>ENERGY OUTLOOK (GOLDMAN SACH)

Better fundamentals expected to drive next phase of the oil rally

Liquidation risk remains in the near-term as we wait for
better fundamentals, but we continue to expect
fundamentals to begin to improve in 3Q2009.

Recent price strength has been led by the long-end
Crude oil prices have continued to rise in recent weeks, seemingly continuing the pattern of recent gains. However, it is important to emphasize that the underlying price driver of these gains has shifted over the last three weeks. The price gains from late April through late May were largely led by strengthening timespreads as easing credit conditions reduced the high funding costs that had generated exceptionally large negative carry in the oil forward curves earlier this year. In contrast, recent oil price gains have been driven by a rise in long-dated prices, rather than by strengthening timespreads, which we believe has been driven by an improving forward fundamental outlook, in line with better global leading economic indicators.

We continue to expect fundamentals to improve in 3Q2009
In the near-term, we believe that the sizable long position that has built up in the market on expectations of improving fundamentals could create some liquidation risk as we wait for better fundamentals to take over. However, we continue to expect such an improvement in fundamentals to begin to take hold in the next several months, pushing the market into
deficit and generating renewed strengthening in timespreads.

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