Unleaded supply concerns and increase tension between the US and Iran.

Natual Gas and Oil Report

Unleaded Supply Concerns and Increased Tension between the US and Iran Continue to Underpin Petroleum Strength, while Natural Gas Wanders in Weakness.

Technical Outlook: last week we said that the existing bearish signals were more confirmed and that prices would be contained above at $7.10 up to $7.19 on close followed by a likely decline down to break below support at $6.80 for a potential to test existing lows at $6.45 -- $6.50. So far our scenario is unfolding as our first target to break $6.80 was confirmed last Friday and Monday, hitting intraday lows in the $6.60s. Looking ahead the technical picture is still overall bearish with several technical studies such as the MACD , momentum, relative strength, the parabolic and several oscillators indicating further weakness ahead due to a negative divergence. Only a few signals are approaching oversold territory. We still see prices on track to test new lows below $6.45 -- $6.50 based on the technical posture, with a further washout down to $6.25 a distinct possibility especially considering the fundamental Outlook which will be discussed next.

Fundamental Supply Update

Because of the holiday this Friday our report upon request has been issued a day earlier and thus will be somewhat abbreviated as it will not include tomorrow's EIA weekly data. However current supplies remaining at 1695 bcfs, and over 62% above the five-year average, remains a record heavy supply that will not change much with estimates running between 25 and 35 bcfs, as for tomorrow's inventory change. The fact still remains that historically, prices are still artificially elevated and excessively high when considering that supply is at an undeniably all-time high level for this time of year and the highest in the markets history! Furthermore to reiterate the important paradox that still exists and that we have expounded upon in previous reports, prices are still near a post winter record, while supplies are currently plentiful and this condition exists as we approach what is usually the slowest demand month and a half, of the year, with little cooling or heating demand left to impact supply. This could possibly ignite further liquidation, and prices are more proportionate to supply at a level of $5.50 rather than current pricing at $6.75 in our opinion.

Concerning crude oil, prices eased back from near record levels to close lower likely feeling some pressure from supplies reaching an almost 8 year high here in the US. Earlier today the EIA announced that crude stocks increased by about double what was expected with an addition of 3.2 million barrels leaving supply at 346 million barrels and the highest level since the week of May 29, 1998. However this was quickly counterbalanced by the bullish announcement of a decline of well over twice what was expected in unleaded as gasoline inventories dropped by 3.9 million barrels while distillates also declined by a surprising amount of 4.2 million barrels yet remain above the upper end of the average range for this time of year. More importantly, refineries continue to operate at a restrained 85 .6% of capacity, due to extended maintenance and lingering storm damage. The other critical fact within the update was the elevated demand for gasoline of 9.1 million barrels per day which continues to run 1.2% above the same period last year. This comes on the heels of the bullish implications declared in the Energy Department's earlier forecast for gasoline pricing this summer indicating an average price of $2.62 per gallon and a $.25 average increase over the previous year. The same concerns centered around refining challenges because of the possible tightness from extended maintenance and potential shortfalls created in the endeavor to meet the EPA mandate of ending the usage of the fuel additive MTBE to be replaced by ethanol blended fuel by May. Further jeopardizing refining efforts to provide much-needed supplies to quench the expected record draw created from peak driving season here in the US, is the continued interruption to Nigeria's output from militant operations, which has now reached 27% or about 641,000 barrels per day remaining off-line, further restricting imports of the highly desired Bonnie light crude that is so easily converted to gasoline. The chronic situation in Nigeria appears to show no signs of being resolved soon. In addition to this physical and real impedance to production and oil supply overseas, the fear factor this week has only intensified as tensions grew more heated between the US and Iran as their President Mahmoud Ahmadinejad, considered an extremist by many in the free world, announced that the country has become a nuclear power after Tehran claimed successfully enriching lower-level uranium at one of its facilities and the obvious precursor to achieving weapons grade development capability. To this the US responded with a latent warning that Iran was" moving in the wrong direction" by pursuing nuclear power. This obviously unnerved traders, especially in the short position, as such rhetoric only serves to increase the likelihood of an inevitable confrontation between the US and the world's fourth-largest oil producer thereby jeopardizing the output of some 4 million barrels per day. On Wednesday Mohammed Elbaradei, the head of the UN's nuclear watchdog, is expected to arrive in Tehran for talks to resolve the standoff. Anxiety continues to grow as even fringe members of the UN Security Council, and those that are considered somewhat partial to Iran's position due to economic ties, have declared direct opposition to Iran's belligerent nuclear stance and obvious defiance of the previous accord. This was made adamantly clear as Russia's Foreign Ministry criticized Iran and urged it to cease enriching uranium. There are many in the world that are rightfully concerned after overall agreement was achieved recently between all members of the UN Security Council including Russia and China against Iran's position that there would be little else to prevent the current US administrations invoking the military option considering the recent" act first think much later" policy imposed in 2003 against Iraq. The logical, initial attempt at diplomacy likely to result in economic sanctions being levied upon Iran, which would then no doubt induce or result in the suspension of oil exports from the second-largest OPEC producer, is providing little comfort as a prelude to military conflict and obviously doing little to calm the panic and buying fever embroiling the "fear injected" oil market! It is these ongoing unstable conditions that continue to give the Bulls full control over the direction of this market. Let's now take a brief look at the weather with WS I over the next 6 to 10 days.

