3-5-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (3/2) energy settlements:
April NYMEX closed: $7.243
Summer ’07: $7.57, Winter ’07-’08: $9.02
The NYMEX one-year strip $8.17, 2-year strip $8.19, 3-year $8.11
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.61, Last Summer: $6.33, Last Winter: $7.16
April Crude oil: $61.64, #2 oil $1.758

Natural gas traders saw bearish technical indicators occur last week. Gas reversed from the highest price in the April gas contract since December to settle lower than the previous week, and settled below the 20 week moving average after trading above it for 6 weeks. That left a daily bearish divergence in both the RSI and MACD. You may recall my mention of a bullish divergence in crude a few weeks ago that preceded its recent rally. Traders will also be watching a critical ascending trend line that has provided price support since last fall. That line intersects just above $7.00 this week and a settlement beneath it could lead to mass selling that would take gas to the lower end of its trading range. Over the last 10 months prices have traded below $6 during 7 of them. Why not during March? Wait on making future purchases and keep your triggers in place to buy summer gas.

The volume of funds flowing into commodities in recent years is staggering. In the Goldman Sachs Commodity Index (GSCI) alone assets soared from $15 billion in 2003 to almost $70 billion in 2006, and appears to be headed for $110 billion in 2007.

Since Iran nationalized its oil industry 18 years ago it produces only 3.9 MMBD (of which 2.5MM are exported), versus over 6 MMBD in the '70s, although it sits on 11% of the world's oil reserves, second only to Saudi Arabia. Oil sales of $47 B in 2006 generated half of the government's revenue, but lack of refining capacity means that Iran imports 40% of its gasoline, while spending $20B per year on gasoline subsidies to keep pump prices at $0.35/gallon. Cheap fuel encourages usage so there is double-digit demand growth, requiring the country to import 170,000 barrels of gasoline a day. Venezuela and Nigeria may be headed in the same direction in the next decade as they pursue nationalization of their oil and gas industries.

Please feel free to call me to discuss any questions you may have about your specific energy plan.