Consensus Report: June 06, 2007

Petroleum Flirts with $67 and Monthly Highs, as Gasoline is held Range Bound on Higher Weekly Supply and Demand Concerns, While Natural Gas Retreats from Technical Resistance and EIA Update.

Natural Gas and Oil

Technical Outlook: Since our last report two weeks ago, the new Spot July futures has failed to establish a close above the key resistance level of $8.25 per million BTU despite exceeding in intraday peak of $8.40 over two weeks ago. Today's retreat with prices falling back to critical support at $7.80 is significant and now has placed the market in a more bearish posture yet also in definitively oversold territory. While stochastics, momentum, relative strength, and other indicators suggest further weakness ahead, we do not anticipate the selling to penetrate beyond key support at $7.60 due to the breath of the overall move along with the buying forces that are likely to accumulate as the market approaches this level. Look for scaled-down buying to emerge first in the mid to low $7.70s range, with more intense buying pressure materializing at $7.65 scaled down to $7.60 if attained. Look for overhead resistance to begin first in a minor degree at $7.92 basis spot, with a more formidable barrier at $8.10, and should a breakout occur, brought on by a bullish event, it would be signified by a close above $8.25 per million BTU and would suggest the first challenge to key traditional resistance at $8.60 per million BTU and would be significant considering it was last year's summer high.

Fundamental Supply Update

This week's EIA report showed a slightly above expected injection into storage of 110 bcfs that was just above the 107 and 106 anticipated in the Dow Jones and Bloomberg surveys respectively. Storage now stands at 2163 which is still 146 bcfs less than last year at this time and yet 3 66 or 20.4% above the five-year average of 1797bcfs. The market reaction ended with prices dropping off on a combination of follow-through technical selling and anticipation of milder weather in the immediate forecast. Technically now the market seems poised to test the two weeks support level at $7.65 per million BTU and then if breached test the two-month support level at $7.40, which we feel at this point is less likely as the market is already approaching oversold levels and more summerlike conditions are forecast to arrive soon over most of the Continental US. Despite the fact that storage has a healthy cushion in excess of 20% over the 5-year average, natural gas has a history of factoring in existing supply, ignoring it and then focusing on demand only whereby prices react violently to any anticipated increase to gas consumption and with the current backdrop of industrial demand running at record highs, the Bulls are already beating the drum of early domination. And let us not forget that the likelihood of the sudden arrival of the first Gulf threatening storm is lurking in the back of traders minds and serves to limit the down side as well as providing a hair trigger to an explosive bullish reversal.

  Concerning crude oil, the market managed to close at the highest level in a month as reports of delayed oil tanker deliveries in Oman along with a slow down in US refinery capacity renewed concerns on petroleum supplies internationally. The July delivery contract closed up $.97 higher to settle at $66.93 per barrel on the Nymex and is the highest Spot closing since April 30. July reformulated gasoline closed only fractionally higher to settle at $2.19 a gallon while heating oil also closed with a fractional gain. Crude oil supplies inched higher by only 0.1 million barrels in this week's EIA update while unleaded gasoline supplies took the limelight with the largest weekly increase in the past five weeks of 3.5 million barrels and yet still remain well below the lower end of the average range. Distillate fuel inventories also increased however by 1.9 million barrels and remain just below the upper end of the average range for this time of year. The more important revelation in the data was that refinery capacity fell back noticeably from last week above 91% to 89.6% causing gasoline production to drop slightly from the previous week's well. Some of this shortfall was obviously made up through increased imports of petroleum and products. In fact total products applied over the past four weeks averaged 21 million barrels per day or 2.4% above the same period last year. Motor gasoline demand continues to run in a robust pace in his average nearly 9.5 million barrels per day or 1.5% over the same period last year, while distillate fuel demand has average nearly 4.2 million barrels per day which is in increase to 2.6% over the same period last year. The anemic price action displayed in today's gasoline market, and obviously ignoring the bullish breakout posturing of crude oil, was likely a result of the highest weekly increase of 3.5 million barrels of the year along with anticipated economic slowing both here in the US and China is recent robust growth will logically slow as well. Also the fact that the major militant group MEND in Nigeria may have called off the threat of attacks on oil infrastructure in the region for the next 30 days also had a negative temporary effect on pricing. This along with anticipation that petroleum shipments out of the Straits of Hormuz in the Persian Gulf should resume as normal by Friday following the downgrade of a storm system named Gonu, seemed to have a somewhat bearish effect on prices yet only managed to limit the gains in gasoline to fractional versus a more serious decline. However, gasoline prices in our opinion have recently entered technically oversold territory after this week's pullback of almost $.15 per gallon from the recent intraday peak above $2.34 per gallon basis spot. Looking ahead over the next three to five sessions, we anticipate crude oil to attempt a challenge of the $68 benchmark in combination with fulfilling its recent bullish advance along with the likelihood that gasoline may very well conduct its own bullish reversal back up to challenge recent resistance at $2.34 per gallon and then longer-term challenge contract highs at $2.45 per gallon.

