Concensus Report: June 25th, 2009

Crude Oil rebounds back above $70 on Nigerian Pipeline disruption and weak Dollar concerns as Iran volatility subsides, while suspending disbelief in the US economic meltdown still in progress, while Natural Gas recovers from short covering from technical support on lighter injection .

Natural Gas and Oil

Technical Outlook: Since our last report I said looking ahead, technical indicators overall have turned negative once again after the steep and volatile advance and values became grossly short-term overbought with the market now targeting lower support at $3.92 and then the more critical pivot price at $3.80 that will likely result in a rapid washout back to the weekly low at $3.65. Since then, that is almost exactly what transpired as prices took out both my initial targets and traded as low as $3.71 intraday yesterday, only $.6 cents from my lowest downside objective at $3.65 before recovering back up into the mid-range over the last 2 sessions. Looking ahead now over all technical indicators are mixed with momentum and the MACD suggesting further weakness is in order, while stochastics and channel index indicators are in oversold territory. Based on this scenario I anticipate possibly one more attempt to test the weekly lows before prices start to strengthen within the timing cycle. However, if the spot price on the new August contract doesn’t test the weekly low of $3.87within the next 3-5 sessions, I expect the market to soon test $4.34 or last week’s high. Look for support at $3.92 and $3.80 with over head resistance above at $4.08 and then again at $4.25, with a close above this leading to a potential breakout to challenge more critical resistance at $4.57.

Fundamental Supply Update

This week's EIA report showed an injection of 94 bcfs, which was substantially lower than the survey estimates by Dow Jones and Bloomberg that ran closer to 101 bcfs respectively. Storage now stands at 2651 bcfs, which is 631bcfs higher than last year at this time and 482 above the five-year average or 22.2% over 2169. Following the EIA update the market completed a rather volatile session that saw values trade is low as $3.88 prior to the news and then suddenly rise to as high as $4.10 before settling near to the higher end of the range at $4.05 at the close of the session for a modest gain of $.8 cents on the day. The lower than expected addition to supplies may be a precursor to higher demand suggested from the increased energy consumption from cooling demand enhanced by the onset of higher temperatures as summer commences. Time will tell, but it wouldn’t take longer than another consecutive lower than expected injection to ignite prices to higher range trade as it would signal the end of the shoulder month period and the beginning of higher usage from the official cooling demand season. The return of negative data in the jobless claims with first time petitions for unemployment benefits increasing by 15,000 was a bearish factor that tempered the gains on today’s trade along with the second consecutive GDP figure in the red by more than 5% with the first quarter contraction of 5.5% after the previous dismal close to 2008 with a -6.3% final quarter giving further evidence that all the Wall Street pundits in the media peddling recovery for 2009 are basically delusional or just pushing propaganda for their own agenda. Its sad to see people continue trying to manipulate the public after the complete economic collapse millions have already suffered with much of the devastation caused by being misled by many of the same people who claim to see recovery now, and yet were in denial 2-3 years ago of the recession’s birth instead promoting the endless bull market and the rose colored outlook that blindsided investors who followed.
Concerning Crude Oil, today the market closed above $70 and the highest level in a week after a sharp and dramatic correction that found support at $66 before the rebound found further excelleration from the news of another Nigerian pipeline attack on the Royal Dutch Shell facility at Bille- Krakama pipeline that supplies the Bonny Export terminal in the southern Rivers State, meant to undermine Russian investment intentions signified by the timely simultaneous visit to the largest African petroleum producer by the Russian President Medvedevk. This assault came on the back of the pipeline explosion inflicted upon a subsidiary of the Italian Oil Giant Eni Spa that disrupted delivery to the Brass Export terminal affecting a capacity of up to 160,000 barrels. Some also tried to infer added support came from the EIA update yesterday that declared Crude stocks dropped by a more than expected 3.8 million barrels, however the report was bearish overall in my opinion as both products increased for the week with the headliner an strongest indicator of consumer weakness gasoline increasing by 3.9 million barrels, while distillates also rose by 2.1 million. On the overview total product demand this month compared to the same four week period last year was at 18.3 million barrels per day which is still 6.6% lower and hardly an indication of an economy in recovery. Earlier this week the July spot traded deep into the $66 range before closing just below $67 at $66.93 Monday following the news the World Bank revised the drop in the Global economy by -2.9% from its previous call for a drop of -1.7% back in March, this combined with the recent rebound in the US dollar relaxed the purchase of Oil as a short term hedge on inflation that is actually a flawed theory that nonetheless benefited many investors last year up until about August of last year. After that reality stepped in and graphically wiped out any lingering buyers that temporarily tried to support inflation by ironically driving prices up through speculation which caused extreme Oil inflation, but since it soon became extremely out of proportion with real inflation, Oil rapidly suffered its largest short term collapse in the market’s history!

