Alaron Energy Commodity Comment

CHICAGO - Feb 12/07 - SNS -- Following is the oil and ethnaol futures comment from Alaron Trading Corp.

Insurmountable $60.00. Another attempt to close above the $60.00 a barrel area was thwarted leading to a negative market psychology to start the week.

We are seeing the now familiar Monday morning sell-off that is taking oil down as traders come back from the weekend. The sell-off is also getting a little extra momentum from a Wall Street Journal report that the Saudi Oil Minister was satisfied with oil market conditions. The Wall Street Journal reported that the world oil market is better balanced and if trends hold, further cuts in production or supply increases won’t be needed when OPEC members meet next month according to Ali al-Naimi. Ali al-Naimi said that the market was much healthier than before and that OPEC may not need to changed output if conditions prevailed. The Wall Street also said that some Asian refiners expected an increase in Saudi supplies next month signaling that their cuts of February may be gone by March just as the market starts anticipating the supply outlook for the upcoming summer driving season.

No matter how cold it is outside it was a lot colder in Munich at the International Security Conference. The weather may be getting warmer but international politics are getting downright icy. Last week Vladimir Putin accused the US of overstepping our borders. Putin accused the US of using a militaristic approach to foreign policy, and that the actions of the United Sates were nourishing an arms race. He also said that the US was using illegal unilateral military action that has plunged the world into an abyss of permanent conflicts.

There was some hope that the United States and Iran would be conducting backdoor meetings at the conference to try to ease tensions. The comments from Mr. Putin more than likely would have made that a bit difficult. Is it possible that Russia wants to flame the tensions between the United States and Iran as if they were not hot enough?

US Defense Secretary Robert Gates responded by saying that one cold war was enough and was a bit humorous when he said it. He said that as an old cold warrior and that one of yesterday’s speeches almost filled him with nostalgia for a less complex time. Old spies have a habit of blunt speaking! Mr. Gates then went ion to attack Russian foreign policy especially the use of energy recourse as a tool of political coercion. As Mr. Gates so rightly points out that if Russia uses energy as a weapon a new cold war could indeed be really cold especially for Europe.

Mr. Gates also said we have evidence that Iran was supplying arms to the Iraqi insurgents. The Financial Times reported that a US defense official in Baghdad said 170 coalition troops had been killed by Iranian-made roadside bombs smuggled in to Iraq, fueling US anger at Iran’s alleged involvement in the war.

The Lundberg Survey is out and as you might expect we are seeing gas prices escalate. According to the survey, gas prices have risen 3.6 cents in the last 3 weeks and that this increase might have been even more if it were not for the fact that demand is weak this time of year. Seeing that service stations are not moving that much gas, many stations have cheaper gas in the tank. Because of that and competitive forces, the move up in price has been slow to reflect the increase at the cash level. Still the likelihood is that prices at the pump will continue to rise unless the price of crude takes a quick tumble.

This week we will see the big impact from the weather on supply. Look for crude oil supply to fall by 3.0 million barrels. Distillates to fall by 4.0 million barrels, gasoline up by 2.0 million barrels. Runs to remain steady. Natural gas may show a withdrawal by 280 bcf.

The day trade swings are increasing.

We're long March crude from apprx 5151 - leave stop at 5600 and profit target at 6400.

We're long March RBOB from apprx 15200 - leave stop at 150100 and profit target at 18000.

Buy March natural gas at 770 - stop 732.

Phil Flynn

Alaron Research Team

800.935.6487

pflynn@alaron.com

www.alaron.com

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