Consensus Report: June 21, 2007

Petroleum Approaches the $70 Benchmark on Nigerian Strike and Strained Refinery Capacity, while Natural Gas Retreats to 3 Month Lows on Disappointing Weather, Quiet in the Tropics and Technical Fatigue.

Natural Gas and Oil

Technical Outlook: Since our last report we said the market was in a recovery stage from an oversold condition and stochastics, and relative strength and other oscillators suggested a further advance was in order and to expect overhead resistance to begin first in a minor degree at $7.92 basis spot, with a more formidable barrier at $8.10, and that a more significant rally above this to challenge $8.25 per million BTU would require a bullish event. That is what transpired immediately following our report last Thursday as Friday prices not only blasted through the resistance at $7.92 but then quickly surpassed the $8.0 level before losing steam above this mark. However, the severe drop following the market’s failure to reach $8.10 has put the posture into negative momentum whereby the stochastics, relative strength index, and especially the wide negative divergence on the MACD suggests further selling may lie ahead. We anticipate a near term challenge to $7.25 to be near the bottom with a diminishing chance of follow through selling to test support at $7.10 and the $7.0 benchmark, based on the breath of the down move and yet considering Tuesday’s close below $7.60 for the first time since March basis spot was a very bearish indicator. Outside of the fact that now the market has entered oversold territory, we still see this as insufficient evidence to now expect bearish forces to yield control so soon as a sudden impetus to buy. We expect the upside and rebound attempts to be contained by the $7.60 level temporarily on a closing basis over the immediate short term until more information and trading occurs to digest the recent change to bearish sentiment in our opinion. It would take a sudden shift and bullish reversal causing prices to close back above the key $7.60 level to change our view on the market, and give control back to the bulls.

Fundamental Supply Update

This week's EIA report showed an injection of 89 bcfs into storage that was closely in line with the numbers anticipated in the Dow Jones survey and Bloomberg’s of about 88 bcfs. Storage now stands at 2344 which is still 121 bcfs less than last year at this time and yet 365 or 18.4% above the five-year average of 1979bcfs. The market reaction ended with prices slumping further and eventually hitting new lows at $7.325 before settling just 2 cents above the low at $7.348 basis July spot. After the sharp rejection technically from just above $8.0 and without an immediate tropical threat to production infrastructure in the Gulf along with the backdrop of milder weather in the Central Midwest and Northeast US, and it seems the path of least resistance is lower for the near term. Fundamentally we feel conditions are more conducive to lower values, however, we caution traders from getting overly aggressive on the short side down in this range below $7.50 because on any change in the weather conditions, either from enhanced cooling demand from higher temperatures or the sudden arrival of storm threat, and the bullish reversal could escalate values well beyond $7.50 and could bring the market to challenge recent highs above $8 rapidly!  Whereas the downside looking ahead from here maybe limited to the $7.0 support, or even $7.25 if the forecast for hotter weather actually materializes next week. Another words only about another .10-.25 cents overall unless the milder weather persists longer.

Concerning crude oil, the market settled with a slight loss after flirting with the $70 benchmark in pre-session activity as the Nigerian strike took center stage in petroleum concerns over the last two days. The Nigerian situation managed to stave off Wednesday's weakness as crude oil retreated by almost a dollar in reaction to the largest weekly increase since March of 2004 along with a slightly larger than expected gain in gasoline supplies for the week of 1.79 million barrels totaling 203.3 million according to the EIA. Crude oil for the new spot August delivery slipped by $.21 or 0.3% to settle at $68 .65while gasoline posted yet another gain of 1.86 cents to settle at $2.24 a gallon basis the July spot futures. In our opinion judging from the market reaction and that only time will tell how long the strike may last and to what degree it may hinder crude oil exports from Africa's number one producer, the general theme of traders today was caution as well as profit-taking whenever prices approached any significant premium above the $69 benchmark. As we mentioned in our recent interview with Bloomberg News, most of Nigeria's strikes typically and within days and judging from the fact that the government has agreed to most of the requests by the labor unions with only the rate of petroleum levies amounting to about four cents US left in contention, we feel there is a strong chance the strike will end this weekend which could lead to a more significant profit-taking selloff tomorrow before the weekend. Also possibly contributing to the selling pressure will be the increased psychological comfort to traders at selling near such a pivotal price resistance level as the $70 benchmark just before the weekend. The other significant event this week was a more important figure in the EIA data that revealed refinery capacity had dropped again and by a significant amount leaving capacity at 87.6% and a sharp retreat from the 91+% reported just three weeks ago, and an even larger deficit from the average of 94% that is more typical for this time of year. This will loom large in the weeks ahead as peak driving season is still in the early stages with a little relief from consumer demand until Labor Day in September, especially with the backdrop of our fourth largest oil importer, Nigeria, mired in a nationwide strike and civil unrest. Also, although currently a muted threat, oil workers in Brazil are preparing to strike around July 5, and so under the current world situation any supply disruption at this point seems magnified in its impact over the general supply demand balance globally.