Conclusion

Natural gas closed nearer the highs of the session on the lower than expected injection and following a technical rebound from support at $3.71 basis July spot which expires this week. Now looking at August pricing while the market is vulnerable to another downward test of support at the week’s low of $3.87, if this doesn’t transpire over the next 3-5 sessions, I anticipate another assault at resistance above at $4.25 soon with a potential extension of the advance to $4.34 which could further ignite short-covering up to $4.57 and the monthly high. Prices action this week already confirmed my outlook from last week by taking out both of my downside targets at $3.92 and then $3.80 basis spot July which came within $.6 cents of my deepest price objective at $3.65 from the continuation charts.

Concerning crude oil after today’s volatile and bullish session that still culminated with values closing nearer the upper end of the trading range above the $70 benchmark, while I feel the market is fundamentally ahead of itself, the current Nigerian momentum could carry values back up to test recent highs at $73 basis spot before getting grossly overbought even considering the temporary loss of the much desired grade of easily refined bonny light that makes up the fifth largest importer to the US, considering the anemic demand of the world’s top consumer. Recent economic data concerning demand was very telling as Businesses scrambled to shed inventory and bring supply more in line with the dismal demand. This revealed itself in the lowest investment in housing in over 29 years and domestic demand over all also declined the most in 29 years while exports dropped the most in 40 years while imports declined the most in 60 years! How can anyone be surprised when the US consumer has suffered the greatest evaporation of wealth in our modern history simultaneously while personal debt has reached record levels, while the means to recover through income has been dealt a major body blow as the Nation has shed the largest number of jobs since the great depression with almost 7 million new unemployed hitting the streets since last year. These grim facts make the prediction by some analysts for the GDP in the second quarter which ends next week to decline by only 1.5% and then show a modest growth of a positive 1.3% in the third quarter based mainly on the optimistic outlook for the coming swing in business inventory falling more in line with current demand as companies “Leaning out”. However, I believe this may prove to be flawed thinking as many economists have consistently under estimated the devastation and severe debt encumbered public faces with little investment and infrastructure in place to provide job creation, which unless new jobs ultimately arrive, sustainable economic recovery is a fantasy on CNBC or in the carnival acts of the likes of Larry Kudlow and Neil Cavuto of Fox News, the great support media giant for the Republican and Bush regime, and we all know how positive their control of our government and economy was over the last 8 years was!! Unless your extremely ignorant and naïve and through some strange prejudice and fuzzy new method of twisted mathematics you want to blame all our economic meltdown somehow on the new Obama Administration, and to further that flawed thinking you only need to turn to those geniuses of the media world Rush and Hannity, for concrete opinion and support, no evidence or facts mind you, but plenty of opinion and some good old fashion religion and hypocrisy thrown in for good measure. Meanwhile petroleum prices this past week confirmed my outlook in last week’s report calling for Oil to fall back and test $67.80 which was hit and exceeded on Monday. This past week also confirmed my forecast in my interview in the Monday June 8 article on Oil in the Wallstreet Journal whereby I said Oil after reaching $72.50 on the upside, should soon experience an equally dramatic correction as Oil got ahead of real supply demand fundamentals in my opinion. Now looking ahead I see the Nigerian disruption carrying Oil back up to test recent highs at $72.50 or about the highest close and probably a further thrust up through existing intraday highs briefly above the $73 benchmark before the market ultimately yields another sharp drop as prices succumb to the reality of slowing world demand and heavy US supply and slowing consumer demand. While the weak US dollar and the Iranian instability provide some isolated support as will the Nigerian situation on some spot supplies, it can’t override the bigger global energy imbalance of hefty supplies with OPEC now holding almost 6 million barrels a day in reserve capacity and the global demand still declining steadily versus last year’s average consistent climb in the initial two thirds of the year.

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

June 25th, 2009

United Strategic Investors Group

Guy Gleichmann, President

2641 E. Atlantic Blvd. Suite 208
Pompano Bch. Fl. 33062

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