Consensus Report: September 07, 2006

Energies make New Lows Across the Board after DOE Supply report, Relative Quiet Overseas and Anemic Weather Ahead in the Tropics.

Natural Gas and Oil

Technical Outlook: last week we reported that natural gas was more definitively bearish and that without a legitimate storm threat that we anticipated prices to fall back to challenge $5.75 and then after breaching this level was likely to test yearly Lows basis spot at $5.45 before value buying stems the decline. This is exactly what transpired this week as prices today not only penetrated our target at $5.75 but closed below this settling at $5.71 after trading as low as $5.66 intraday. Looking ahead we still feel based on momentum as well as the fundamental backdrop which will be discussed in more detail later, that the market is still on track to test continuation Lows at $5.45 basis spot October futures. Technical indicators are still overall bearish, however, getting deeper into oversold territory whereby the reward to the short trader is diminishing rapidly. Only given the scenario where spot futures closes below $5.45 without a bullish rebound from this support do we see the possibility of a test of $5.25 near-term. Otherwise some bullish support at the first test of $5.45 is to be expected with rebound attempts likely to be contained by $5.92 scaled up to resistance at $6.10 initially.

Fundamental Supply Update

 

Today the EIA reported a net injection of 71 bcfs which was slightly higher than both previous estimates by DowJones and Bloomberg of 67 and 68 bcfs respectively. The market continued its slide as today's slightly higher injection only served as further confirmation of an environment of diminishing demand against the backdrop of ample supply. Storage now stands at 2976 bcfs which is 312 higher than last year at this time and 322 or 12.1% above the five-year average of 2654. With some estimates already coming in near or above the 90 bcf   mark next week due to the holiday shutdown, clearly the path of least resistance is still weaker for natural gas prices. As we stated clearly last week, without the immediate threat of a Gulf storm to interrupt production, the dissipating heat as more fall like conditions permeate the country will only make conditions more conducive to lower prices. That is why we feel values could quickly test continuation Lows at $5.45 per million BTU.

Concerning crude oil little has interrupted the recent collapse to prices that was initiated over two weeks ago by the breakdown in the price of unleaded gasoline which up to now has been a complex leader in the up trend. This week's EIA update gave little support as the larger decline of 2.2 million barrels for crude stocks leaving 330.6 million barrels was easily overshadowed by the unexpected increase of 0.7 million barrels in unleaded gasoline leaving them in the upper end of their average range. Distillate fuel inventories only served to further exacerbate the bearish cause with an increase of 3.1 million barrels as they remain above the upper end of the average range for this time of year. Only the implied gasoline demand figures, which remain firm at 9.6 million barrels or 1.4% above last year, indicate some strength for pricing over the longer term. Refineries operated at a robust 93.6% of capacity last week as gasoline production increased over the previous week averaging over 9.2 million barrels per day. Today's close in crude oil basis October spot at $67.32 for a loss of $.18 marked the fourth consecutive decline for an aggregate loss of over 4%, and today's intraday low of $66.76 earlier, registered the weakest level for crude oil since late March. With no immediate threat to any key producer overseas as the Middle East has remained somewhat quiet with regards to Lebanon, and as with status quo being maintained concerning the Iran nuclear challenge which also poses no current threat to supply, leaves traders no choice but to return attention to traditionally high levels of US crude stocks, refineries restored to near pre-Katrina output levels, and to face a dilemma of a possible serious economic slowdown here in the US that is now looming large. The warning we made in last week's conclusion concerning the possibility of a serious slowing of the US economy brought on by a crashing real estate market is beginning to ring true. In a recent survey in the Wall Street Journal of economists, 25 out of 48 predicted little or no gain in the value of housing, according to the Office of Federal Housing Enterprise Oversights index for 2007. If the index ends up registering even a slight loss it will be the first time in the index's history of 30 years that a loss in housing is reported. Obviously the potential consumer related slowdown that could result in today's housing crash could rapidly put the economy into a negative GDP situation that would reveal a recession that could erupt quite frankly before many people realize they are in it! The recent crash in gasoline prices, which has translated into almost a $.70 per gallon decline in less than three weeks is a graphic example of how quickly commodity prices can react to such a slowdown. Should further evidence continue to materialize over the near-term, our target of $62.50 per barrel, now that the key support of $68.10 that held over 4 1/2 months has broken, could easily be reached. With the reduced production out of BP's facility at Prudhoe Bay, which has been producing some 200,000 barrels per day since early August or about half as much as before the pipeline leak and corrosion were discovered, plans to restore the field back to full production by the end of October if the plan is approved by the US Department of Transportation. This will only serve to add further pressure to the downside of crude oil pricing as it leaves bullish support or a trend reversal more dependent upon the wildcard of a Gulf storm or a random terrorist act or the reigniting of Middle Eastern tension.

W. S. I Weather 6-10 Day Outlook

 

Changeable temperatures are expected to characterize the weather over most of the country next week. As a result, near normal temperatures are forecast over most of the continental US for the balance of the next week and 6-10 day periods. The coolest temperatures over the eastern two thirds of the country are forecast early next week when surface high-pressure building southward into New England and tropical storm Florence will combine to bring a strong easterly flow off the Atlantic Ocean. In response, daytime highs generally in his 60s and 70s are expected to be the rule for the north-central and Northeastern US early next week. Highs generally in the upper 70s and low 80s are forecast to prevail over the south-central and southeastern US as Florence lifts northward into the North Atlantic, all medium-range models indicate the easterly flow will relax, and near and above normal temperatures will begin to overspread the central and eastern US. In response, highs in the 70s and low 80s will become more widespread over the north-central and Northeastern US late next week. Highs in the 80s to near 90s will return to Texas in the southeastern US. As a result of the changeable conditions, temperatures are respected average close to seasonable levels over most of the central and eastern US for the balance of the next week and 6-10 day period. The biggest changes in the forecast next week develop in the West, where all medium-range models depict cooler solutions during the 6-10 day period. In response, highs in the 80s and low 90s over the interior Northwest and northern Rockies will fall back into the 60s and 70s during the latter half of the week. Meanwhile, highs in the80s and 90s are expected to become less widespread over the Intermountain West. Anomalies between 1-4 degrees above normal are generally expected to encompass most of the western US for the balance of the 6-10 day period, mainly based on the warm start.

 

Conclusion

 

Today natural gas closed at a new low almost across-the-board in all contracts as the conditions we described in last week's conclusion confirmed our forecast as the storm disappointment of Ernesto bypassing critical Gulf production facilities, just before the shoulder period commenced when summer demand diminishes as fall weather approaches, served to be too much for even diehard bulls to prevent the resulting price collapse. Our target from last week has already been exceeded and keeps the market on track to test continuation Lows at $5.45 near-term. Look for rebound attempts in short covering profit-taking to be contained by $5.92 scaled up to $6.10 unless weather conditions change whereby a renewed threat from another storm gives traders a more solid reason to reverse the recent momentum buildup to the decline. This would be signified by a breakout close above $6.25 basis spot, which would also give technicians more ammunition to justify the buy side.

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

September 07, 2006

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.