W. S. I Weather 6-10Day Outlook

6 – 10 Day Headlines

A strong sub-tropical ridge, and progressive and near zonal southern branch of the jet stream becoming established along the U.S./Canadian border are expected to combine to bring summer-like warmth to most 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 over the South-Central U.S. and now along portions of the West Coast, where anomalies are expected to average closer to seasonable levels for the balance of both periods. While potential for significant heat (widespread highs in the upper 90s to near 100 degrees) may be somewhat diminished this morning, the warmer temperatures over the Midwest and eastern are forecast during the first half of next week, when widespread highs in the low and middle 90s are forecast throughout these regions. Early in the 6-10 day period, the sub-tropical ridge in the East

is forecast to weaken. This will allow a cold front to bring some cooling to the Midwest and most of the eastern U.S. during the latter half of next week though readings may still remain above normal, particularly in the Midwest and Southeast. Meanwhile, little relief from the hot and dry weather is expected over the Intermountain West and Southwest next week. As a result, above and much above normal temperatures are also forecast over the regions for the balance of the next week and 6-10 day forecast periods. Widespread highs in the 90s and low 100s are generally expected to be the rule for the Intermountain West most of next week. Highs between 100-110 degrees are forecast in the Southwest. Finally, the only region not expected to see warm temperatures at some point next week is the Gulf Coast. More seasonable highs in the 80s and low 90s are forecast to be rule for the Gulf most of next week.

Conclusion

Natural gas recently failed in its attempt to establish a close above the $8.0 benchmark last Friday and thus a sharp and formidable sell-off continued throughout this week culminating in today's close at $7.348 per million BTU in the lowest settlement since March. However looking ahead we see the convergence of a possible oversold market threatening to test key support at $7.25 over the near term, and then fundamentally the weather shifting to more elevated heat in the key Midwest and then shifting eastward into the coastal United States over the better part of next week which in combination could easily propel prices upward after a bullish reversal reaction. We anticipate a strong possibility for further weakness that may transpire from residual negative momentum created this week to be bought aggressively at lower values causing a sharp rebound that if it results in a close above key resistance at the $7.60 per million BTU level, could develop into a more significant advance. Only a further persistence of the recent mild weather or a sudden shift in the expected forecast causing further delay to the anticipated increase in the heat index, do we expect a more sustained follow-through to the recent price decline.

Concerning the petroleum complex, this week's EIA numbers were, obviously initially construed as bearish due to the large weekly crude stocks increase. However, when looking deeper into the numbers of higher imports against the contrast of a reduction in refinery capacity, and you quickly see the dilemma of restricted ability to produce the primary product needed that being gasoline, and then with Nigeria under the pressure of a national strike, even the effect of the largest crude stocks increase in years seems only temporary. Looking ahead, the results of the Nigerian strike will continue to be the paramount issue over the next two to three sessions until next week's EIA numbers reveal more of the hardline supply demand equation here in the US. It is our feeling that if crude oil fails to breach the resistance level at the $70 benchmark over the next two to three sessions its is likely that a more significant profit-taking sell-off could transpire especially if the Nigerian strike is settled over the weekend which at this point seems probable. However we feel crude oil may not fall much farther than the recent support established at the $67 benchmark because of the sympathy with gasoline values which we don't see falling below near-term support at $2.16 per gallon because it's so early in the season and the vulnerability of supply in light of the recent reduction in refinery capacity. This whole situation still remains quite fragile with respect to our proximity to peak storm activity expected to begin this August. Also with the recent resumption of violence in the Middle East and specifically in the Gaza Strip between the forces of Hamas and their Palestinian Fatah rivals, it hardly provides a backdrop of comfort for those looking to short the market expecting a more sustained sell-off in petroleum values.

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

June 21, 2007

United Strategic Investors Group

Guy Gleichmann, President

1926 Hollywood Blvd, Suite 311
Hollywood, Florida 33020

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