Energies Resumes on Geopolitical and Technical Concerns.

Consensus Report: April 6, 2006

Natual Gas and Oil Report

New Highs in Petroleum Complex on Continued Gasoline Supply Concerns and Overseas Tension, While Natural Gas Succumbs to Record Supply and Softening Demand.

Natural Gas and Oil

Technical Outlook: last week we said while prices may test the upside target at $7.65 basis spot, that it was likely due to suspension fatigue to fall back to test $7.10 and then wash out down to $6.93 -- $6.95. This is almost exactly what transpired as the intraday high Friday at $7.62 failed to hold and resulted in a wash out down to today's low at $6.94 and exactly between our support bracket and confirming our call for the retreat from the overbought condition. Looking ahead we continue to anticipate a further decline to below $6.80 for an eventual test of existing lows at $6.45 -- $6.50. This would complete our target from last week in calling for reaching new lows within two weeks. Technical indicators are now more negatively confirmed with momentum, stochastics, relative strength, several oscillators, and the parabolic all suggesting further weakness ahead. We expect due to the negative posture for rebound attempts to be contained by resistance above at $7.10 and if breached $7.19, on a closing basis. We also feel under the current pattern that a sharp and rapid decline is probable if the $6.80 level is penetrated on close. This scenario we feel could produce a violent one-day wash out through existing lows at $6.45-$6.50 for a possible freefall to $6.25, which looms on the horizon.

Fundamental Supply Update

Today the EIA announced a paltry end of season withdrawal of only 10 bcfs, leaving storage at 1695 which is 62.8% or 654bcfs above the five-year average of 1041. It is also 447 above last year's supply at this time. The report was also quite lower than estimates by Bloomberg and Dow Jones that were calling for a draw of close to 20 and 17 respectively, with the closely watched ICAP estimate of 21. Our company call was closer at 12 -17bcfs. Nevertheless the market quickly ignored the rather robust advance by the other members of the energy mix as crude assaulted the $68 benchmark, and as the session neared the close natural gas prices moved lower settling near the lows of the day at $6.97, and a bearish close under the $7.0 benchmark and thus establishing a multi-week low. With prices near a record post winter high while at the same time supplies are currently at an undeniable all-time record high, we feel it is just a matter of time whereby this unique paradox will soon self adjust to a more balanced and logical supply demand, value relationship. Record high supplies rarely sustain record prices, especially at the end of a demand cycle. Over the past five years the $7.0 price level has been a value more prevalent at the beginning of winter or during the heart of summer demand rather than it's current existence, about a month and a half before the typically elevated heat of summer begins. Production will continue to be adequate in our view with Baker Hughes reporting 1321 rigs pumping gas, up seven from the previous week. Even with temperatures expected to run above normal next week for this time of year, intraday highs in the seventies and low eighties for the Upper Midwest and Northeast are hardly a reason to burn gas for cooling needs. And with nighttime lows in the upper fifties, while cool, will not necessarily spur heating demand. Instead this will produce the typical shoulder month condition of virtually” no gas" demand. It is our opinion that the combination of this weather condition along with the existing record heavy storage should prove to be a daunting challenge to even diehard bulls, who will cry out in vain of the threat of summer heat and hurricanes, both of which are 45-60 days away from becoming valid. But time will tell, and certainly this market has a habit in the past of often jumping the gun and chasing headlines that are yet to be written, and thus putting the proverbial cart before the horse whereby values move way ahead of actual conditions. It is our view, however, that a false or artificial, fear based rally, is more likely to materialize from the $6.0- $6.25 level rather than from here near $7.0s.

Crude oil on the other hand is enjoying an almost opposite scenario, whereby fundamentals are bullish and strong from the standpoint of overseas tension between production still impaired in Nigeria, and the pending confrontation between Iran and the UN Security Council over uranium enrichment and the potential development of a nuclear arsenal. Then of course there is the more current and pressing issue of the gasoline dilemma with driving season ahead, reduced refining capacity from last year’s storm damage and maintenance strain, and finally the challenge of building enough ethanol blend to replace MTBE gas by the deadline in May. Recent price action has confirmed our prediction from weeks ago that the unleaded challenges would lead the whole complex higher confirmed by crude oil approaching highs from February while gasoline has already eclipsed highs closer to six months ago. Hardly a concern to the recent buying fever amongst the Bulls was this weeks’ EIA report showing a build in crude stocks that was above expectations, of 2.1 million as traders became quickly transfixed over the shocking decline of 4.4 million barrels in unleaded that was closer to three times the expectancy. The fact that distillates also dropped by 2.6 million is also constructive to the bull’s case. With this weeks inventory update gasoline supplies have now dropped to just below last year's level, and this has many rightfully concerned over the supply issue in the coming driving season. With many refiners under extended maintenance from last year's unusual storm season while also facing the challenges of the transition to ethanol blended gas, the market has embraced the convergence of these factors as a catalyst to explosive higher prices as values have climbed over $.29 in a month at the pump according to AAAs Daily Fuel Gauge report, and likely to continue their robust rally as peak driving season draws near in May -- June. With the MMS reporting 22.70% of daily oil output or 343,438 BOPD still off-line in the Gulf of Mexico, this may become a more important bullish condition later in the heart of hurricane season, and yet it is obviously still supportive now. The technical outlook for crude is also extremely bullish as the breakout above the $64 benchmark has set the stage to reach our upside target of $69 as today's intraday high at $68.20 confirmed. Let's now take a closer look at the weather with WS I over the next 6-10 days.

