Market Summary: January 9, 2022

Energy prices rose for a third consecutive week, reaching their highest levels since late November. Strong
demand, growing production issues in Kazakhstan, Libya, Russia, Nigeria, Canada and Angola, OPEC+ inability
to maintain output increases and rising geopolitical concerns all contributed to the price increases. On the
week, WTI gained 5%, Brent 5.2%, ULSD 6.7% and RBOB 3.3% as total commercial petroleum inventories
grew in the US by 10.2 MB. Despite this increase, US Crude, Distillate and Gasoline inventories all start the
year at levels below their five-year average.

A poor unemployment report and further statements from the Federal Reserve indicating accelerated hikes
in interest rates helped propel equity indexes lower on the week. The Dow fell 0.3%, the S&P 1.9% and the
NASDAQ 4.5%. The dollar index increased slightly, rising by .07 to settle at 95.74. Gold prices fell by $34 per
ounce to end the week at $1,796.50.

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The OPEC+ increase in production for the month of January of 400 KBPD was the seventh such monthly
increase since the historic agreement among cartel and non-cartel producers was established. Daily
production should have increased by a figure of 2.8 MBPD to date. Instead, production issues, initially cited
in the early days of the agreement as disciplined adherence to the agreement, have resulted in significant
shortfalls of output. It is now calculated that only 2.05 MBPD of the 2.8 MBPD agreed increase is being

Russian troops have entered Kazakhstan in an effort to quash nation-wide rioting that was initially triggered
by the removal of domestic price caps on butane and propane prices. Kazakhstan, an OPEC+ participant,
produces 1.6 MBPD of Crude, 700 KBPD of which is produced in the giant Tengiz field. Production from this
field has fallen by a yet to be determined amount at least in part to recent rioting.

Severe cold from a two week deep freeze in Western Canada has resulted in a sharp reduction of Canadian
Crude output. The 599 KBPD Keystone pipeline was closed for a brief period earlier in the week due to limited
shipments stemming from severe weather.

Libyan production which had recently peaked at approximately 1.3 MBPD has fallen to a level slightly below
730 KBPD as force majeures in two major exporting production fields have been in place since the failed
attempt in late December to hold presidential elections. Production at a number of other fields has been
severely curtailed though without any formal declaration of force majeure.

The 200 KBPD force majeure declared by Shell on the flow of Forcados Crude from Nigeria that was formally
lifted last week may have been premature as limited production flows persist.

US Crude inventories decreased for a sixth week in 12, dropping by 2.144 MB. Crude stocks are now 8% below
their five-year average and are 67.6 MB below levels of last year at this time. The price of WTI gained $3.69 on
the week. Inventories in the three PADDs affected by trans-Atlantic trade fell by 1.003 MB. The reduction
continued to be disproportionately large in PADD 3, the US Gulf Coast, where stocks fell by 3.472 MB. The
reduction in PADD 3 was facilitated by a severe drop in imports of 875 KBPD to a level of 5.884 MBPD. This, coupled
with the reduction in exports by 375 KBPD to a level of 2.6 MBPD, rendered Crude inventories plentiful in the Gulf
region. Inventories at the Nymex delivery point of Cushing Oklahoma increased by 2.577 MB. This was the ninth
consecutive week of increases in Cushing inventories. In that period, stocks have grown by more than 40%. This
week’s rise in Cushing inventories occurred despite no gain in domestic production which remains at 11.8 MBPD.
A likely increase in utilization and imports and the end of inventory adjustments made for tax purposes should
result in US Crude stocks rising by 1.5 to 2.0 MB in the coming week.

US Gasoline inventories increased for a fifth week in 13, rising by 10.128 MB. This was the largest weekly gain in
US Gasoline inventories since April 2020. Gasoline inventories are now 4% below their five-year average and are
8.3 MB below levels of last year at this time. The price of Gasoline gained 704 points on the week. Gasoline stocks
in the three PADDs affected by trans-Atlantic trade gained by 8.326 MB. The increase was most pronounced in
PADD 1, the US Atlantic, where stocks rose by 4.957 MB. Inventories in the PADD 1 subsection that encompasses
New York Harbor, the Nymex delivery point, increased by 2.989 MB. This gain was facilitated by a significant rise
in imports of 164 KBPD to a level of 596 KBPD. Shipping data indicates a similar to possibly slightly lower flow of
imports for the coming week. National Gasoline demand fell by 1.552 MBPD to a level of 8.172 MBPD. The
reduction in Gasoline demand was quite dramatic and is likely to be, at least in part, reversed in the week ahead
despite another increase for the average price at the pump in the US which is now over $3.30 per gallon. With
utilization rates and demand higher and with imports unchanged to slightly lower, we expect Gasoline inventories
to increase but by a much smaller amount than this past week. We anticipate Gasoline inventories will increase
by 2.5 to 3.0 MB in the week ahead.

US Distillate inventories increased for a fifth week in 14, rising by 4.418 MB. This was the largest weekly increase
in Distillate inventories since January 2021. US Distillate inventories are now 16% below their five-year average
and are 31.6 MB below levels of last year at this time. The price of ULSD gained 1517 points on the week. Distillate
inventories in the three PADDs affected by trans-Atlantic trade gained by 3.373 MB. The increase was most
pronounced in PADD 2, the US midcontinent, where stocks gained by 2.64 MB. Inventories in PADD 3, the US Gulf
Coast, increased by 504 KB. This was due in part to a reduction in exports of 481 KBPD to an approximate level of
800 KBPD. Shipping data does show a slight uptick in exports for the coming week. Demand had fallen nationally
by 312 KBPD to a level of 3.739 MBPD. Expectations of colder weather and a sharp increase in demand and exports
should result in a reduction in Distillate inventories of 500 KB to 1 MB in the coming week.

We expect geopolitical issues to continue to lead the way to further outright price increases. We further expect
global spare capacity, given expanding production issues cited earlier, to further emerge as a major concern.
Current global Crude output stands at approximately 98.53 MBPD. The difference between this figure and the
perceived operative global capacity which we currently estimate at 107.0 MBPD will be a key factor in determining
price behavior.

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