Natual Gas and Oil Report

Natural Gas Ignites the Energy Complex as it Breaks to New All Time Highs on the Impact of a Midwest Blizzard.

Technical Outlook: Our last report , two weeks ago, while acknowledging the potential for another test of support at $11 .25 called for breakout above resistance at $12 .70 to be followed by an acceleration to $13 .50 which was confirmed this week. Looking ahead, under the current , extremely bullish breakout on the chart into unprecedented new high territory, there is only minor resistance at $15 .75 – $15 .80 by our estimation as the market has never traded at this level before and thus has no historic resistance to draw from. Let this serve as a warning to all those short traders eagerly ready to start selling this market just because it achieved a new historic high. You may find following such a bullish and decisive close, settling well above the previous high at $14 .80 set back at the end of September, that this market may find it quite easy to now set new high’s and its appetite for gains may not subside until reaching as high as $16 .50 in the near-term. Currently , the market’s posture is very bullish with momentum and the MACD indicating a wide bullish divergence , suggesting a potential for much higher values ahead. Stochastics as well as many of the moving oscillators and the relative strength indicator, are all supportive to the Bull trend. The intermediate parabolic indicator is also bullish , and suggests continued strength over the short term. We anticipate strong supportive buying on pullbacks first at minor support at $14 .75 – 14.80, and then $14 .20 with more critical key pivot support at $13 .92 with a close back under $13.80 needed to neutralize the steep Bull trend.

Fundamental Supply UpdateToday , the EIA reported a net withdrawal from storage of 59 bcfs that was slightly below estimates by Bloomberg and Dow Jones of 64 bcfs and also below the ICAP auction estimate of 65bcfs. However , the market failed to react anywhere close to what some of the bears expected from the mildly negative numbers as prices gradually strengthened following the news , and then reached a buying crescendo that escalated prices to a new all-time high! This was obviously due to the market’s ability to quickly discard the minor impact of today’s isolated report within minutes and then quickly focus on the immediate weather ahead and its dramatic impact on the storage withdrawal pending next week of much larger proportions and no doubt the one to follow that is likely to be similar. Today’s climb of almost $1.30 , settling at $14 .99, just shy of the intraday peak of $15 .10 set moments before the close, was in response to the market’s anticipation of possibly the highest cumulative draw down on storage for December in the past five years. This seems to negate any comfort that the current surplus of 205bcfs over the five-year average of 2961 bcfs , temporarily attempted to provide, just as the depletion of some 260bcfs in surplus over this past summer graphically demonstrated. Prices reminded us that any overage this market may have in storage can be quickly depleted by a sudden surge in demand as we already went from a healthy surplus from last year’s supply to a deficit and all before Katrina became the name that will haunt the Gulf for years to come. The fact that currently as of the latest MMS update 2 .442bcfs in gas production remains shut-in in the Gulf of Mexico , and although greatly improved, the existence of any lost production only exacerbates an already labored and precarious ongoing gas supply situation, especially as we enter the peak demand cycle. Storage now stands at 3166 bcfs, which is 58 less than last year at this time , and yet 205 above the five-year average. Today’s launch to new all-time high’s is the markets way of telling us that the potential still exists for extreme below normal cold extending into January and February to take supply levels down to a dangerously uncomfortable level with the struggling production Outlook , providing little relief when looking ahead.Crude oil , obviously played follow the leader today as Natural Gas stole the headlines and displayed its enhanced sensitivity to the cold in the Midwest. The petroleum complex , quickly reversed from its negative reaction to the Wednesday release of the EIA data showing across-the-board gains of 2.7 million barrels in all three categories leaving crude oil , at 320.3 million barrels total and well above historic averages, while distillate inventories total 130.6 million barrels and are 5.9% above last year. Distillates put in their fourth consecutive weekly gain and are now in the middle of the average range for this time of year. Gasoline supplies, however, are in the lower half of the average range as demand , which averaged nearly 9.2 million barrels per day, remains robust at 1.2% above the same period last year. Refineries operated at 90.6% of capacity last week , and the first week above 90% utilization since the week of September the 16th. Overall , with crude inventories in the United States running over 11% above the year ago level, one could hardly say that the fundamental picture for crude oil is overly bullish, especially from the re-established level of $60 per barrel. However, petroleum values , typically do climb heading into winter and the current 464, 858 barrels per day , shut-in in the Gulf of Mexico , equivalent to 30.99% of daily output, only complements an already positive technical posture to the market following the correction down to $56 per barrel. Let’s now take a look at the weather Outlook over the next six to 10 days as it has major implications to the energy complex and specifically the leader Natural Gas.Weather OutlookCurrently , a widespread but fast-moving winter storm is producing plenty of winter weather from the Midwest to the Northeast. Snow will spread rapidly eastward to the East Coast. This storm will push in to New York State by early Friday morning and weaken , however , as this area of low-pressure weakens a coastal storm will develop near the Outer Banks in North Carolina. That storm will strengthen as it heads off the coast in Massachusetts by Friday evening. The morning rush would be impacted by this winter storm from Virginia to New York City. Snow by Friday evening. Some of the heaviest snow may occur across central and Northeast Massachusetts, southern New Hampshire, and extreme southern Maine. Many areas will see from six to 12 in. Snow totals are forecast to range from 2to 4 inches in Washington DC, 3 to 4 inches around Philadelphia, 2-4 inches in New York City and 4-8 inches in the Boston area with 8-12 inches in Portland , Maine. As for the extended weather after only a brief moderation , whereby high’s only reach the thirties in the upper Midwest this weekend, temperatures look to fall again to below , and much below normal levels in the following week in the Eastern one third of the nation generally encompassing the better part of the Midwest and Northeast. For the immediate six to 10 day and eight to 14 day outlooks expect below to much below normal conditions for the Midwest, Central Plains, and the Northeast, only excluding the extreme southeast and Florida, which will experience more seasonable temperatures over this period.Conclusion.

