Market Summary: January 2, 2022

Energy prices rose again in another holiday abbreviated week. Prices increased despite a dramatic rise in
cases of the omicron variant of Covid-19. Increases in petroleum demand were significant and helped define
the omicron variant as widespread but limited in severity. Steady geopolitical pressure regarding RussianUkrainian tensions as well as growing Iranian intransigence at multinational nuclear discussions in Vienna
serve to further support price increases. Participants in the OPEC+ agreement are scheduled to meet this
week in Vienna with all indications that a 400 KBPD increase in production will occur again this month. On
the week, WTI gained 1.9%, Brent 2.6%, and RBOB 1.0%. ULSD eased slightly, falling by 0.1% on the week.
Petroleum prices had gained for seven consecutive trading days before easing slightly on Friday.

Equity indexes were slightly softer in sharply lower holiday week volume. On the week, the S&P fell 0.9% and
the NASDAQ 0.1%. The Dow gained 1.1%. The dollar index fell slightly, dropping by 0.49 to settle the week at
95.67. Conversely, gold prices increased by $18.80 per ounce on the week to settle at $1,830.50.

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Concerns over the rapid expansion of the omicron variant of the Covid-19 virus, which the World Health
Organization stated had increased by 11% on a week-on-week basis with the largest increase in the Americas,
have been tempered by the somewhat limited severity of the illness once contracted. South Africa, where
the omicron variant appears to have originated slightly more than one month ago, is apparently seeing a
reduction in new cases as the disease apparently crested sometime last week.

OPEC+ appears almost certain to increase monthly output at a meeting scheduled for Thursday, January 4 in
Vienna. In what is likely to be a rubberstamp session of approval, the organization will again reiterate its
ability to curtail output if demand softens. A 200 KBPD force majeure on Forcados production from Nigeria
was lifted on December 30, likely facilitating OPEC increases as output remains restricted in both Ecuador
and Libya where attempts at a national election have caused a significant increase in civil unrest, essentially
closing in 1.1 MBPD of output.

Iran continues to insist on a number of preconditions for resuming multinational talks on monitoring and
limiting their nuclear activity. Iran now produces uranium at a purity level approaching 60%, one step below
weapons grade levels.

A lengthy conversation between the US and Russian Presidentsthis week has done very little to limit concerns
of further confrontation over Russia amassing significant forces on its border with Ukraine.

Production at the 561 KBPD ExxonMobil refinery in Baytown Texas has been limited by an unspecified amount
as damage is still being assessed on last week’s fire which appears to have damaged some Gasoline
production facilities

US Crude inventories decreased for a fifth week in 11, falling by 3.576 MB. Crude stocks are now 7% below
their five-year average and are 73.5 MB below levels of last year at this time. The price of WTI gained $1.42
on the week. Inventories in the three PADDs affected by trans-Atlantic trade fell by 2.615 MB. Again, the
reduction was disproportionately large in PADD 3, the US Gulf Coast, where stocks fell by 4.298 MB. Such
reductions in Gulf Coast inventories were facilitated by a steady flow of Crude exports of 2.979 MBPD, an
increase of roughly 100 KBPD from the week prior. Shipping data for the coming week does not indicate an
increase in the flow of exports but has been consistent for the last three weeks. Despite these reductions in
PADD 3, inventories at the Nymex delivery point of Cushing Oklahoma continued to increase, having risen by
1.055 MB in the last week, the seventh consecutive week of increases. Inventories at Cushing have now risen
by more than 20% in the last four weeks. This was evinced by a 200 KBPD increase in domestic production to
a level of 11.8 MBPD. This is the highest level of domestic production in the United States since May 2020
and is still substantially below the 13.1 MBPD production record reached in March 2020. End-of-the-year tax
considerations can skew Crude projections. We therefore expect Crude stocks in the US will fall by a slightly
smaller amount next week. A reduction in Crude inventories of 1.5 to 2.0 MB is likely in the week ahead.

US Gasoline inventories fell for an eighth week in 12, dropping by 1.459 MB. Gasoline inventories are now
6% below their five-year average and are 10.9 MB below levels of last year at this time. The price of Gasoline
gained 244 points on the week. Gasoline stocks in the three PADDs affected by trans-Atlantic trade fell by
475 KB on the week. The reduction was most significant in PADD 2, the US midcontinent, where stocks fell
by 701 KB. Gasoline stocks were significantly reduced in the geographically isolated Pacific region as well as
the PADD 4 Mountain region. Demand rose dramatically, increasing by 738 KBPD to a level of 9.724 MBPD.
Demand levels this high, even around the Christmas holiday, are unusual. We expect a significant reduction
in demand of at least 500 KBPD in the week ahead. Imports fell this past week, as expected, falling by 256
KBPD to a level of 432 KBPD. We expect import flows to ease slightly next week. The combination of lower
imports, lower production and lower demand should result in Gasoline inventories increasing by 2.0 to 2.5
MB in the coming week.

US Distillate inventories fell for a ninth week in 13, dropping by 1.726 MB. US Distillate inventories are now
14% below their five-year average and are 29.6 MB below levels of last year at this time. The price of ULSD
fell by 13 points on the week. Distillate inventories in the three PADDs affected by trans-Atlantic trade fell by
2.691 MB. The reduction was disproportionately large in PADD 3, the US Gulf Coast, where stocks fell by
1.461 MB. Inventories in the Gulf Coast are approaching their lowest levels since December 2020. The
reduction in PADD 3 was largely facilitated by a 116 KBPD increase in exports to a level of 1.292 MBPD. This
occurred despite freight rates from the Gulf Coast appearing to have plateaued amidst diminishing holiday
chartering activity. Distillate demand increased by 229 KBPD to a level of 4.051 MBPD, well within seasonal
expectations. Consistent demand, some from thermal needs, likely lower production and slightly lower
export flows should result in a further reduction in national Distillate inventories of 1.0 to 1.5 MB in the week

Emerging evidence of limited impact on demand from the Omicron variant, ongoing geopolitical concerns
and the likelihood of an emerging discussion on the diminishing spare production capacity of OPEC+ should
lead to firmer outright pricing in the coming week.

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