W. S. I Weather 6-10Day Outlook

A strong Mississippi Valley ridge and a weak subtropical ridge are expected to combine to bring summerlike warmth to much of the country next week. As a result, above and much above normal temperatures are forecast over most of the continental U.S. for the balance of the next week and 6-10 day forecast periods. The exceptions occur along the West Coast and over the southeastern U.S., where anomalies for both periods are expected to average closer to seasonable levels. The most persistent warmth next week is anticipated over the central U.S. Widespread highs in the low and middle 90s are generally expected to be the rule for Texas and the south-central U.S. Highs in the 80s to near 90 degrees are forecast over the Midwest and North-Central U.S. A weakening cold front may bring a brief period of more seasonable readings to the central U.S. during the 6-10 day period. However, that period of cooler weather is expected to be short-lived, and summer-like warmth is forecast to rebuild over the central U.S., especially the northern tier, next weekend. Meanwhile, the biggest question raised by the medium range models this morning surrounds how much, if any, of the Midwestern warmth spreads into the Northeast and Mid-Atlantic late next week. A deep trough in the western Atlantic is initially expected to block the eastward progression of the Midwestern warmth. However, that western Atlantic trough is forecast to weaken in late 6-10 day period, and the Midwestern warmth is forecast to finally arrive in the Northeast and Mid-Atlantic. In response, the warmest temperatures in the Northeast and Mid-Atlantic are expected next weekend, when highs in the 80s to near 90 degrees forecast to overspread the region. Finally, changeable conditions are expected to characterize the weather over most of the western U.S. next week as periods of seasonably warm and cold temperatures are anticipated. However, any prolonged periods of unseasonably warm or cold weather are not expected at this time. As a result, highs in the 60s and 70s are generally forecast to be the rule for the West Coast most of next week. Highs generally in the 80s and 90s are anticipated over interior California and the Intermountain West. Meanwhile, daytime highs in the 90s and low 100s are forecast over the southwestern U.S.

Conclusion

Natural gas recently failed in its attempt to establish a close above the key resistance level at $8.25 per million BTU basis spot and judging from the sharp decline that has followed within the last three 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. However, we anticipate the current correction to have a short lifespan as technically the market has already entered oversold territory, more summerlike weather is soon to arrive late next week, and during this time of year a tropical storm can appear on the horizon any day of the week, which from current levels could ignite a formidable rally back to challenge recent highs. Under this scenario we anticipate further market downside action to be limited likely to existing support at $7.65 scaled down to $7.60 on the continuation charts if the market is not effectively bought above this in the $7.70s range, and in the rare event the market should penetrate below $7.60 intraday, we feel aggressive buying would emerge resulting in a strong advance following the key reversal. Look for resistance above first at $7.92 basis spot with more aggressive selling likely to emerge scaled up between $8.10 and $8.25, with a close above this critical point setting the stage for a critical challenge of more traditional summer resistance at $8.60. The short interest and sustained selling pressure will have a limited shelf life in our opinion as more above normal heat arrives this summer in the Midwest and Northeast along with the anticipated increase to storm activity soon to follow this hurricane season.

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

June 06 , 2007

United Strategic Investors Group

Guy Gleichmann, President

1926 Hollywood Blvd, Suite 311
Hollywood, Florida 33020

(800) 974 – 8744

1- 800-974-8744
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