Oil sales, trading and supply 

The year 2008 was the most volatile period in the product, gas liquids and crude oil markets. Dated Brent entered the year on a strong upward trend continuing from 2007 and then accelerating as financial investors increased positions in search of more favourable yields, thus exacerbating the upward trend. Strong support from a tight gasoil/diesel market and declining crude oil inventories led to an increasingly tight oil market and dated Brent crude prices reached a record level of 144 USD/bbl on 3 July 2008. However, several signals started to discourage investors; an underlying tendency of slower global GDP growth, weak product demand, especially in the USA, and rising OECD stocks after a period of increased OPEC output. As these factors became ever more apparent, the financial crisis intensified and crude oil prices peaked and started a sharp fall during the autumn of 2008 prompting OPEC to scale back production. Increased risk aversion and a need for cash induced investors to sell in liquid markets to cover losses in illiquid ones, giving commodities a disproportionally large share of the sell-off. With a shift of both sentiment and outlook during 2008, crude oil prices were fundamentally different in the first half of the year compared to the second and traded at around 40 USD/bbl by the end of December.

Manufacturing

The demand for refined products around the Atlantic basin is expected to decrease and lead to surplus capacity, especially for gasoline. Rationalisation of European refining capacity is required to maintain healthy margins. Competitive profitability and survival will very much depend on location, the ability to utilise the available feedstock and deliver the optimal product qualities, and cost level. The average crude oil barrel is becoming more sour and heavier. As both the heavy and light ends have increased, product specifications have become more stringent, and the demand for fuel oil is falling. All these factors necessitate additional processing flexibility and capacity, and continued investment in fuel oil conversion is expected. Bio-components are expected to grow in market share. After heavy cost-cutting in the 1990s, good margins in the current decade have increased the focus on reliability and utilisation. In combination with high pressure in the labour and contractor markets, this has led to heavy cost increases. Falling margins and general recession is expected to significantly increase management attention on operating and investment costs.

Methanol prices were expected to return to a moderate level as new capacity in stranded gas areas became available, but the financial turmoil has caused an earlier and deeper price decline. Europe is expected to continue to be a net importer of methanol, and European producers will therefore still have a geographical advantage.

Energy and retail

2009 will be a very challenging year, but in the long term the main growth areas are expected to be transportation fuel, mainly due to the anticipated growth in the diesel sector, and convenience sales.

We are reinforcing our long-term ambition of sales growth in Eastern Europe, though in 2009 this will be limited due to investment constraints. We continued to expand our station network in Poland during 2008 and recently entered the St. Petersburg market in Russia. We already have a strong foothold in the Baltic countries, but 2008 was a challenging year due to the economic downturn experienced in the region.

The acquisition of Jet in Scandinavia will allow us to strengthen our Scandinavian retail fuel position.

We believe that the use of heavy oil products in the stationary energy sector will gradually be replaced by either gas carriers (LNG and LPG), or other non-fossil energy carriers.