COMMODITY MARKET REPORT

APRIL 2023

Oil products price forecast mid-

month update April 2023
Oil products price forecast mid-month update April 2023

Executive summary
Global margins normalise with recovery reliant on US summer gasoline
demand and China recovery
Brent Price Outlook
For this mid-month update, we have retained our monthly Brent price forecast to align with our Macro Oils Service short-term
April outlook. On 2 April 2023, OPEC+ announced an additional production cut of 1.66 million b/d starting in May and running
through the year. At first, this seems a radical move to tighten the market through 2023. However, the actual reduction in OPEC
production from current levels is on average only 0.5 million b/d for Q3 2023, which reduces the impact of the revision, although
it does tighten our crude outlook for H2 2023.

We have not made a revision to the price forecast because it already showed a strong US$12/bbl rise in Brent from a quarterly
average of US$81.20/bbl for Q1 2023 to US$93.30/bbl in 4Q 2023. Our analysis is based on a country-by-country assessment
of how each producer is likely to implement the new OPEC+ production targets. The OPEC+ 2 April production cut also offset a
potential slowing of global oil demand growth given the fear that China’s demand recovery is slower than originally anticipated
and widespread concern the US will fall into recession.

The 2023 annual average for Brent is close to unchanged at $89.00/bbl. For 2024, our forecast for liquids demand to increase
2.5 million b/d compares with a smaller 2.2 million b/d supply gain. The market is largely balanced next year, and we continue to
forecast Brent prices to average US$91.10/bbl for 2024.

Saudi OSP outlook

Saudi Aramco raised official selling prices (OSPs) for all its Asia-bound crude grades for the third straight month in April by
US$0.1 to US$0.5/bbl, with Arab Heavy seeing the largest increase among all grades. The increase in OSPs was largely in line
with our expectations despite a weakening of the Middle East sour crude complex in March with the Dubai cash/futures spread
averaging US$1.60/bbl, down US$0.40/bbl from February. The announced OPEC+ production cuts will disproportionately
impact the supply of medium and heavy crudes from the Middle East and will tighten supply through the remainder of 2023. The
higher OSPs will continue to negatively impact Asian refining margins, and likely force them to seek additional supply from the
Americas, Russia, and WAF in the coming months. We expect Asian buyers will continue to minimise term contract volumes
and requests for incremental barrels will remain low given how weak refining margins are for Saudi crudes in Asia. This will
support the purchase of other Middle East spot grades, underpinning a narrow Brent -Dubai differential through 2023.

The rebound in China’s domestic demand has yet to emerge, but as refiners return from maintenance there could be further
support for Saudi crude prices in Asia. However, higher outright prices because of OPEC+ production cuts could prompt
Chinese buyers to seek more discounted Russian crudes, which could provide a ceiling to Saudi OSP hikes in the coming
months. Market sentiment remains focused on the potential tightening of the sour crude supply as we approach peak summer
demand. This is broadly reflected in the current Dubai cash/futures spread, which is averaging US$1.92/bbl, a US$0.32/bbl
decrease from the March average. This indicates that Aramco could be considering increasing OSPs this month for the fourth
consecutive month. Our Arab Light HCU COK refining value assessment does show an increase of US$0.6/bbl in June which
should set the ceiling for any OSP increases.

For NW Europe-bound crudes, Saudi Aramco kept OSP’s unchanged to Europe for May loadings. In April, the increases had
been larger than our assessment of the refinery value of the respective crudes into NW European refineries. By maintaining the
strong differentials Saudi Aramco continues to reflect a tightening in Arab crude differentials vs. lighter, sweeter crudes. The
sharp decline in diesel cracks in the last month however, erodes the likely premium that Arab Light can attain in Europe. The
lower-than-forecast May prices allows Arab Light to price into the FCC HCU refinery configuration, and we expect Arab Light
prices in June to also sit closer to the more complex FCC HCU configurations, with OSP’s forecast to ease US$0.10/bbl to

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Oil products price forecast mid-month update April 2023

US$0.90/bbl. Our upward revision to HSFO cracks limits the drops in the medium and heavy grades, with the OSP’s revised
lower by US$0.40/bbl for June but almost unchanged for July at US$-0.60/bbl and US$-2.00/bbl, respectively.

