Market Summary: February 13, 2022

Petroleum prices increased for an eighth consecutive week, touching eight year highs as reports released on Friday
afternoon from numerous mainstream media outlets stated that Russia had finalized their decision to invade
Ukraine. This final news item of the week propelled dated Brent prices over $97 per barrel. A number of issues,
again all positive, provided price support through the week. Continued reductions in key inventory levels for
Distillate at all major global trading hubs, emerging evidence that OPEC+ output is now more than 1 MBPD below
quota and emerging information that Iran is only weeks away from a production capability of weapons grade
nuclear fuel were all key sources of support prior to the Russian invasion news release of Friday afternoon. Overall
Crude, Gasoline and Distillate supplies in the United States have now fallen to their lowest levels since 2015. Total
commercial petroleum inventories in the United States fell by 8.1 MB in the past week. WTI traded at its highest
level since 2014 and has gained more than $10 per barrel in the last 30 days alone. On the week, WTI gained 0.9%,
Brent 1.3%, RBOB 2.2% and ULSD 1.3%.

Rampant inflation, now at new 40 year highs with an annual rate in excess of 7.5% weighed heavily on equity
indexes as sharp increases in the cost of the dollar are inevitable. On the week, the Dow fell 1.0%, the S&P 1.8%
and the NASDAQ 2.2%. The dollar index increased, rising by 0.55 to settle at 96.03 on the week. Gold prices
increased by more than $51 per ounce on the week, settling at $1,860.60.

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Were Russia to invade Ukraine, Natural Gas prices in Europe that have already risen by 330% this season would
likely rise to levels never seen. It is quite possible that such an event would be so economically catastrophic that
rampant demand destruction coupled with a sharp increase in already elevated rates of inflation would occur that
could plunge Europe into a severe and sudden recession.

Discussions with Iran regarding loosening sanctions that would lead to an increase in global Crude supplies
continue in Vienna with limited hopes of success. A number of national intelligence sources have advised that Iran
is weeks away from developing the capacity to manufacture weapons grade nuclear fuel. Even in the event that
an agreement with Iran was achieved, it would take a number of months for Iranian production, now estimated
at slightly in excess of 1 MBPD, to increase to a level enabling significant export flows.

A major US investment bank now estimates current OPEC+ output at 1.2 MBPD below quota. The same bank cited
a likelihood of prices reaching $120 per barrel.

US Crude inventories fell for a second week in four, dropping by 4.756 MB. Crude stocks are now 11% below their
five-year average and are 58.6 MB below levels of last year at this time. This week’s reduction was the largest
since last September and has now rendered Crude inventories to their lowest levels since 2018. The price of WTI
gained $0.79 on the week. Inventories in the three PADDs affected by trans-Atlantic trade fell by 5.077 MB.
Inventories fell by a disproportionately large amount in PADD 2, the US midcontinent, where inventories fell by
2.794 MB. This was facilitated by an increase in the flow of Crude exports from the US of 724 KBPD to a level of
3.1 MBPD. This figure as well as draws elsewhere in the eastern half of the US are also largely attributable to a 2%
increase in refinery utilization rates as facilities exercising precaution in advance of cold weather resumed
operations. Inventories at the Nymex delivery point of Cushing Oklahoma fell for a fifth consecutive week, falling
by 2.801 MB, the largest weekly reduction since October. Cushing inventories now are well below their five-year
average lows. An ongoing flow of exports and elevated utilization rates should result in Crude inventories falling
again in the week ahead by 2.0 to 2.5 MB.

US Gasoline inventories fell for the first week in six, dropping by 1.644 MB. Gasoline inventories are now 3% below
their five-year average and are 8.0 MB below levels of last year at this time. The price of Gasoline gained 601
points on the week. There are reports that the average price at the pump in the US for a gallon of Gasoline is now
approaching $3.80. Gasoline inventories in the three PADDs affected by trans-Atlantic trade fell by 1.291 MB. The
reduction was most pronounced in the US Atlantic where stocks fell by a disproportionately large 2.796 MB. This
reduction occurred despite an 81 KBPD increase in imports to a level of 514 KBPD. The overall reduction in Gasoline
supplies was driven by an unusually large spike in demand of 900 KBPD to a level of 9.126 MBPD, the highest level
since 2007 for this time of the year. Inventories in the PADD 1 subsection that encompasses New York Harbor, the
Nymex delivery point, fell by 1.5 MB this week, a figure that is somewhat at odds with increased import flows. A
reduction in demand and consistent import flows should enable Gasoline inventories to increase in the coming
week by 1.5 to 2.0 MB.

US Distillate inventories fell for a fourth consecutive week, dropping by 930 KB. Distillate inventories are now 19%
below their five-year average and are 39.3 MB below levels of last year at this time. The price of ULSD gained 358
points on the week. Inventories in the three PADDs affected by trans-Atlantic trade fell by 1.152 MB. The reduction
was disproportionately large in PADD 1, the US Atlantic, where stocks fell by 2.812 MB. This disproportionate
reduction in the Northeast is a clear reflection of thermal needs from unseasonably cold weather over the last
two weeks. A surprising increase in the flow of exports of Distillate of 449 KBPD to a level that now exceeds 1.0
MBPD was a key contributor to the reduction in inventories. Expectations of production and demand remaining
unchanged from this week coupled with a further expected increase in exports should result in Distillate
inventories falling by 1.0 to 1.5 MB in the week ahead.

The possibility of profound volatility given the specter of Russia invading Ukraine is quite high. Such an event could
well provide a tipping point for demand destruction linked to untenable economic circumstances that may ensue.

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