Energy Market Summary May 1, 2022

Petroleum prices increased for a third week in five and fourth in eight as the end of April marked the fifth
consecutive month of price increases, the largest such streak since 2018. Prices recovered from near two week
lows at the beginning of the week as Russian/Ukrainian war concerns outweighed worries of diminished
Chinese demand due to large-scale lockdowns linked to a sharp resurgence in Covid. ULSD prices reached
historic highs in the month of May on Nymex which expired on Friday. May ULSD had a last day range of $1.46
per gallon with a high of $5.86. The practical impact on supplies due to Russia’s invasion of Ukraine is
intensifying in the United States. Inventories in the US Strategic Petroleum Reserve have fallen for 33
consecutive weeks as Crude exports have increased substantially over the last two months. US Distillate
inventories have fallen to 14 year lows due to excessive exports to feed northwest Europe in addition to
common exports to South America. The increasing likelihood of an EU embargo against Russia will lead to
further exports of both Crude and refined products from the United States. Overall US petroleum inventories
have fallen for 70 of the past 95 weeks. On the week, the price of WTI gained 2.6%, Brent 2.5%, RBOB 5% and
ULSD 21% as total commercial petroleum inventories in the US actually increased slightly, rising by 700 KB.

New releases of economic data showing inflation intensifying simultaneously with the contraction of GDP
weighed on equity indexes. On the week, the DJIA lost 2.5%, the S&P 3.3% and the NASDAQ 3.9%. The dollar
reached 20 year highs against selected European currencies leading the dollar index to close at 103.21, a weekly
gain of 2.09. Gold prices fell by $22.60 per ounce on the week to settle at $1,911.70.

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The European Union will propose a ban of Russian petroleum imports by year’s end with a gradual phaseout
of imports over the next seven months. This proposal is likely to include more Russian banks losing access to
the Swift payment system used for international transfers. If this embargo were to be enacted, a number of
analysts believe that Russian foreign revenue would fall by between 30 and 50% as remnant exports would be
delivered to Asia with much higher freight costs. Prior to Russia’s invasion of the Ukraine, Russian production
stood at approximately 11.4 MBPD. With this embargo, it appears that Russian production overall could fall to
as low as 8.68 MBPD with nearly 6 MBPD of production consumed domestically. This would render Russian
production to levels last seen in 2003.

OPEC+ is expected to agree to another 400 KBPD increase in export production for the month of May at their
meeting scheduled to convene in Vienna this week. Over the past four months, the increases in production
have diminished in practical meaning as overall compliance among participants to current quotas is now
approaching 200%. Russia, a participant in the OPEC+ pact, is likely to achieve the lowest percentage of
production allowed among all participants to the agreement due to vast self-sanctioning among consuming

US Crude inventories increased for a third week in four and fourth in nine, increasing by 691 KB. US Crude stocks are
now 16% below their five-year average and are 51.7 MB below levels of last year at this time. The price of WTI gained
$2.62 on the week. Inventories in the three PADDs affected by trans-Atlantic trade increased by 551 KB. A reduction
of 739 KB in the US Gulf Coast where both utilization and export rates remain exceptionally high was offset by an
increase of 1.201 MB in the US Atlantic region. As cited previously, this was the 33rd consecutive week stocks have
fallen in the US Strategic Petroleum Reserve. Crude inventories at the Nymex delivery point of Cushing Oklahoma
increased for the third week in four, rising by 1.298 MB. Cushing inventories are still below their five-year average
low. US Crude exports fell by 549 KBPD to a level of 3.7 MBPD which is still elevated and remains well above its fiveyear average. Crude exports are expected to remain high as European refineries not only lost refined products from
Russia but Crude supplies as well. With expectations of continued high utilization rates as well as high export flows,
we anticipate Crude inventories to fall by 3.0 to 3.5 MB in the coming week.

US Gasoline inventories fell for a fourth consecutive week and 11th in the last 12, dropping by 1.573 MB. Gasoline
inventories are 4% below their five-year average and are 4.3 MB below levels of last year at this time. The price of
RBOB increased by 1671 points on the week. Inventories in the three PADDs affected by trans-Atlantic trade fell by
2.54 MB. The reduction was most pronounced in PADD 1, the US Atlantic, where stocks fell by 3.177 MB. The
reduction in the PADD 1 subsection that encompasses New York Harbor, the Nymex delivery point, fell by 973 KB.
This was most unusual as imports rose significantly, increasing by 248 KBPD to a level of 845 KBPD. US imports of
Gasoline are now at their five-year average. Freight markets indicate a continued high flow of Gasoline imports to
the US in the coming week. Gasoline demand, reflecting alarmingly high retail prices and contracting personal
income, fell by 129 KBPD to a level of 8.739 MBPD. We expect demand will remain below 9 MBPD leading up to the
Memorial Day weekend, some four weeks away. The probability of continued high imports and restrained demand
will largely be further augmented by increases in production that will occur as utilization rates remain high to address
Distillate needs. We expect Gasoline inventories to remain within 500 KB of unchanged in the week ahead.

US Distillate inventories fell for a third consecutive week and 12th in the last 15, falling by 1.449 MB. As stated earlier,
Distillate stocks in the United States are now at 14 year lows. ULSD cracks are now at 30 year highs. US Distillate
inventories are now 21% below their five-year average and are 31.7 MB below levels of last year at this time. The
price of ULSD gained 8431 points on the week, a record. Inventories in the three PADDs affected by trans-Atlantic
trade fell by 1.165 MB. The reduction was disproportionately large in PADD 3, the US Gulf Coast, where utilization
rates remain high. Though export rates fell for a second consecutive week to 1.3 MBPD, they still remain at their
five-year average. Freight rates which experienced a brief lull over the last two weeks, rose sharply at the end of this
week. We anticipate the flow of Distillate exports will be substantially higher in the week ahead, possibly as high as
1.9 MBPD. The historic high prices of Distillate at the pump will continue to restrain demand which increased this
week by 12 KBPD to a level of 3.834 MBPD. Continued high utilization rates, restrained domestic demand and sharp
increases in exports should result in Distillate inventories falling by 0.5 to 1.0 MB in the coming week.

We maintain our view that the relative value of Distillate will be the firmest in the petroleum complex again in the
upcoming week.

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