Petroleum Remains Within the recent Range after EIA Report and Stock Market Rebound

Consensus Report: March 8th, 2007

Petroleum Remains Within the recent Range after EIA Report and Stock Market Rebound, while Natural Gas Falls back on Diminishing Winter.

Natural Gas and Oil

Technical Outlook: last week we said, looking ahead although there are some mixed signals the overall technical picture was bearish with stochastics, the MACD, the linear oscillator, as well as momentum and relative strength all suggesting further weakness ahead whereby we anticipated another challenge to the Range bottom near $7.10 with a stronger probability for breaking this support and testing the more critical area between $6.92 and $6.80. We also said to look for fading attempts by the Bulls to rebound values up to resistance at between minor pressure at $7.40 with stronger selling rejection expected between $7.65 and $7.80 if reached. Since then the market pretty much adhered to our outlook in almost text book fashion as prices have challenged yet remained above key support at $7.10, and then sold off anytime they approached $7.60, confirming our forecast. Looking ahead we still feel our report from last week is in progress as the technical signals remain more bearish with momentum especially in a negative posture along with the MACD, relative strength, stochastics, and the parabolic all suggesting further weakness ahead. We anticipate a challenge soon to break key support at $7.10 to be followed by more selling, first to the $7.0 benchmark, and then a probable test of critical support at $6.92 possibly then down to $6.80 before more significant buying emerges. Expect stiff resistance above to remain at $7.40 scaled up to $7.65, unless a weather anomaly or wildcard appears on the horizon such as sympathy with a bull-break-out in crude.

Fundamental Supply Update

Last week's EIA report showed a drawdown of 102 bcfs and reflective of the continued moderation over the previous two weeks that exemplified bitter cold temperatures in both the Midwest and Northeast. The drawdown was basically right in line with both previous estimates by DowJones and Bloomberg of 99 and 102bcfs respectively. Storage now stands after the last EIA update at 1631 bcfs which is now a deficit of 268bcfs lower than last year and yet still 194 or 13.5% above the five-year average of 1437 bcfs. While prices initially traded in a range that was somewhat affected by crude oil and the supply report, technicals also fell into the mix as prices rebound every time they approached the $7.20 level scaled down to the intraday lows at $7.15 basis spot before finally short covering somewhat into the close settling at a moderate loss of 12.7 cents at $7.23 per million British thermal units. The supply withdrawal was slightly stronger than last year's 97 bcf draw yet considerably weaker than the five-year average reduction of 117 billion cubic feet. The market will continue to press Range parameters as the remaining few weeks in March still hold the potential mystery and uncertainty over a possible late winter threat that could take a last bite out of storage enough to keep the shorts at bay from the approaching summer onslaught. While we still anticipate a final and deeper post winter downdraft to prices, the verdict still seems to be out on making that determination.

Concerning crude oil, prices have recently returned to challenge key resistance at $62.50 and is today's intraday high at $62.30 graphically reminded everyone. However, after today's robust trading range the market slipped into negative territory posting in $.18 loss to settle at $61.64 per barrel basis the spot April futures as the market seem to ease back in the recent Range digesting the week's news and also in sympathy with the negative close in natural gas. Today's close was somewhat anti-climatic following yesterday's seeming break out in subsequent close up $1.13 per barrel following another bullish EIA update. The DOE surprised market players with an unexpected substantial drop that inventory of 4.8 million barrels leaving crude oil at 324.2 million and a 5.1% deficit to last year supply, countering what many expected to be the third consecutive increase to crude stocks in a row. But the more telling data that has longer-term bullish implications is another round of significant product declines of 3.8 million barrels from owner gasoline leaving them 3.9% below last year's levels while distillate inventories fell 1.3 million yet leaving them a more substantial key .4% below last year's levels. Today's lack of follow-through in crude pricing was most likely in reaction to the drawdown in crude being concentrated mostly in the Gulf Coast where imports fell 9% due to the temporary shutdown of the Houston Ship Channel because of navigational complications from the heavy fog. However most analysts expect as well as the bears for imports to play catch-up next week as normal shipping operations are expected to resume. With gasoline supplies are just at the upper end of the average range while distillate inventories managed to now fall just below the upper and the average range, bearish traders will find little comfort in the supply levels as demand going forward is expected to easily surpassed last year's increase. What has also fanned the fires of the recent product rally has been the continued refinery mishaps that have recently plagued the industry while demand continues to climb. Valero recently announced they'll resume partial plant operations by early April at their McKee refinery in Sunray Texas which was forced to completely shut down the hundred and 58,000 barrel per day refinery following a fire that struck on February 16. This facility along with others that suffered earlier with more minor consequences helped contribute to another reduction in refinery utilization which fell again to now 85.8% of capacity from ongoing maintenance and repairs. On the international front the market continued poised yet unable to react fully as further uncertainty permeated traders thoughts as the IAEA approved the suspension of almost two dozen nuclear technical aid programs to Iran as part of the ongoing UN sanctions imposed in retaliation for their refusal to halt nuclear uranium enrichment recently. Overall the fundamental picture remains with a bullish tilt as product supplies compress amidst growing demand while tension builds in the Middle East between Iraq and Iran, and yet this has temporarily managed to outweigh the implications of a clearly slowing US economy as unemployment figures headline next. The US economy still may end up being the 800 lb. gorilla in the room if the ongoing fears of a collapse in the subprime mortgage market spreads into more of the mainstream housing sector, which if this were to transpire could cause a recession as a stronger sector of the population could curtail consumption rates significantly across-the-board. The recent rhetoric from the world renowned former US economic monarch, Alan Greenspan, suggesting a 33% chance for recession exists, has given recent life to this scenario especially amongst many outspoken economists. The uncertainty ahead as only further economic data can provide some clarity to the dilemma of whether or not this ends up the fate of the US economy, puts crude prices above the $62.50 benchmark at an unacceptable risk in our opinion under the current circumstances, and yet still has not been proven with enough evidence to allow petroleum values to fall back below the $57 benchmark on a closing basis either, and so that remains the current accepted range.

