Energy Market Summary April 17, 2022

Petroleum prices increased for the first week in three and second in six in a holiday shortened week. Prices surged
despite a sizable Crude release from the Strategic Petroleum Reserve as well as relaxed ethanol restrictions for the
remainder of the summer. Prices recovered from near seven-week lows earlier in the week as Brent briefly traded
below pre-Russian Ukrainian war levels. Intensified considerations by the EU to ban Russian petroleum imports and
a 13 year high being reached in US Natural Gas prices further supported markets. Expanded Chinese lockdowns
associated with the resurgence of the Covid-19 virus which has curtailed economic activity in cities accounting for
40% of Chinese GDP failed to weigh on prices. On the week, WTI gained 8.1%, Brent 8.8%, RBOB 7.4% and ULSD
13.8% despite total commercial petroleum inventories increasing in the United States by 7.4 MB.

Multi-decade highs for the rates of inflation, 8.5% for the consumer price index and 11.5% for the producer price
index continued to weigh on equity indexes. On the week, the Dow lost 0.8%, the S&P 2.1% and the NASDAQ 2.6%.
The dollar index increased, rising by 0.66 to settle at 100.50. Gold prices increased by 1.5% or $29.30 per ounce on
the week after easing from one month highs to close at $1,974.90.


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On Thursday, representatives from the EU drafted a phased-in ban on Russian petroleum imports. The ban, were it
to occur, will only be passed after European countries specifically reliant on Russian supplies (i.e., Germany) secure
alternative sources.

Both the OPEC and IEA monthly reports cut global Crude demand expectations. The IEA increased its expected
supplies from non-OPEC countries to a level that would balance global demand needs in the second quarter even
without the SPR releases they are orchestrating. The IEA report sees global economic circumstances mired in
uncertainty.

An accident three weeks ago on the because Zaki CPC pipeline limited Crude exports. The rapid recovery of exports
appears due in large part to a substantial increase in Russian Crude flows which were originally earmarked for 10%
of overall pipeline flow. Total Russian output is now estimated at 9.76 MBPD. That figure was approximately 11.4
MBPD prior to Russia’s invasion of the Ukraine.

China is expected to reduce refinery throughput by 900 KBPD due to recent lockdowns linked to Covid-19 virus
concerns.

Japan announced it will release 15 MB into the IEA stock release program. Japan’s Crude reserves at the end of
January were 470 MB.

US Crude inventories increased for a third week in seven, rising by 9.382 MB. This was the largest weekly gain in
nearly 13 months. Stocks are 13% below their five-year average and are 70.6 MB below levels of last year at this
time. The price of Crude increased by $8.69 on the week. Inventories in the three PADDs affected by trans-Atlantic
trade gained by 7.246 MB. The increase was disproportionately large in PADD 3, the US Gulf Coast, where stocks
rose by 4.864 MB. This increase was largely attributable to the SPR releases as well as a sharp reduction in exports
which fell by 1.5 MBPD to a level of 2.2 MBPD. Inventories at the Nymex delivery point of Cushing Oklahoma
increased for the second week in a row, rising by 450 KB. Cushing inventories increased in conjunction with the SPR
release and still remain below five year lows for this time of the year. We expect exports to increase in the coming
week based on shipping data and utilization rates to recover slightly next week. As a consequence, we anticipate US
Crude inventories will increase by 4.5 to 5.0 MB in the week ahead.

US Gasoline inventories fell for a ninth week in 10, dropping by 3.648 MB. Gasoline inventories are 3% below their
five-year average and are 1.8 MB below levels of last year at this time. The price of RBOB gained 2498 points on the
week. Inventories in the three PADDs affected by trans-Atlantic trade fell by 3.802 MB. This reduction was most
conspicuous in PADD 2, the US midcontinent, where stocks fell by 2.853 MB. Inventories in the PADD 1 subsection
that encompasses New York Harbor, the Nymex delivery point, fell by 1.439 MB. This occurred despite imports
dropping for a third consecutive week, falling by 40 KBPD to a level of 439 KBPD, a level below its five-year average
low. The average price at the pump for a gallon of Gasoline in the United States is now $4.11, a figure still 40% higher
than levels of last year at this time. Shipping data indicates a dramatic increase in Gasoline imports over the next
two weeks. Demand did increase this past week by 174 KBPD to a level of 8.736 MB, a sign of inventory shifts to
secondary storage in advance of the Easter holiday. Shipping data indicates a significant increase in the flow of
Gasoline imports in the next two weeks. This increase in flow and probable reduction in demand should result in
Gasoline inventories being within 500 KB of unchanged in the coming week.

US Distillate inventories fell for the 10th week in 13 and first week in three, dropping by 2.902 MB. Distillate
inventories are now 17% below their five-year average and are 32.1 MB below levels of last year at this time. The
price of ULSD gained by 5484 points on the week. Inventories in the three PADDs affected by trans-Atlantic trade fell
by 2.902 MB. The most conspicuous change was in PADD 2 where stocks fell by 1.411 MB. Inventories in PADD 3,
the US Gulf Coast, fell by 1.144 MB as the flow of exports increased for a third consecutive week. Imports reached
1.7 MBPD this week, well in excess of five year highs. Shipping data indicates a continued increase in flow of exports
next week that should be within 200 KBPD of this week’s export number. Shipping rates have eased though remain
quite high. Overall Distillate demand fell by 163 KBPD to a level of 3.484 MBPD. A slight increase in refinery utilization
should not overwhelm the high flow of Distillate imports. We therefore believe that Distillate inventories will fall by
2.0 to 2.5 MB in the week ahead.

Serious short covering in advance of a long holiday weekend may have been too extreme. Void of any geopolitical
surprises, we look for a correction downward on outright prices. We expect cracks to remain firm, particularly in
Distillate, until global utilization rates rise substantially.


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