W. S. I Energycast April 17-22

Above and much above normal temperatures are now forecast over the Mountain West and most of the central U.S. for the balance of the next week and 6-10 day periods. The most notable difference between yesterday's and today's forecast occurs along the East Coast, where the medium range models are in much better agreement than previous runs. As a result, today's forecast reflects a much cooler solution and suggests that easterly winds of a still cool Atlantic Ocean will bring cooler than normal temperatures most of next week. There may a brief warming trend near mid-week as mild air surges ahead of advancing cold front. However, cooler weather will return near the end of the 6-10 day period as troughing redevelops in the East. In response, daytime highs will struggle to climb out of the 50s and 60s along the East Coast most of next week. Anomalies are forecast to average between 2-5 degrees below normal for the balance of the 6-10 day period. The biggest changes next week are expected occur over Texas and the Southeastern U.S., where the summer-like heat and humidity will be replaced by a much cooler and drier pattern late in the week. In response, widespread highs in the 80s and low 90s early next week will struggle to climb out of the 60s and 70s by the end of the week. Anomalies over Texas, and most of the central U.S. for than matter, will still average on the warmer side of normal for balance of the 6-10 day period, mainly based on the warm start to the period. Anomalies between 2-5 degrees above normal are forecast over most of the central U.S. for the balance of the 6-10 day period. Finally, a warming trend is expected to develop over most of the western U.S. during the 6-10 day period as the focus of the ridging warm weather retrogrades westward. The warmest readings will overspread the Intermountain West and Southwest, and are expected to average between 2-4 degrees above normal for the balance of the period. Widespread highs in the 50s and 60s will become more commonplace over the Mountain West late next week. Meanwhile, highs in the 70s, 80s,and even low 90s will redevelop over the Southwest.

Conclusion

Natural gas is still under the influence of a strong bearish convergence between a negative chart pattern and the fundamentals of heavy supply. Traders should find this atmosphere more conducive to shorting any temporary rise in price rather than buying on dips. This is due to the beginning of a soft demand cycle in the face of record heavy supplies as mentioned in earlier reports. When you consider it will take a record heat wave this summer and another direct hit from a hurricane in the Gulf of Mexico to production facilities, just to remove the almost two months of added supplies and thus put storage back near five-year averages, this creates a very bearish short-term situation. It should force the Bulls to wait at least another month and perhaps longer before any credible demand arrives to threaten supply. It also places the Bears in a very comfortable environment, with little influence outside of a wildcard to blindside them and thus cause them to relinquish control and abandon the short interest. So in the absence of a supply interrupting anomaly or sudden weather abnormality, we expect prices to decline further to test $6.45 -- $6.50 quickly followed by a likely washout down to $6.25 or even lower before the shorts feel a substantial urge to take profits. Look for the market reaching a close above $7.10, if attained, as a warning of temporarily neutralizing the shorts, with the more defining close over $7.19 if possible, as a sign of bullish recovery and making a move to the sidelines for further analysis as the prudent position before considering reentry.

Crude oil's technical complexion is still very bullish, although somewhat overbought in the short term according to some oscillators. However, the parabolic, the MACD, relative strength, and several other main technical indicators all display core strength and a bullish divergence that is characteristic of a solid upward trend that is building momentum. The current pattern is that of a steep and sharp angled, bull wedge, indicative and common to markets poised to make an explosive upward acceleration. This is a market that is quite dangerous to short in our opinion. When you add the extremely bullish fundamental backdrop of geopolitical tension in various hotspots around the world, all of which could either individually or simultaneously threaten supply amongst some of the heaviest of world producers, it becomes hard to justify putting on an aggressive short position just because prices are near recent highs. Severe instability or recent ongoing terrorists activity exists in such countries as Iran, Nigeria, Iraq, Saudi Arabia and Venezuela, providing the basis for legitimate threat to output whereby it is much easier to see how the sensitivity of panic buying could ignite an explosive advance making painful new highs above the $70 benchmark a reality, versus the unlikelihood of a sudden agreement being reached and thus an unexpected calm permeating the market sending values back towards the $64 break out price. It is because of these ongoing concerns, that now having reached our stated target of $69 per barrel from two weeks ago, we see crude oil finding good support on pullbacks at $68.10 and then $67.50 scaled of all the way back down to $65.80 before the short term up trend would be in jeopardy, and thus providing the staging grounds for bull forces to re-strengthen for another assault at the $70 benchmark which if breached will quickly lead to new highs at $71.50 -- $72.0 per barrel, in our opinion. As stated earlier, in addition to these overseas concerns, we feel the petroleum complex will continue to be led by gasoline which we feel will soon approach $2.15 -- $2.20 per gallon basis spot. The fundamentals for gasoline, being the main byproduct of crude oil and a more critical necessity with the approaching peak driving season here in the world's top consumer, are even stronger than for crude oil and so after hitting and exceeding our target from two weeks ago of $2.0 per gallon, we expect strong buying at support levels of $1.96 and then $1.88 per gallon on pullbacks basis spot. These levels should find strong reentry from sidelined Bulls that missed the short term up trend and provide plenty of fuel to propel this refinery impaired rocket to our next upside objective of $2.20 per gallon and beyond.

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

April 12, 2006

United Strategic Investors Group

Guy Gleichmann, President

1926 Hollywood Blvd Suite 311
Hollywood, Florida 33020

(800) 974 – 8744