CORRAL PETROLEUM HOLDINGS AB (PUBL) - Preem

products markets are volatile.We believe that, although the price effect on inventories may impact our results for a given period, over thelong-term, the effects of rising and falling oil prices tend to offset each other. In addition we believe that, from a cashflow perspective, the effects of rising and falling oil prices on gross profit and working capital tend to offset each other.In comparing our results from period to period, we believe that it is important to note that these price effects oninventories are unrelated to, and do not reflect, the underlying efficiency of the refineries. We strive to minimize theimpact on our profitability of the volatility in feedstock costs and refined product prices. See “Business—Supply andRefining Operations—Raw Materials” and “—Quantitative and Qualitative Disclosures about Market Risk—CommodityPrice Risk.”Fluctuations in Foreign Currency Exchange RatesOur financial condition and results of operations are exposed to two types of risk related to foreign currencyexchange rates, specifically translation risk and transaction risk. We are exposed to translation risk because a significantpercentage of our sales and expenses are realized and incurred in currencies other than the krona, which is our reportingcurrency. We are also exposed to translation risk because certain of our assets and liabilities are denominated incurrencies other than the krona. We are exposed to transaction risk because our revenues and costs are denominated inboth the dollar and the krona.Translation RiskRevenues and Expenses. Substantial portions of our revenues and expenses are recorded in dollars and thentranslated into kronor for inclusion in our financial statements. Thus, a decline in the value of the dollar against the kronawill have a negative effect on our revenues as reported in kronor, that is, the krona value of our dollar-denominatedrevenues will decline. Conversely, an increase in the value of the dollar against the krona will have a negative effect onour expenses as reported in kronor, that is, the krona value of our dollar-denominated expenses will increase.Inventory. In the course of our ordinary operations, we store significant amounts of crude oil and refinedproducts, the value of which is denominated in dollars because market prices for crude oil and refined products aretypically denominated in dollars. Our total inventories, which are accounted for as part of our current assets, were SEK8,216 million as of December 31, 2010. A decrease in the value of the dollar against the krona will result in a decrease inthe value of our inventories, when expressed in kronor. Foreign exchange gains or losses on our inventory are includedas part of cost of goods sold.Indebtedness. As of December 31, 2010, approximately 30% of our debt was denominated in dollars, 20% wasdenominated in euros and 50% was denominated in kronor. As a result, a decrease in the value of the dollar against thekrona will result in a decrease in the krona value of our dollar-denominated indebtedness. Conversely, an increase in thevalue of the dollar against the krona will result in an increase in the krona value of our dollar-denominated indebtedness.Foreign exchange gains or losses on our indebtedness are included as part of financial expense, net.Transaction riskWe are exposed to transaction risk because our revenues and expenses are denominated in both kronor anddollars. Accordingly, the relative movements of the krona/dollar exchange rate can significantly affect our results ofoperations. For example, an appreciation of the krona against the dollar may adversely affect our margins to the extentthat our krona-denominated revenues do not cover our krona-denominated expenses. This risk is reduced by matchingsales revenues and expenses in the same currency, which is generally the practice in our industry given the percentage ofpurchase and sales contracts that are denominated in dollars.In addition, we are exposed to transaction risk in connection with our accounts payable for crude oil purchases.If the dollar changes in value against the krona between the date of purchase and the date of payment, the difference inthe krona value of our payment and the krona value of the account payable would be recorded as a foreign exchange gainor loss in our results of operations. We face a similar risk with respect to our accounts receivable for refined productsales.Trend InformationExchange rates. The value of the dollar against both the krona and the euro decreased in 2008. In 2009, thevalue of the dollar against the krona increased by approximately 7% and the value of the dollar against the eurodecreased by approximately 4%. In 2010, the value of the dollar against the krona decreased by approximately 6% andthe value of the dollar against the euro increased by approximately 8%. See “—Fluctuations in Foreign CurrencyExchange Rates—Translation Risk.”Volatile crude oil prices. During 2008, the strong upward trend in Dated Brent crude oil prices continued withonly short-term dips during the first half of 2008, peaking at approximately $144 per barrel in July. Prices fellsignificantly in the second half of the year, reaching a low of approximately $34 per barrel in December and ending theyear at approximately $37 per barrel. During 2009, Dated Brent crude oil prices reached a low of approximately $40 per20