Market Summary: January 16, 2022

Energy prices increased for a fourth consecutive week, the longest such streak of gains since October.
Reductions in Crude inventories rendering stocks to their lowest levels since October 2018, increasing
demand, diminishing concerns regarding the reach and impact of the Omicron virus, ongoing OPEC+
production discipline which now stands at a compliance level of 120% due to a lengthening list of supply
disruptions, increasingly dangerous geopolitical circumstances, expectations of extreme cold in the US
northern tier in the month of January and a considerably weaker dollar all contributed to price strength. Total
US commercial petroleum inventories fell by 4.5 MB as WTI gained 6.2%, Brent 5.3%, RBOB 5.2% and ULSD
6.1% on the week.

The annual rate of inflation in the US now exceeds 7% which resulted in ongoing indications from the Federal
Reserve that a number of interest rate increases will occur in 2022. This weighed again on equity indexes. On
the week, both the S&P and NASDAQ fell 0.3% while the DJIA fell 0.9%. As expected, the dollar index fell by
0.57 to settle at 95.17. Gold prices rose by $20.70 per ounce to settle at $1,817.40.

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A major US investment bank estimates that Distillate demand in the US will increase by nearly 170 KBPD due
to thermal needs alone in the month of January as unseasonably cold weather has blanketed large swaths of
the US and is expected to remain for a prolonged period of time. This weather as well as concerns over an
early US refinery turnaround season has helped propel US Distillate prices to eight year highs.

Russia has been in the process of shifting a significant volume of military equipment from its far eastern
regions westward toward the Ukraine. A massive cyber-attack which left the Ukrainian government in the
dark for a number of days this past week appears to be a precursor to an invasion that seems increasingly

Civil unrest continues in Kazakhstan. Russian troops, at the invitation of Kazakh authorities, have entered the
country in an attempt to restore civil order. Two news outlets indicated that production from Kazakhstan’s
giant Tengiz field has fallen by between 400 and 600 KBPD.

Libyan Crude production has fallen to levels slightly below 700 KBPD, the lowest level in more than four years,
as a state of extreme labor unrest between the Petroleum Facilities’ Guards and the National Oil Company
continues to escalate amid increasing civil strife that has essentially eliminated any possibility of holding a
presidential election, originally scheduled for the third week in December, in the near future. In addition to
these issues, severe weather has hampered operations in a number of Libyan ports. Loading facilities at Es
Sider, Ras Lanuf, Hariga and Zuetina remain closed. Libyan production had exceeded 1.3 MBPD as recently as
the first quarter of 2021.

US Crude inventories fell for an eighth consecutive week, dropping by 4.553 MB. Crude stocks remain 8% below their fiveyear average and are 68.9 MB below levels of last year at this time. The price of WTI gained $4.92 on the week. Inventories
in the three PADDs affected by trans-Atlantic trade fell by 6.702 MB. Inventories fell by a disproportionately large amount in
PADD 2, the US midcontinent, where stocks fell by 2.943 MB. This drop in inventories in the region which encompasses
Cushing Oklahoma, the Nymex delivery point, was significant. Inventories at Cushing fell by 2.468 MB, the first drop in eight
weeks. Ongoing weather issues which have hindered transportation of Crude from Canada to the US has contributed to the
reduction in inventories at Cushing. Crude inventories fell despite a drop in refinery utilization, a most unusual combination.
Utilization rates are expected to erode in the coming weeks as the onset of refinery turnaround approaches. As stated earlier,
US Crude inventories are at their lowest level since October 2018. US Crude exports fell by 600 KBPD to near 2.0 MBPD.
Freight markets indicate a similar flow of exports next week. We expect any reductions in refinery utilization to be met with
reductions in production and Canadian imports due to severe weather conditions. We further expect export flows to be
somewhat similar to this week’s figures. We therefore believe Crude inventories will fall in the United States in the week
ahead by 3.5 to 4.0 MB.

US Gasoline inventories increased for the sixth week in 14, rising by 7.961 MB. Gasoline inventories are now 3% below their
five-year average and are only 4.8 MB below levels of last year at this time. The price of Gasoline gained 1201 points on the
week. Gasoline stocks in the three PADDs affected by trans-Atlantic trade gained by 5.495 MB. This increase was most
pronounced in PADD 2, the US midcontinent, where stocks rose by 3.81 MB. Inventories in the PADD 1 subsection that
encompasses New York Harbor actually fell by 1.651 MB. This reduction was conspicuous due to the fact that imports which
normally impact New York Harbor inventories only fell by 7 KBPD to a level of 589 KBPD. Shipping data indicates an increase
in the flow of imports next week by approximately 100 KBPD. The other conspicuous statistic in Gasoline was the sharp
reduction in demand of 266 KBPD to a level of 7.906 MBPD. Gasoline demand in the US is now at its lowest level since February
2021. Inflation pressures, as cited earlier, exemplified by the current average US price at the pump being $3.30 per gallon,
more than $0.98 a gallon higher than last year at this time, is apparently being affected by dwindling buying power of US
consumers. Expectations of consistent production, a slight increase in imports and a possible small increase in demand should
result in an increase in US Gasoline inventories of 3.5 to 4.0 MB in the coming week.

US Distillate inventories increased for the sixth week in 15, rising by 2.537 MB. US Distillate inventories are now 15% below
their five-year average and are 33.8 MB below levels of last year at this time. The price of ULSD gained by 1525 points on the
week. Distillate markets have been firm in every major global hub this past week. The average US price at the pump for ULSD
is now a bit more than $3.66 per gallon, more than $0.99 per gallon higher than last year at this time. Distillate inventories in
the three PADDs affected by trans-Atlantic trade increase by 2.287 MB. The increase was most conspicuous in PADD 2 where
inventories increased by 1.921 MB. Inventories in PADD 3, the US Gulf Coast, increased by 495 KB despite a drop in national
Distillate production to 4.788 MBPD. Distillate exports rose slightly, climbing by 81 KBPD to near 900 KBPD. Shipping data
indicates a likely increase in the flow of exports in the week ahead to a level of 1.2 to 1.3 MBPD. Static production at best,
increasing thermal demand as cited earlier and a strong flow of exports should result in Distillate inventories falling in the
week ahead by 1.5 to 2.0 MB.

Colder than normal weather conditions, unthinkable geopolitical circumstances should Russia invade Ukraine and limited
prospects of increased production should continue to enable the relative value of Distillate to be the strongest in the
petroleum complex in the coming week. Seasonal considerations should result in Gasoline being the weakest relative value.
The performance of Crude structure will hinge on the possible early emergence of refinery maintenance season which could
lead to some measure of structural weakness.

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