---

Trends

Rotterdam (ARA) fuel oil - Trading USD 5 higher

Singapore fuel oil - Trading USD 1 higher

US Gulf fuel oil - Expected to USD 1 higher

World oil supply still lower than demand (Brent: $112.8)

In February India will import 138,000 bpd of oil extra from Iran, reaching almost 0.5 mbpd, but later this year import is expected to decline substantially as alternatives (Saudi Arabia) are found. Regarding the Saudi Arabian output, it seems they have already pumped up less oil (9.8 mbpd in December, versus 10.5 mbpd in November) due to the return of approximately 1.0 mbpd of Libyan oil.

On an Iran-related note: Leon E. Panetta former head of the CIA, currently US Secretary of Defense, has estimated Iran to possess nuclear military capacity by the end of this year, which would be crossing the red line as he stated only a couple of days ago.

In Nigeria the nation was brought to a standstill due to a general strike on back of cutbacks in fuel subsidies. Fuel prices doubling for the man on the street has hit local business, as diesel powered generators are no longer economically feasible. A prolonged strike in the oil industry would have a very bullish effect on oil prices in the middle of uncertainty over Iranian oil supply. Further the Martial law in Kazakhstan will still be in effect at least to the end of January. Kazakhstan is exporting 1.6 million bpd.

Why we keep a close eye on potential supply disruptions

World oil demand: 90 mb/d

World oil supply: 89 mb/d (the remaining demand is drawn from oil inventories)

And that is without an economic recovery in the Euro Zone.

Should we suddenly experience a loss of supply from: Iran: 2.4 mb/d, Kazakhstan: 1.6 mb/d or Nigeria: 2.5 mb/d, then a strategic release from EIA is definitely needed to keep prices from skyrocketing. Strategic OECD inventories can currently cover 57 days of total forward demand, or approximately 1 year of missing production from the three countries above.

Recommendation

We recommend consumers who have not hedged yet, to use market dips to establish hedges. Any disruption in Hormuz and/or Nigeria would have severe impact on oil prices, and we strongly advise clients to have this top of mind. As OPEC will likely support prices around and above 100, we therefore advise consumers to prepare for three digit oil prices on average for 2012.