Natural gas has exploded into an extremely bullish break out that has only been complemented by the convergence of the fundamental impact of a Midwest blizzard that descended down from Canada at a time when the market was quickly recovering from a healthy technical correction establishing a strong support at $11 after filling in the gap just below this on the expiration of the December futures. Looking ahead , the technical picture is constructive with many indicators suggesting further upward movement and this should serve to coincide well for the short term up- trend as it complements the weather Outlook of the duel zone, below normal cold, that exists in the Midwest and Northeast over the short term. We expect to continue the advance at least up to our first anticipated resistance point at $15.75 and should the market blow through this level, which is quite possible, a rapid challenge to $16 .50 is very probable within the next three sessions! Look for strong buying support on pullbacks first, at $14.80 , and then $14.20, with a more critical buying level at $13 .92, if the market yields that much ground after such a strong statement. Only a full retreat , resulting in a close back under $13 .80, would neutralize bull forces and return the market , temporarily, to bearish range trade.

Concerning crude oil, we expect continued sympathy trade with sensitivity to heating oil and natural gas going forward, and yet look for a quick retreat from this commodity due to heavy short term supply on any signs of weakness in price action from the two heating fuels. Currently , the technical picture for crude oil has improved noticeably since holding our forecasted strong support at $56 .25 , and also taking out our upside target of $60 per barrel from our last report. We anticipate , under the short term up- trend along with sympathy with the higher values anticipated for both heating oil , and especially natural gas, for crude oil to soon challenge $62 .10, with the attainment of a close above $62 .50 confirming a minor break out. Crude oil should continue to draw strength from robust demand in China and the apparent strong gasoline consumption here in the US. The sustained below normal cold , that seems to be forecasted for the Northeast over the next two weeks , should indirectly support crude values as it strengthens heating oil for what could be an important challenge to the $1.94 resistance level. Of course , the recent al Qaeda threat to the oil industry, as well as any unexpected supply disruptions in key world petroleum hotspots such is Iraq, Iran, Nigeria, the North Sea, and Venezuela, remains as a wildcard, and could further escalate the short term up trend that is in progress. Technically , the market would need to fall back with a close back under $58 .10 to negate bull forces and return the market to negative range trade.

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Decemeber 8, 2005

United Strategic Investors Group

Guy Gleichmann, President

1926 Hollywood Blvd Suite 311
Hollywood, Florida 33020

(800) 974 – 8744