Market Summary May 8, 2022

Petroleum prices continued to rise this week, increasing for the fourth week in six and fifth in nine. US Gasoline
prices set historic highs, closing on Friday at 3.759 per gallon. US Distillate stocks again reached 14 year lows.
Distillate prices weakened despite overwhelmingly strong fundamental circumstances. The European Union claimed
progress in passing a resolution to ban Russian imports despite a conspicuous absence of recognition in the press
that the vote must be unanimous among all 27 EU members, something that appears highly unlikely. The current
administration in the United States announced plans to refill the Strategic Petroleum Reserve which is in the process
of being depleted by 180 MB over the next six months. Replenishment would begin most probably in late 2023 and
would likely take three years to achieve desired refill levels. On the week, both WTI and Brent gained 4.9% and RBOB
8.2% while ULSD fell by 20.9% as total US commercial petroleum inventories overall gained 2.6 MB.

The Federal Reserve raised interest rate by 50 basis points, the biggest hike in two decades, in order to tame inflation
thus enabling US equity indexes to fall for a fifth consecutive week as the DJIA and S&P lost 0.2% and the NASDAQ
lost 1.5%. The dollar index, supported in part by EU economic vulnerability to Russia, increased by 0.45 to close at
103.66. Gold prices eased on the week, falling by $29.10 per ounce to settle at $1,882.80.

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The EU formally proposed a phase out of Russian energy imports that would be in place by year’s end. All 27 bloc
members must approve the ban. Hungary, long reliant on Russian supplies via pipeline with current leadership
somewhat aligned with Russia, may prevent passage of such a ban. Slovakia, also long reliant on Russian supplies,
has expressed doubts publicly regarding supporting such a ban. Proposals are now circulating among members to
extend both Hungary’s and Slovakia’s adherence to the ban that would not commence until the end of 2024.
Hungary’s chief of state said he would need at least five years to transition away from reliance on Russian supplies,
a figure echoed by Slovakian representatives. Most press accounts of the state of negotiations among EU members
have clearly implied probable unanimity in such a vote. Statements from Hungarian and Slovakian leaders are clearly
at odds with such a view. One fifth of all Crude refined in the EU is of Russian origin.

OPEC+ agreed to increase output by a further 432 KBPD in the month of June at a virtual meeting coordinated in
Vienna this week that lasted 13 minutes. Agreement to such an increase has no legitimate hope of achieving desired
output. Shortfalls in Russian exports due to sanctions and shortfalls in Angolan and Nigerian production due to
technical difficulties have rendered compliance to such an increase virtually impossible. Prior to Russia’s invasion of
Ukraine, compliance to output levels was 145%. Though actual numbers are difficult to determine due to the
shadowy state of current Russian exports, it would appear that compliance to the agreement is now at near 200%.
With presumed limitations of Russian exports, the Gulf Cooperation Council countries appear to hold virtually all of
global spare production capacity which is now estimated to be 1.8 MBPD.

Some 500 KBPD of production was reintroduced to the market as the force majeure on major Libyan production
fields has been lifted.

US Crude inventories increased for a fourth week in five and fifth in 10, increasing by 1.303 MB. US Crude stocks are
now 15% below their five-year average and are 69.4 MB below levels of last year at this time. The price of WTI gained
$5.08 on the week. Inventories in the three PADDs affected by trans-Atlantic trade increased by 2.854 MB. The
increase was most conspicuous in PADD 3 where inventories increased by 3.506 MB largely due to imports rising by
389 KBPD as well as a reduction in exports of 147 KBPD. Crude inventories at the Nymex delivery point of Cushing
Oklahoma increased for a second consecutive week, rising by 1.379 MB. Inventories at Cushing still remain well
below their five year lows. Though Crude exports eased by 147 KBPD, the flow remained high at 3.6 MBPD. Shipping
data indicates an increasing flow of exports in the week ahead. Refinery utilization rates fell by 2%, dropping for a
second consecutive week. Utilization rates are near five-year averages. We expect utilization to increase in the near
term as refineries continue to optimize Distillate output. With expectations of increases in both utilization rates and
exports, we anticipate US Crude inventories will fall by 0.5 to 1.0 MB in the week ahead.

US Gasoline inventories fell for a fifth consecutive week and 12th in 13, dropping by 2.23 MB. Gasoline inventories
remain 4% below their five-year average and are 7.2 MB below levels of last year at this time. The price of RBOB
gained 2829 points on the week. Inventories in the three PADDs affected by trans-Atlantic trade fell by 2.434 MB.
The reduction was most pronounced in the US Gulf Coast where inventories fell by 2.125 MB. This figure can be
attributed in part to exports and reduced refinery utilization rates. Inventories in the PADD 1 subsection that
encompasses New York Harbor, the Nymex delivery point, fell by 430 KB. This occurred despite an increase in imports
of 282 KBPD to a level of 1.127 MBPD, a figure well above five-year highs. This was the third consecutive week that
Gasoline imports increased to the United States. Shipping data indicates continued strong flow of Gasoline for
European refineries that are maintaining high output levels due to limited imports of Russian refined products. With
the average price at the pump in the United States at $4.30 per gallon, concerns regarding price elasticity, a common
feature in all historical price spikes, will emerge. Gasoline demand increased by 117 KBPD this past week and now
stands at 8.856 MBPD. With Memorial Day weekend, the traditional start of summer driving season, three weeks
away, Gasoline inventories should build for the balance of the month. Current production at 9.689 MBPD stands
near five-year average highs. Deteriorating economic conditions and price inelasticity should limit further increases
in demand. With another likely increase in imports, we anticipate Gasoline inventories will rise by 1.5 to 2.0 MB in
the coming week.

US Distillate inventories fell for a fourth consecutive week and 13th in the last 16, dropping by 2.344 MB. Distillate
stocks in the United States remain at 14 year lows, are 22% below their five-year average and are 31.3 MB below
levels of last year at this time. The price of ULSD fell by 8274 points on the week, essentially negating last week’s
record jump. Inventories in the three PADDs affected by trans-Atlantic trade fell by 2.138 MB. The reduction was
disproportionately large in PADD 1, the US Atlantic coast, where stocks fell by 2.329 MB. Exports fell by 92 KBPD and
stand at 1.2 MBPD, right at their five-year average. National Distillate inventories are now at their lowest level since
April 2008 and have fallen 60 of the past 96 weeks. Shipping data indicates a slight increase in exports in the week
ahead to a level approximating 1.5 MBPD. Similar to Gasoline, the average price of diesel at the pump now stands
at $5.53 per gallon. Demand elasticity in Distillate is generally greater than that of Gasoline. Still the retail price is a
daunting increase. With an increase in refinery runs likely, demand static at best and an increase in exports probable,
we expect Distillate inventories to fall by 1.5 to 2.0 MB in the week ahead.

Though likely European disarray in their approach in inflicting economic damage to Russia renders associated price
influences as murky at best, alarmingly high retail prices in the US and elsewhere should inhibit demand and limit
price gains. We look for opportunities to sell structure in refined products with further technical confirmation.

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