. 12
Table: Oil Price Forecasts ..12
indicators: Brent (US$/bbl), Urals'Med (US$/bbl), WTI (US$/bbl), OPEC basket (US$/bbl)
Dubai (US$/bbl)
Global Oil Products Market Review Q110 ...... 14
Off Road: Gasoline/Diesel Trends .............14
Wheel Spin ........ 14
Plane Talking: Jet Fuel Trends .......... 16
Driving Slowly ......... 19
Global Oil Products Price Outlook Q210 .19
Table: Oil Product Price Assumptions, Q409-Q410 (US$/bbl) .........19
indicators: gasoline - NY Harbour Unleaded, Singapore Premium Unleaded, Global Average,
jet/kerosene - Rotterdam, NY Harbour, Singapore, Global Average gasoil - Rotterdam,
Mediterranean, Singapore, Global Average
Revised Forecasts ....... 20
Table: Oil Product Price Data And Forecasts, 2007-2014 (US$/bbl) ..................20
indicators: gasoline - Rotterdam Premium Unleaded, NY Harbour Unleaded, Singapore
Premium Unleaded, Global Average, jet/kerosene - Rotterdam, NY Harbour, Singapore,
Global Average gasoil - Rotterdam, Mediterranean, Singapore, Global Average
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