W. S. I Weather 6-10Day Outlook

Persistent southwestern U.S. ridging and a progressive and near zonal (west to east) jet stream becoming

centered over the northern tier of the country are expected to combine to bring warmer than normal

temperatures to most of the country early next week. In response, widespread above and much above normal temperatures are forecast over most of the continental U.S. forecast balance of the next week forecast periods. However, the warm weather over the north-central and eastern U.S. is expected to be short-lived. All models now advertise a deepening eastern trough in the 6-10 day period will bring much cooler temperatures during the latter half of next week. In response, changeable conditions are now expected to characterize the weather over the north-central and eastern U.S. during the 6-10

day period as the warm weather early next week is forecast to be replaced by below and even much below

normal temperatures. Moreover, widespread highs in the 50s, 60s, and even low 70s over the north-central and northeastern U.S. early next week expected to fall back into the 30s and 30s and 40s during the 6-10 day period. Widespread highs in the 70s in the Southeast are forecast to fall back into the 50s and 60s. Meanwhile, the main weather storm next week remains the southwestern U.S. warmth. All models advertise little relief from the warm weather can be expected over the southwestern U.S. and interior California next week. In response, widespread highs in the 80s and low 90s are forecast to the rule for these regions most of next week. Highs as warm as the middle 90s are even possible on the warmest days. This

includes the Phoenix metro-area. For the balance of the 6-10 day period, anomalies as warm as 7-12 degrees above normal are forecast over the southwestern U.S. Finally, changeable conditions are expected to characterize the weather in the Pacific Northwest next week as the cool and damp conditions are expected to be replaced by warmer readings late in the week. In response, widespread highs in the 50s and 60s are expected become more commonplace in the Pacific Northwest late next week.

Conclusion

Natural gas made a moderate rebound earlier this week only to fall back to key support again at $7.10 and the lowest price levels since late January as traders quickly reacted to the noticeable drop in weather demand over the previous two weeks. Technical weakness has also come into the picture to complement the diminishing weather fundamentals. So as we stated last week unless March can provide a late winter chill to put a final bite into the supply surplus that this week took another moderate bounce back above the five-year average expanding now to 13 .5% and prevent further surplus increases, we see the path of least resistance as lower in the near term likely to bring another challenge to recent lows at $7.10 to be quickly followed by a more critical support test below the $7.0 benchmark for a potential test of $6.92 scaled-down to $6.80 before noticeable early summer buyers would step in to stem the decline. Look for petroleum sympathy buyers to continue to lose interest above at resistance between $7.40 scaled all the way up to $7.80 unless crude oil suddenly surges from an unexpected bullish wildcard possibly from the Middle East.

Concerning the petroleum complex, this week's EIA numbers were again for the third time in a row bullish with heavy product draw-downs with distillates and gasoline declining by a larger than expected margin, and yet the market is also feeling the recent negative convergence of a diminishing winter along with the threat that seems to be gaining momentum from some of the negative comments from two of the largest homebuilders in the country DR Horton and Toll Brothers who recently said bluntly” the housing market in 2007 will suck", adding evidence that the US economy could still experience a significant slowdown further and even into a possible recession. Countering this and recently suspending petroleum values above the $60 benchmark after this past weeks brief foray below this level testing $59.55 as a weekly low has been somewhat moderately bullish Middle Eastern tension as the US attempts to turn up the heat on Iran through increased economic sanctions to be proposed and materialized through the recent announced IAEA suspensions of several nuclear aid programs to Iran as part of the ongoing UN sanctions. We also see, just as we stated in last week's report which this week's price action completely confirmed as prices came within $.15 of our bottom range target stated clearly in last week's conclusion of $59.30 per barrel that the market is getting technically over extended with several indicators entering overbought status now for over a week. Under this configuration we anticipate that if the recent rebound in petroleum values cannot break to new higher ground above the existing resistance level at $62.50 per barrel over the next three to five sessions, it is very likely the market will experience a more significant correction whereby recent lows at $59.55 per barrel is penetrated for a further washout down to $58.10 and possibly lower to revisit the key $57 benchmark if enough negative momentum can build. This of course would have to receive some fundamental cooperation, however, with normal operations resuming in the Houston Ship Channel allowing delivery of recently suspended supply along with another stalemate stalling the escalation in tension with Iran and the die may be already cast.

FUTURES AND OPTIONS TRADING INVOLVE RISK OF LOSS AND MAY NOT BE SUITABLE FOR EVERYONE.

March 8th, 2007

United Strategic Investors Group

Guy Gleichmann, President

1926 Hollywood Blvd Suite 311
Hollywood, Florida 33020

(800) 974 – 8744