Key Changes to our prices and margins view

In the first few weeks of April, the outlook for global refining margins has turned increasingly bearish. Margins have dropped
sharply, with our weekly global composite margin weekly now only US$0.2/bbl above the 5-year average. The underlying factors
that have been supporting the global products markets in recent months have eased, with the return of French refiners in
Europe and increasing capacity in the US as seasonal refinery maintenance has ended, exposing the weakness in economic
activity and the impact of high prices and inflationary pressures. Without sizeable economic growth, global refining margins will
struggle to recover, not least given the additional refining capacity due onstream through the remainder of 2023. Focus reverts
to the summer US driving season and the support to Atlantic Basin gasoline cracks, the recovery of economic activity in Europe,
and the much-anticipated emergence of growth in China.

The sharp decline in global margins has been driven by the collapse in diesel/gasoil cracks in Europe, which declined US$8/bbl
in the first few weeks of the month. The return of French refinery capacity following the latest round of strikes combined with
sustained high imports from the Middle East Gulf (MEG) and West Coast India (WCI). Shipments scheduled for France have
also increasingly cleared into alternative European locations, with arrival volumes into ARA still exceeding the sizable volumes
being loaded and fixed to load out of the region, mainly to supply other ports in NW Europe. We have also witnessed the first-
ever VLCC discharging diesel into Wilhelmshaven (although it was only a partial cargo). European diesel/gasoil demand is
weak, compounded by a warm winter and lack of heating oil demand. European demand is not expected to materially increase
until the end of Q3 2023 given weak economic activity. With imports expected to remain elevated and regional supply
increasing, we have revised diesel cracks down by US$7-9/bbl through until the end of Q3 2023. Diesel/gasoil cracks could fall
further if Red Rea and WCI flows into the Atlantic basin do not slow. If flows continue at current levels over the next few months,
weaker European refiners could be forced to cut crude runs over the summer period.

The extent of E-W flows will depend on China’s exports in the coming months. As domestic demand recovers and with further
economic stimulus packages expected, exports should tighten. However, there are expectations the next batch of export quotas
could again be sizable which could see exports remaining elevated. Asian distillate cracks are being further pressured by a
narrow regrade, with refiners increasingly incentivised to prioritise diesel production again while Singapore distillate stocks have
hit a 17-month high. If Asian cracks continue to weaken, the surplus MEG and WCI barrels will increasingly push West, and it
will become a race to the bottom for distillate cracks until exports slow or run cuts emerge in Europe and Asia. Weaker Europe
and Asia cracks are also impacting the USGC, and we expect to see a build in stocks in the US over the coming months.
Heavily discounted Russian distillate barrels are increasingly pushing into LATAM markets, displacing USGC volumes. USGC
volumes will need to increasingly be pushed to PADD1 and into storage. USGC refining margins will remain elevated given their
competitive advantage, so we expect runs to remain high, especially if US summer gasoline demand surprises to the upside.

Gasoline cracks have remained more resilient in recent weeks, as the change to summer specification gasoline in the Atlantic
Basin has supported cracks. However, we do expect cracks to ease slightly from current levels as both US and EU refinery
supply increases in the coming months. Exports from Europe to the Americas have increased slightly from March lows as freight
rates have eased and higher trans-Atlantic flows have offset lower WAF flows. With the weakness in global distillate cracks,
gasoline has flipped to a wide premium over the distillates. US and EU refiners are increasingly likely to shift yields back
towards gasoline, which will limit any immediate upside to gasoline cracks, certainly until a clearer picture of what US summer
gasoline demand will look like. We have subsequently revised Q2 23 Atlantic basin gasoline cracks down by US1-1.5/bbl this
update.

Crude price and differential analysis

North Sea dated crude averaged US$86.45/bbl in the first half of April, an increase of US$8.20/bbl from the March monthly
average. The price recovery was driven by the tighter outlook for crude supply in the second half of this year, following the
OPEC+ announced production cuts. A weaker dollar also added to the price support. Although market sentiment shifted away

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Oil products price forecast mid-month update April 2023

from demand concerns, prices stalled at the higher levels set in the early days of the month as the headwind of slower global
demand remained a background threat to further price increases.

Urals FOB Primorsk discount to North Sea Dated crude narrowedUS$4.50/bbl to US$30.40/bbl, the narrowest discount since
the start of the G7/EU embargo on Russian crude began in December. Although waterborne crude exports from Russia
remained high in early April, a tightening medium sour crude outlook supported the differential. The OPEC+ announced
production cuts and increased buying of Russian crude by India supported the differential in the first half of this month. For May
we expect the differential to average US$25.43/bbl, with the discount averaging US$25/bbl in Q2 2023.

