Consensus Report: May 24, 2007

Petroleum Falls Back to Support While Gasoline Rebounds on Supply Concerns and Nigerian Strike, While Natural Gas Retreats on EIA Update and Mild Weather.

Natural Gas and Oil

Technical Outlook: last week we said, looking ahead, the strong close above the $8 benchmark now set the stage for follow-through buying and ultimate challenge of $8.25 level basis the spot June contract, and that we anticipated some short interest to develop on the first attempt to achieve this level. What transpired since then confirmed outlook as this past Friday the market attempted to reach this exact resistance level and fell short of that by only two cents with Friday's intraday peak at $8.23 basis spot June just before the market retreated abruptly. The definitive selling that followed throughout the week culminating in today's settlement at $7.69 per million BTU and the lowest close in two weeks now sets stage for a retest of the recent support at $7.65 -- $7.60 for possible further breakdown to intermediate support at $7.40 basis spot. Looking ahead overall most technical indicators are negative with the parabolic, the linear oscillator, and the MACD, all declaring room for further weakness with a pronounced negative divergence. Some indicators such as stochastics, as well as accumulation oscillators are approaching oversold territory and suggest some buying may emerge in the first attempt to test support. However, judging from the wide negative divergence amongst the longer-term indicators, we would not be surprised to see support give-way to lower-priced levels and reveal the first breakdown of key support at the $7.60 level in over two weeks. We anticipate rebound attempts to be contained first by resistance above at $7.80 scaled all the way up to stronger resistance at $7.92 and then $8.01 basis the new soon to be spot July futures

 Fundamental Supply Update

This week's EIA report showed an above expected injection into storage of 104 bcfs that was comfortably in excess of the 98 bcfs anticipated in the Dow Jones survey. Storage now stands at 1946 which is still 205 bcfs less than last year at this time and yet 334 or 20.7% above the five-year average of 1612 bcfs. The market reaction ended with prices dropping off on a combination of follow-through technical selling and sympathy with a weaker crude oil market and benign weather. Fundamentally now the market seems poised to test the two weeks support level at $7.60 per million BTU and then if breached test the two-month support level at $7.40. Beyond this we do not anticipate too much fireworks ahead as supplies are obviously adequate, whether over the near term is mild and a real heat of summer as well as hurricane season are still yet to develop as a real threat.

Concerning crude oil, the market managed to close at the low point for the week however, in ignoring an unusually strong intraday unleaded Rally moving noticeably in the opposite direction as it reversed a pronounced today decline in excess of $.10. Spot July crude close down $1.59 for a loss of 2.4% to settle at $64.18 a barrel while in contrast reformulated gasoline for the June delivery posted a 4.65 cents game to close at $2.35 a gallon on the New York Mercantile exchange on perception that despite the third weekly inventory increase refineries will still be playing catch-up as gasoline consumption after this weekend's kickoff to the driving season is expected to accelerate noticeably. And although refinery operations expanded capacity to over 91% as of this week it still falls short of the 93-95% that is typical for this time of year. The EIA reported another across-the-board petroleum increase as crude stocks rose by 2 million barrels for the week ending May 18 and gasoline supplies climbed by an expected 1.5 million barrels yet are still down 6.9% from a year ago while the critical reformulated gasoline are reduced by more than 53% from the year ago level. At the refinery level, continued supply disruptions remain center-stage as the impetus for record retail prices at the pump reported by AAAs Daily Fuel Gauge Report to be at $3.22 a gallon as the nationwide average for self-serve regular and could soon pose a serious threat to consumer sentiment as the burden could begin to weigh heavily on the economy. Valero’s announcement Thursday that it had to shut a fluid catalytic cracking unit in its McKee refinery and expects to experience a loss of 30,000 barrels per day of gasoline production and 3000 barrels of jet fuel output, did not help matters, yet claims it will not affect their plans to increase overall output at the plant to 150,000 barrels per day by the end of June. To further fuel the implications of supply tightness on a more global scale, an oil workers strike over welfare benefits in protest began in Nigeria’s state oil company halting deliveries to the refinery in Port Harcourt as tankers were backed up outside. The ongoing civil unrest in Nigeria has recently contributed to the price of July Brent crude to escalate to a high of $71.80 on the Intercontinental Exchange. Despite crude oil's recent retreat $66 benchmark which confirmed our forecast to test the recent highs basis the June spot contract at $66.40 targeted from our last report, the combination of underlying strength in the gasoline shortage along with the ongoing threat to supplies from Nigeria and crude oil should find good support as well as being technically oversold if the $64 benchmark is breached and prices fall back to test the $62.50 level.

