New York (Platts)--18Sep2008

Oil price volatility is set to continue and pension and hedge funds will
be the biggest casualties as troubled investment banks unwind hedging
positions, oil analyst Fadel Gheit said Thursday.

"The downside risk of this is huge, huge," said Gheit, who earlier this
week gave testimony to the US Senate on the risk of widespread hedging losses
and the volatility in commodity markets.

Asked who would be hit hardest he said: "It's going to be pension funds
and hedge funds."

Institutional investors have in the past two years ramped up their
commodity risk exposure. For instance, California's massive CalPERS pension
fund is believed to hold some $7 billion-$8 billion in crude oil markets,
Gheit said.

A spokesman with California's massive CalPERS pension fund said he did
not know what the hit from unwinding positions would be, but said "it couldn't
be tremendous," adding that most losses are concentrated in equities. "That's
where the big losses are," spokesman Clark McKinley said. He said CalPERS
total commodity exposure is $1.3 billion.

Federal regulators do not require investment banks to report their crude
commodity hedging exposure, but Gheit puts a conservative estimate of hedging
losses at about $20 billion if other banks' losses are comparable to those at
Lehman Brothers.

Gheit, who has been bearish on oil prices for much of the price runup in
2007-2008, said investment banks should disclose their hedging positions.

"There's not enough disclosure," he said. "We don't know who has what."

Gheit's comments come amid the unfolding financial crisis, which has
gathered pace this week. Investment bank Lehman Brothers filed for bankruptcy
Monday, faced with more than $600 billion in liabilities, and Bank of America
announced it was acquiring a beleaguered Merrill Lynch.

Other losers in the weeks and months to come include the leveraged with
debt to capital ratios that exceed 30%, Gheit said. Such companies will be in
an "iffy situation" as capital markets dry up, Gheit said.

Majors with strong balance sheets are expected to hold up just fine, he
said. At times of financial crisis, ExxonMobil "shines when things get bad
because they are the last man standing as it were."

In emailed remarks Wednesday ExxonMobil said it has "maintained the
top credit rating with Standard & Poor's and Moody's for 89 years and is in a
very strong financial position. As a result, ExxonMobil can access the world's
capital markets in the full range of market conditions, and can take on large,
long-term capital commitments."

Credit ratings agencies say they are eying companies' financials to
identify weak spots. "You can assume issuers have some form of relationship
with Lehman," said Moody's Investors Service credit officer Bart Oosterveld
said Thursday. The vulnerable include the indebted across the energy
sector, he said, including midstream operators, E&Ps, and oilfield services.

Shares of investment banks Morgan Stanley and Goldman Sachs have tumbled
this week as fears spread. In trading on the New York Stock Exchange Thursday
afternoon, Morgan Stanley shares were down about 25%, while Goldman's were
down about 15%.

--Leslie Moore Mira, leslie_moore@platts.com