Dubai Singapore discount versus North Sea Dated widened US$1.43/bbl to US$1.31/bbl in April. The differential eased as
Atlantic basin crudes recovered from recent lows as French refinery strikes ended and regional crude runs have recovered as
maintenance season ends, supporting stronger Brent values. Although the announced OPEC+ supply cuts stabilised the drop in
crude prices, the support to the Middle East sour complex has eased given competing outlooks from OPEC and the IEA. We
expect the differential to remain narrow until the end of Q3 23, however, there are downside risks. High Saudi OSPs will force
Asian buyers to seek more competitive long-haul WAF and Americas crudes, while higher outright prices because of OPEC+
production cuts could encourage China buyers to seek more discounted Russian crudes, which could provide a ceiling to Middle
East spot values.

WTI’s discount to North Sea Dated has extended to an average of US$5.20/bbl in April, up from US$4.90/bbl in March.
Discounts for WTI increased as the drawdown of the Strategic Petroleum Reserve increased regional light sweet crude
availability. With weak prices compared to global markers, US crude oil export volumes have strengthened in both Europe and
East Asia. WTI discounts are forecast to widen to US$5.20/bbl in May, though strength in gasoline relative to middle distillates
adds support to light crudes. WTI is expected to average US$5.60/bbl discount to Brent in Q2 and US$6.00/bbl average
discount for the full-year 2023.

Regional refining margin analysis

Our monthly ex-RVO Global Composite margin averaged US$7.64/bbl in the first half of April, a fall of US$2/bbl from the
March month average. The sharp fall in middle distillate cracks weighed on margins in all regions, as European refinery supply
was boosted by the return of French refinery production following the strikes, while US supply recovered as seasonal
maintenance waned. Asian balances remain long in the absence of a significant recovery in demand, adding to the global
supply glut.

We expect the global composite margin to average US$7.33/bbl in May, a downward revision of US$4/bbl, as middle distillate
cracks remain pressured by the higher supply and falling seasonal demand. The increased re-routing of Russian diesel towards
LATAM and soft European balances increasingly weigh on traditional US export markets, prompting a greater yield switch
towards gasoline production, softening the outlook for Atlantic basin gasoline cracks.

In Northwest Europe Brent FCC margins averaged US$8.01/bbl in the first half of April, a fall of US$0.95/bbl from the March
full-month average. The earlier-than-expected return of French refinery production and the end of seasonal maintenance across
the broader region adds further pressure to margins in the coming months, during the upcoming period of softer demand. As
middle distillate cracks weaken, we expect refinery yields to shift further towards jet and gasoline production, limiting the further
upside for other transportation fuel cracks.

For May we expect the Brent FCC margin to average US$7.70/bbl, a downward revision of US$3.35/bbl from our April monthly
outlook. The weaker outlook for diesel/gasoil cracks throughout 2023 lowers the forecast for Brent FCC margins in Q3 2023 by
US$2.20/bbl and for Q4 2023 by US$0.675/bbl to US$7.45/bbl and US$5.15/bbl, respectively.

• Diesel cracks averaged US$19.10/bbl in the first half of April, as a drop of US$9.60/bbl from the March average. The earlier
return of French refinery supply than our previous base case assumption of the end of the month is expected to add almost
125 kb/d of additional gasoil/diesel supply in NW Europe, averaged over the month. The continued weak pricing of cargoes

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Oil products price forecast mid-month update April 2023

east of Suez is also expected to maintain higher imports. We have revised lower our outlook for diesel cracks by US$10/bbl
in May, with values holding close to the current lows. The softer cracks are expected to spur a yield shift back towards
gasoline while the weaker forecast price structure reopens storage economics adding a degree of support around current
price levels. The outlook for the second half of the year has also been revised lower, as soft European demand and a higher
potential import availability from both the USGC and east of Suez keep balances longer. In this update, we have revised
diesel cracks lower for Q3 2023 by US$6.70/bbl to US$21.60/bbl, and for Q4 2023 by US$2/bbl to US$24.90/bbl.

• Gasoline cracks averaged US$21.10/bbl in April. We have lowered the forecast for May by US$1.50/bbl to US$21.10/bbl,
given the higher expected refinery yields. Although exports to West Africa are likely to remain above average this quarter, the
pull of barrels trans-Atlantic eases a little due to the moderate softening in US balances.

• Naphtha cracks have fallen almost US$5/bbl in the first half of the month. Although part of the drop is attributable to the
higher crude prices, we estimate around US$3-$4//b of the fall is related to the higher refinery supply and increased flows of
cargoes from the Mediterranean into NW Europe, amid a closed W-E arbitrage. The weak outlook for Asian demand
continues next month before a moderate recovery in June. We have revised lower our crack forecast for May by US$2/bbl
but made no adjustments to forecasts further forward.

