Market Summary: September 19, 2021

Energy prices increased for a fourth consecutive week, touching their highest levels since July.
A slow return of production from Hurricane Ida, smaller than expected increases from OPEC+
due to production issues and an IEA monthly report showing a tightening of global supplies in
the near term were the key positive themes of the week. Ongoing flareups of Covid-19 worldwide
and China’s continuing threat to release stocks from their Strategic Petroleum Reserve to rein
in rapid inflation served to restrain price gains. On the week, WTI gain 3.2%, Brent 3.3%, RBOB
0.8% and ULSD 2.9%. Total commercial petroleum inventories in the US fell by 9.312 MB on
the week.

Ongoing concerns regarding rapidly rising inflation and consequences linked to an impasse on
the debt ceiling along with weak consumer sentiment propelled equity indexes lower. On the
week, the DJIA lost 0.1%, the S&P 0.6% and the NASDAQ 0.5%. This was the third consecutive
week that the DJIA has fallen. The dollar index increased by 0.61 to settle at 93.25. This enabled
gold prices to drop by $38.20 to settle at $1,753.90 per ounce on the week.


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23.2% of Crude production in the Gulf of Mexico equating to roughly 422 KBPD is still off line in
the aftermath of Hurricane Ida. A total of 27 MB of Crude production has been lost since the
arrival of the storm over a week ago. The US government-based EIA predicts a 713 KBPD loss
in refining utilization in the month of September due to ongoing closures linked to Hurricane
Ida.

The Paris-based IEA released their monthly report this week. It revised global Crude demand
projections upward, rising by 5.2 MBPD in 2021 and 3.2 MBPD in 2022. The report went on to
state that it anticipates a sharp increase in demand in the month of October after three
consecutive months of demand reductions due almost entirely to increases in the Delta variant
of the Covid-19 virus. The report further asserted that OPEC+ output fell by 540 KBPD due to
recent production issues. This reduction was compensated for in part by a sharp reduction in
Chinese refining activity which reached a 15-month low in July with utilization at 13.74 MBPD
as well as the reduction in US refining activity linked to Hurricane Ida. The IEA went on to state
that petroleum inventories in the OECD fell by 34.4 MBPD in the month of July. This figure is
proximate to the targeted daily reductions that the OPEC+ agreement requires to reestablish an
overall market supply balance.

Further independent evidence that the OPEC+ production levels are reducing global supplies can
be found in the fact that European storage levels of petroleum overall stand at 71% of capacity,
some 15% below the five-year average of storage in Europe for this time of the year.

US Crude inventories fell for a sixth consecutive week and 15th in the last 17, dropping by 6.422 MB.
Stocks are now 7% below their five-year average and are 78.6 MB below levels of last year at this time.
The price of WTI gained $2.25 on the week. US Crude stocks remain near 19-month lows. Inventories in
the three PADDs affected by trans-Atlantic trade fell by 7.264 MB. The reduction was again most significant
in PADD 3, the US Gulf Coast, where stocks fell by 3.851 MB. This reduction occurred despite a 100 KBPD
increase in domestic production to 10.1 MBPD. This was more than compensated for as exports increased
by 282 KBPD to a level of 2.624 MBPD. Inventories in PADD 2, the US midcontinent, also fell significantly,
dropping by 3.217 MB. Stocks at Cushing Oklahoma, the Nymex delivery point which is within PADD 2,
fell for the first week in four and 11th in 14, dropping by 1.103 MB. The slow return of refining activity due
to ongoing electrical issues in Louisiana, an equally slow return of the balance of production in the US Gulf
Coast and a likely continued increase in exports should result in Crude inventories falling by 5.0 to 5.5 MB
in the coming week.

US Gasoline inventories fell for a seventh week in nine, dropping by 1.857 MB. Gasoline inventories remain
4% below their five-year average and are now 13.4 MB below levels of last year at this time. The price of
RBOB gained 199 points on the week. National Gasoline inventories remain at their lowest levels since
November 2019. East Coast inventories remain at their lowest levels since October 2017. Inventories in
the three PADDs affected by trans-Atlantic trade fell by 2.189 MB, with the reduction again being most
significant in PADD 3, the US Gulf Coast, due to the impact of Hurricane Ida. Gulf Coast inventories fell by
1.809 MB. Inventories in the PADD 1 subsection that encompasses New York Harbor, the Nymex delivery
point, actually gained by 1.106 MB. This occurred despite a significant drop in imports of 261 KBPD to a
level of 638 KBPD. Shipping data indicates the flow of imports should remain somewhat limited. Overall
Gasoline inventories fell despite a dramatic reduction in demand of 716 KBPD to a level of 8.892 MBPD.
Though summer driving season is over, the reduction in demand is quite overstated in our view. We expect
demand to increase significantly in the coming week to a level of more than 9 MBPD. Stable production,
imports that are likely flat and a reasonable expectation of a slight increase in demand should result in
Gasoline inventories falling by 2.0 to 2.5 MB in the week ahead.

US Distillate inventories fell for a fourth week in seven, dropping by 1.689 MB. Distillate stocks are now
13% below their five-year average and 47.4 MB below levels of last year at this time. The price of ULSD
gained 631 points on the week. Inventories in the three PADDs affected by trans-Atlantic trade fell by
2.496 MB. The reduction only occurred in PADD 3, the US Gulf Coast, where stocks fell by 4.085 MB. This
reduction is again almost completely attributable to the reduced output linked to the damage caused by
Hurricane Ida. Distillate exports were reported at 1.032 MBPD. An incredibly depressed freight market for
cargoes of ULSD originating in the US Gulf Coast should result in export flows dropping below 1.0 MBPD
in the week ahead. Distillate demand rose slightly, increasing by 110 KBPD to a level of 3.795 MBPD. We
expect this figure to increase again in the coming week as agricultural demand starts to ramp up. The
increase in demand, production that will be flat at best and slightly lower exports should result in a small
decrease in Distillate inventories of 0.5 to 1.0 MB in the coming week.

The acceleration of inventory reduction linked to the ongoing effects of Hurricane Ida in conjunction with
OPEC+ production discipline and some short-term production issues among participants should enable
petroleum prices to continue on a positive but somewhat choppy trajectory for the week ahead. It appears
that Crude structure is the most likely candidate for price improvement.

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