W. S. I. Energycast April 10-16

Though widespread above and much above normal temperatures are still forecast over most locations east of the Front Range next week, today’s forecast is not quite as warm as previous forecasts, especially over the North-Central and Northeastern U.S. A series of weak cold fronts are expected to bring at least brief respites from the unseasonably warm weather to the northern tier of the country at times. However, most locations east of the Front Range are still likely to see their warmest temperatures of the season-to-date during the 6-10 day period as widespread highs in the 70s and 80s are expected to prevail over most of the central U.S. Daytime highs as warm as the low 70s are possible as far north as Minneapolis on the warmest days. Meanwhile, portions of Texas will make a run at 90 degrees on the warmest days. Though not considered a heat event, these temperatures do represent anomalies as warm as 15-25 degrees above normal overspreading portions of the central U.S. next week. Much above normal temperatures are also forecast in the Northeast and Mid-Atlantic States for the balance of the 6-10 day period as highs are expected to climb into the 60s and 70s on the warmest days. Temperatures may even approach 80 degrees in the Mid-Atlantic States on the warmest days. With the exception of the Southeastern U.S. and Florida, anomalies are expected to average between 5-10 degrees above normal over most of the central and eastern U.S. for the balance of the 6-10 day period. Finally, below and much below normaltemperatures are anticipated over California and the Southwestern U.S. next week as little relief from the cool and damp pattern is expected along the West Coast. Daytime highs are only forecast to climb into the 50s and 60s over California most of next week. Highs in the 60s and 70s are expected to prevail in the Southwest.

Conclusion

With the combination of high current prices by historical post winter standards along with all-time record high supplies, we continue to feel the path of least resistance for prices is still lower. The technical posture of the market is also attracting sellers as momentum, stochastics, and the MACD, all display a wide negative divergence suggesting lower values ahead. The unprecedented 62.8% supply cushion above the five-year average, equivalent to an almost two months of added injection, will put tremendous dependency on the eruption of an almost record hot summer just to bring supplies back down to near five-year averages, leaving hurricane season as the wildcard to propose any possible threat to potentially bring the supply levels below historic averages prior to peak winter demand this year. This is hardly a bullish condition short-term.

With regards to crude oil we reiterate the existence of an almost opposite scenario to the natural gas both technically and fundamentally. While the bears continuously and for the most part futilely, as it has obviously fallen on deaf ears, protest loudly the existence of US supplies that are at seven-year highs and certainly well above historic averages; however the market continues to focus its attention on future threats to supply that are practically too numerous to outline in detail. However, the main ones are and will continue to be, the Iran nuclear issue, restricted output in Nigeria, and the gasoline supply challenge this driving season which is indirectly affected by Nigeria’s output as we prefer refining their bonny-light grade of crude for refining gasoline, the complications of the transition from MTBE to ethanol blended gas, and finally the threat to production facilities in the Gulf of Mexico from this year's hurricane season, and pretty much in that chronological and prioritized order. The numerical preponderance of such credible and viable threats to the supply of both crude and more immediately critical, gasoline, makes for a marketplace that is extremely uncomfortable for the bears and quite appealing for the long-term bull's that continue to buy aggressively on any substantial pullbacks that profit-taking may provide. Looking ahead we continue to feel the market is on track to test the $69 benchmark that we last visited in February. The market has already confirmed our upside target's from previous consecutive reports calling for the break above $64 to hit $65 followed by an acceleration to $67 --$67.50 which we clearly stated would be carried on the back of the leader, unleaded gasoline which we said would reach $2.0 per gallon basis spot which was confirmed again today as well as last week. Look for support in crude oil on pullbacks first at $67.50 and then $66.40 with a more critical pivot support at $65.80 which if attained should be well bought. We continue to feel that while reaching the $69 benchmark is very realistic, sustaining and possibly exceeding this level will be difficult under the current circumstances unless there is a new more bullish development such as further impedance to Nigerian production exceeding the current 26% shut-in, increased distance between an agreement with Iran and the West over the nuclear standoff, and heightened tensions over production facilities in Venezuela from Chavez’s raising of taxes and royalties on foreign oil companies who participate in their production, or any combination of increased tension over all three of these major hotspots could ignite petroleum prices to new highs considering its only about two dollars more above the current price.

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

April 6, 2006

United Strategic Investors Group

Guy Gleichmann, President

1926 Hollywood Blvd Suite 311
Hollywood, Florida 33020

(800) 974 – 8744