Petroleum Complex Continues Strong Gasoline led Technical Uptrend

Consensus Report: July 13, 2006

Natual Gas and Oil Report

Middle East Violence Ignites Petroleum Complex to All-time New Record Highs as Bullish Sympathy Permeates Natural Gas after Technical Rebound.

Technical Outlook: In our last report dated June 29 we said natural gas was overall bearish yet quickly approaching oversold territory whereby several technical indicators were already overextended to the downside. We also said the market was likely to take the spot August futures to dramatic new lows resulting from a retest of existing lows on the continuation charts at $5.75-$5.80, and within possibly the next 3-5 sessions. Our Outlook also predicted the likelihood of a sharp rebound following the test of new lows basis spot August culminating in the formation of a classic V-bottom on the chart. This not only transpired almost exactly according to our projections, albeit only a couple day sessions beyond our time cycle, and yet within pennies of our potential range of about 25-30 cents below the existing continuation lows at $5.75 whereby the spot market briefly touched $5.40 before making a sharp upward rebound from the intraday low posted this past Monday! The market's sharp recovery this week from the new contract low of $5.40 to close today comfortably above the $6.0 benchmark to settle at $6.13 confirms our forecast for the likely formation of a V-bottom on the chart. Looking ahead several indicators are now confirming the short-term correction is over and are displaying classic bullish divergence exists in the stochastic, linear oscillator, the MACD, and others, suggesting further upside price movement ahead of. Only the momentum indicator and a few others show hints of weakness within the technical framework. However, and to reiterate our warning against getting aggressively short near the contract low's in natural gas, it can be equally damaging to try and preempt the completion of the bullish reversal in an attempt to pick a top of the market's short-term upward acceleration. Especially when this market has a habit of triggering a formidable and steep short covering rally following new contract low's for the year. We anticipate from the current pattern, a near-term challenge to the resistance level at $6.50, that if breached could then quickly be followed by a test of our bull pivot price at $6.65 which could easily springboard the advance to $6.80 and possibly the $7.0 benchmark! Only a pronounced failure to exceed the $6.50 resistance level could return the market to short-term range bound but only for a brief period in our opinion.

Fundamental Supply Update

Today the EIA announced an injection into storage of 89 bcfs that was clearly well above both estimates by Dow Jones and Bloomberg of 79 and 77 bcfs respectively. However the market quickly shook off the minor bearish implications of the report in its one-week impact and then quickly returned attention upon the bullish fever that now permeates the petroleum complex, which we will discuss soon in more detail, and then continued the technical rebound that began at the beginning of the week from contract low's. Storage now stands at an obviously cumbersome 2704 bcfs, which is 426 higher than last year and 581 or 27.4% higher than the five-year average of 2123 bcfs. The fact that peak hurricane season still lurks around the corner certainly didn't hinder the purpose and power of today's sharp upward acceleration to prices, however we still believe it took a backseat to technical concerns as well as sympathy trading with the record-breaking oil market.

Concerning crude oil the recent escalation to violence between the Israeli military upon Hamas and Hezbollah targets in Lebanon in retaliation for the recent three kidnapped soldiers quickly took center stage in the energy complex as it became the galvanizing catalyst to the Bulls cause that seemed to give new life to more familiar past battle cries such as" Iran's nuclear challenge", Nigeria's supply interruptions, and of course the ongoing violence and restricted oil output in Iraq. And of course new arrivals on the geopolitical tension landscape such as the defiant missile launches against world tranquility executed by North Korea and the disturbing multiple bomb detonations upon the transit system in Mumbai India this past week, certainly provided a more solid footing for the Bulls to take a prominent command over price action. Even in Nigeria where recent militant activity escalated resulting in another potential 120,000 barrel per day outage from two pipelines operated by Eni, according to Nigerian news, seemed to follow the recent theme of enhanced violence and escalating tension in several hotspots around the world that all either directly or indirectly threaten the delicate balance of oil distribution to critical consumption platforms. All of this combined anxiety and boiling worldwide civil unrest has ignited an unprecedented buying fever amongst the Bulls, while simultaneously instilling a relentless fear throughout the Bears camp as they regretfully and yet rapidly exit the market, licking their wounds from the painful buying required to escape to live to fight another day. The recent escalation in violence in Beirut and then even more timely in retaliation from Lebanese guerrillas who fired a reported 70 rockets into Israeli territory some of which entered the southern city of Haifa which lies some 30 miles south of the Lebanese border, proved to be the perfect complement to the bullish reaction on Wednesday of the much larger than expected drawdown to crude stocks of 6.0 million barrels leaving 335.3 million barrels in supply and still above historical averages. Meanwhile the EIA update on gasoline was also bullish in that it was another consecutive drawdown although only by 0.4 million barrels for the week, however the more important figure was the implied demand for gasoline which showed a noticeable increase over previous weeks when comparing to the same period last year as gasoline demand averaged 9.6 million barrels per day over the past month which is 1.7% above the same period last year. This is quite bullish in its own right as it implies and continues to indicate very little demand destruction from US consumers despite these elevated levels whereby motor gasoline at the pump gets more comfortable near the $3.0 per gallon benchmark.

