Petroleum Complex Continues Strong Gasoline led Technical Uptrend

Consensus Report: June 22, 2006

Natual Gas and Oil Report

Petroleum Prices Rebound on Gasoline Demand and Overseas Tension, While Natural Gas Returns to Bearish Supply Range

Technical Outlook: Last week we said the technical pattern was more constructive and that a bullish divergence lingered with a potential further upside test at $7.25 and then $7.40 remained possible with pullbacks likely to $7.02, $6.80 and even $6.65 to find support. However, we also said only a full retreat back under $6.60 resulting in a close under our key support at $6.46 could break the recent bullish momentum and return the market to bearish range trade likely between $6.20 and $6.60 over the near term. This is what transpired as the market gave up almost a dollar and over 80% of the recent gains this past week. Certain technical indicators are now quite bearish over the short term as some oscillators, momentum, and stochastics all suggest further selling ahead. We anticipate prices could subside further to retest previous lows at or below the $6.0 benchmark on the current negative momentum. Only a sudden price rebound back above $6.80 on close would neutralize renewed bear forces to two-sided range trade temporarily.

Fundamental Supply Update

Today the EIA reported supplies increased by 79 BCFs and a slightly higher injection than the survey estimates by Dow Jones and Bloomberg that called for about 78 BCFs. Storage now stands at 2476 BCFs which is still 451 above last year and 643 or 3.5% above the 5-year average. In reaction prices still dropped to session lows of $6.37 PMBTU before recovering some to settle at $6.439 for a loss of 14.9 cents basis July. As we reported in detail last week, injection rates could run at a lean average of about 54 BCFs now a week over the remaining season, and a far cry from the average of over 67 per week needed to reach the 3100 benchmark, and it would still total a whopping record of over 3.5 TCF! This is hardly a bullish scenario, and that is why these emand only induced rallies are so short-lived, because it doesn take long for the market to return its attention to the record heavy surplus that as we have mentioned before, is equivalent to an extra 1and a 1/2 summer months of consumption, as an added cushion of supply to buffer against any sudden surge in demand from elevated heat or more ominous, the threat to disrupting production from a Gulf storm. That is why when these short covering rallies dry up, which happens rather quickly, prices give up 90% of their recent gains just as they did this week, and in only 4 sessions!

Concerning crude oil, this week resumption of the uptrend was mainly on the strength of gasoline demand and a much lower supply addition than expected along with increased geopolitical tension overseas. This week EIA update revealed an increase of only 300,000 barrels of unleaded that still leaves inventory about 1.2% below last year as peak summer driving season continues. This was more than enough to counter the brief negative reaction to another 1.4 million barrels added to crude stocks leaving the highest supply since May of 1998, a total of 347.1 million. Also worth mention was the demand for gasoline remains strong at 0.9% over the same period last year despite refineries operating at the peak output level since last year storms of 93.3%.The Iranians have stalled their response to the UN security incentive proposal that is aimed at ending Iran uranium enrichment program believed by many to support nuclear weapons development, to possibly as late as mid August. The Bush Administration has urged them to reply my mid July. Meanwhile, militant activity has renewed against oil production in Nigeria and now a potential missile test by North Korea also indirectly puts the short positions almost too dangerous to maintain and so support at $68.10 continues to hold.

Weather Summary

Occasional cooling thunderstorms will frequent the Ohio Valley and the Northeast keeping some of the heat out and more seasonable temperatures in the upper Midwest are to prevail next week, whereas in contrast heat and humid conditions will be the main stay for the deep South and Gulf region where temperatures reaching the upper 80s and low 90s will seem like 95-105 in some areas at times .Elevated heat to above normal levels will remain the theme in the West Coast and Desert Southwest over the next 6-10 day period.

Conclusion

Natural Gas continues its enhanced volatility as it leads the energies in range and monetary extremes on a daily basis. This will continue as the range expands at both ends of the spectrum as traders quickly shift from technical concerns and heavy supply to sudden increases in demand from above normal heat and storm threat, and then back again. We anticipate if a new storm threat doesn't materialize soon, say within next week, the current heat index in the upper Midwest and Northeast will be hard pressed to prevent a return to recent lows below the $6.00 benchmark at $5.96 down to $5.75.

Concerning petroleum, the major factors of gasoline demand concerns here in the U.S. and the ongoing tension overseas in Nigeria, Iraq, and Iran, and now the new development of the missile threat from North Korea, will continue to underpin price behavior. The economic implications of the Fed decision to raise rates another point and according to some who are in the minority a possible point hike, also loom large for the complex by the months end as the action, and more importantly the Fed comments, which are obviously not factored in, could have a large short term impact to values as it affects the perception on the rate of economic growth going forward. However, prior to this we see the current uptrend supported at $68.10 hard to derail over the next week with a possible test of key resistance above at $72.50 soon, with any sudden increase in tension overseas from any of the hot spots and values could easily escalate to contract highs above the $75 benchmark, especially now while gasoline demand is robust.

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

June 22, 2006

United Strategic Investors Group

Guy Gleichmann, President

1926 Hollywood Blvd Suite 311
Hollywood, Florida 33020

(800) 974 – 8744