W. S. I Weather 6-10Day Outlook

A progressive and near zonal southern branch of the jet stream becoming centered along the U.S./Canadian border and a persistent eastern U.S. ridge are expected to combine to bring summer-like warmth to most of the country next week. In response, above and much above normal temperatures are forecast over most of the continental U.S. for the balance of next week and 6-10 day forecast periods. The exceptions occur over the Midwest, central U.S., and Gulf Coast states. Anomalies are forecast to average closer to seasonable levels in these regions during the 6-10 day period. The most persistent warmth next week is anticipated over the western U.S., where highs generally in the 90s and low 100s are forecast throughout the southwestern U.S. most of next week. Widespread highs in the 80s and 90s are expected to be the rule for Interior California and the Intermountain West. Even the Pacific Northwest is forecast to see warmer than normal readings, with highs in the 70s anticipated on the warmest days. The warmest readings in the West are generally forecast during thelatter half of next week, when the split-flow pattern over the region is forecast to come to end. Meanwhile, the biggest disagreement amongst the medium range models continues to surrounds how much cooling over the eastern U.S. actually occurs during the 6-10 day period. European models remain the strongest with the eastern ridge and are the warmest of the models in the East. American models depict more weakening of the eastern ridge and offer a cooler scenario. While the Canadian models still generally tend to generally support American model trends, a preference is still placed in the European models for the 6-10 day period. As a result, summer-like warmth is expected to continue over most of the eastern U.S. next week though temperatures may not quite as warm as this week. Highs generally in the 70s and 80s are forecast to grip most of the north-central and northeastern U.S. on the warmest days next week. High in the 80s to near 90 degrees are expected over Texas and the southeastern U.S.

Conclusion

Natural gas recently failed in its attempt to reach a key resistance level at $8.25 per million BTU and judging from the sharp decline that has followed within the last four sessions indicates further weakness ahead from the technical perspective along with little immediate threat to what is currently perceived as adequate supplies in respect to the five-year average. This should make conditions more conducive to the market finally making a more concerted effort to challenge the two weeks support at $7.60 which could very well give out on a closing basis for the first time since late April. However, because of the anxiety of the short interest in general when considering peak summer cooling demand lies on the horizon along with the fear of storm season quickly approaching, we feel a more sustained decline below that $7.60 level is unlikely especially in lieu of the recent strength in the petroleum market mainly driven by gasoline. Also because of the immediate weather threat being mild, we anticipate rally attempts to also be short-lived and likely contained below the $8.0 benchmark over the near term.

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

May 24, 2007

United Strategic Investors Group

Guy Gleichmann, President

1926 Hollywood Blvd, Suite 311
Hollywood, Florida 33020

(800) 974 – 8744

1- 800-974-8744
To learn more, contact one of our
professional consultants today:

GET YOUR FREE INVESTORS KIT Plus a 30 day special energy report. Name: Phone: E-mail: Address: City: State: AK AL AR AZ CA CO CT DC DE FL GA HI IA ID IL IN KS KY LA MA MD ME MI MN MO MS MT NC ND NE NH NJ NM NY OH OK OR PA RI SC SD TN TX UT VA VT WA WI WV WY Zip: Comments or Questions: | All the information you summit is 100% confidential, we will not sell or share any information with any other company.