Conclusion

Natural gas continues its pattern of falling back to technical concerns once the market has completed a cycle of price factoring to ongoing fundamentals of lackluster, mild weather demand amidst a backdrop of record high supplies. Recently, as we forecast two weeks ago, the market made new annual low's in the spot August contract that brought values briefly to the $5.50 level whereby natural gas becomes a more viable competitor to other fuels such as coal and residual fuel oil, and thus in reaction value buyers stepped in to stem the decline. This happened to coincide with the formation of a grossly oversold technical condition that we forecast in our last report would likely result in a classic V-bottom which we feel this past week materialized. Looking ahead we expect buying on pullbacks at $6.10 and then more critically at $5.92 if attained, with current momentum indicating a more likely continuation of the short term uptrend to challenge resistance, first at $6.50 and then if breached $6.65-$6.80.

Concerning crude oil and the petroleum complex, all of our price targets and support levels, for both gasoline and oil held and were hit or exceeded over the past two weeks whereby both levels basis spot crude oil of $75.80 and then $76.50 were taken out today with an impressive and almost vertical acceleration of $1.75 to close at a new all-time record high of $76.70 per barrel! Just as we have continued to predict, that unless significant troop reduction is achieved in Iraq which would obviously preclude and suggest an established control over the recent escalation to insurgent violence by the new government, or an unexpected and even temporary agreement is achieved over the Iranian nuclear challenge, crude prices would continue to stay above are critical support level at $68.10 per barrel. And that gasoline would continue to be a complex leader as demand remains robust during peak driving season along with the looming higher storm prevalence that approaches in this year's hurricane season. It seems the recent and sudden escalation to violence between Israel and Palestine served to provide the exact wildcard to reignite the long-term new bull market in energies that continues to underpin and graphically display the global preoccupation with the " future threat to real supply", versus the actual interruption to the output of the same. Despite the fact that the immediate conflict between Israel and the Hezbollah has not caused the interruption to any sizable oil flow geographically, it is clear that market players have interpreted this as a very dangerous backdrop that will no doubt foster and increase violent reaction in response to the age-old conflict between the two, that will ultimately result in the interruption to a key supply of oil amongst one of the many producers who have a stake in the history as well as the future of this conflict. This also serves to reiterate a warning that we have made painfully clear in many of our past reports, that it is in the best interests of Al Qaeda, Hamas, the Hezbollah, the sword of Jihad and many others just to name a few Islamic extremists, to target and strike oil infrastructure thereby simultaneously escalating revenue to benefit their cause and fund their violent ambitions while instilling fear in the West and dealing a critical blow to our oil dependent economy. The recent rhetoric from the White House immediately implicating Syria and Iran in the recent two kidnappings of Israeli soldiers near the Lebanese border along with the impatient referral of Iran's delay of response to the incentive package back to the UN Security Council for possible sanctions, is a graphic example on both fronts, of this administration's lack of diplomacy, and continued failure to ease political tension that is undoubtedly contributing to global instability and unprecedented higher energy costs worldwide! The recent walkout by Pyongyang from talks between the South and a senior US diplomat concerning last week's erratic missile tests over the Sea of Japan is another key example of this administration's failed diplomacy with North Korea. All of this instability from several sectors of the world either directly or indirectly favors the Bulls camp in the energy arena, as instability fosters violence, and this certainly serves more as a threat to oil supply rather than a benefit.

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

July 13, 2006

United Strategic Investors Group

Guy Gleichmann, President

1926 Hollywood Blvd Suite 311
Hollywood, Florida 33020

(800) 974 – 8744