• High sulphur fuel oil cracks have remained supported despite the stronger crude price as both refinery supply and imports
remained tight. Higher power generation demand in the Middle East, while Russian supplies remain low due to refinery
maintenance, is likely to add a more bullish backdrop to prices. We have increased our crack forecast for May by US$3/bbl to
US$-17.10/bbl, with June also revised higher by US$2/bbl and July and August revised higher by US$1/bbl. In contrast,
VLSFO margins have been revised lower by US$2/bbl for May, given the weaker light and middle distillate cracks and
continued slow bunker demand in Europe

In Asia Dubai FCC margins decreased by US$3.40/bbl to US$2.60/bbl while deep conversion margins saw an even sharper
decline of US$5.30/bbl to US$5.75/bbl. The collapse in global distillate cracks has impacted Asia refining margins heavily,
especially with stronger Dubai values and higher Saudi OSPs. We forecast margins to remain at similar levels in Q2 23 as
stronger gasoline cracks supported by the summer driving season should offset some of the distillate weakness.

• Naphtha cracks versus Dubai fell to US$11/bbl as regional crackers are shifting to consume more LPG as feedstock amid the
wide naphtha-LPG spreads. Higher absolute prices due to an increase in Brent prices were also difficult to pass through to
derivatives given seasonal maintenance and weak demand. We have revised naphtha lower by US$3/bbl in May as the
Asian petrochemical derivative market outlook remains weak in the near term.

• Gasoline cracks versus Dubai fell by US$1.30/bbl on the back of weaker demand in Asia ahead of the summer season and
as Taiwan increased gasoline exports after maintenance. We have decreased gasoline cracks by US$2/bbl in Q2 23 on
ample supply in the Asia market, on the prospect of higher China exports while price support from the US demand remains
limited in the coming months.

• Diesel cracks versus Dubai decreased sharply by US$7.30/bbl to US$17.10/bbl because of the collapse in European prices
along with weaker regional demand and an increase in inventories despite refiners shifting yields into gasoline. We have
revised diesel cracks lower by US$10/bbl as diesel cracks lagged the increase in crude prices and the downside to European
demand is expected to keep Asia long with limited arbitrage opportunities.

• VLSFO cracks versus Dubai fell by US$3.60/bbl to US$3/bbl despite the outages at Al-Zour, as Asia saw only a marginal
improvement in demand given economic headwinds. We have revised near-term cracks as we expect the market to remain in
surplus on the back of higher imports in the coming months and limited upside to demand.

• HSFO380cst cracks increased by US$6.90/bbl to US$11/bbl given the sustained import pull from China, while HSFO180cst
fell to negative against HSFO380cst because of weak power generation demand. We have revised inter-product differentials
lower due to soft prompt demand for power generation, but maintaining an uptrend with the upcoming power generation
season.

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Oil products price forecast mid-month update April 2023

At the USGC, LLS ex-RVO FCC margins have averaged US$17.25/bbl in April, down from US$21.12/bbl in March. US margins
have contracted as global inventories appear supported and domestic refinery availability has strengthened rapidly following the
Spring maintenance season. Coking margins for Mars have decreased by US$4.90/bbl since March as medium sour discounts
narrowed to their lowest level in the last year. Ex-RVO Gasoline cracks vs LLS have increased in April, taking over as the
premier refined product in a sudden return to seasonal normality. USGC LLS ex-RVO gross refining margins are expected to
remain rangebound through September though fundamentals are weakening, adding downside risk if poor economic data is
released.

• USGC gasoline ex-RVO crack spreads vs. LLS have increased by US$1.50/bbl to an average US$24.90/bbl in April. Low
seasonal inventory levels following a period of active refinery maintenance have driven pricing strength, though the potential
for refinery yield shifts limits further upside in cracks. We now see gasoline ex-RVO cracks vs LLS retreating to US$24.40/bbl
in May.

• Gulf Coast Jet prices have retained strong premiums to ULSD ex-RVO in March, with cracks vs LLS averaging
US$22.80/bbl. Refinery yield shifts have followed the strong prompt pricing strength for Jet, while year-on-year demand
growth continues to show signs of recovery. May cracks are forecast to average US$23.50/bbl vs LLS at the Gulf Coast, or a
US$3.50/bbl premium to ULSD ex-RVO.

• ULSD ex-RVO crack spreads vs. LLS have fallen precipitously to average US$19.70/bbl in April from US$29.20/bbl in March.
US prices have fallen alongside softer European demand, while exports to Latin America appear pressured by higher flows of
Russian distillate. We expect diesel ex-RVO cracks vs LLS to recover modestly in May due to a lower regional crude basis,
averaging US$20.00/bbl.

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