Alaron Energy Commodity Comment

CHICAGO - Feb 14/07 - SNS -- Following is the oil and ethnaol futures comment from Alaron Trading Corp.

Love is all around and Cupid is working overtime but some get into the love and others just flee it. In North Korea it looks like perhaps they are sweetening up to the prospect of shutting down their nuclear weapons program. Kim Jong-il is feeling the love so I can only assume that cupid shot one of his arrows in Kim Jong-il's backside. Yet Muqtada al-Sadr in Iraq who doesn't want to feel the love is running from the arrows and whatever else they are shooting at him and reportedly fled to Iran. Sometimes I guess love just isn't easy.

In Nigeria, militants are trying to get into the Valentines Day spirit by inviting all workers at the Nigerian oil facilities to go home to their loved ones and to take off for the holiday. And what if they don't? Well I guess that is what they mean by regrets only.

Yet for energy traders love is in the air and it doesn't get sweeter for energy traders than Valentines Day crude oil option expiration and oil inventories report. In fact day traders have become amorous about the daily swings in oil and why shouldn't they be. Oil has found out lately that closing above $60 a barrel seems impossible but has provided wild ranges in its quest. Though $60 may seem too high yet below $58 is just two darn low. This battle of the bears and the bulls has provided outstanding opportunities for the average day trader who if they are adept can pick up a few moves that will be much sweeter than candy. And if you loved the volatility we have had in the last couple of weeks you should gush for the potential swings that we may see as the crude options say goodbye. Today could very well be the day that oil breaks out of this range and if I am right today is the day that we are going to finally close above $60 a barrel. Of course that does not mean that for day trade purposes we couldn't go down first.

What does China love? Well for one thing we know they love their oil. One of the many reasons that oil came roaring back up again was the release of a report by the International Energy Agency who is once again raising China's oil demand expectations. This is significant because if you have to settle on the main reason that oil has gone up seven fold in the last 8 years, it has been demand from China and the under estimation from oil producers and users of demand from China. The IEA in their OMR report said that oil prices rebounded to $60 a barrel from mid-January on colder weather and higher implied demand, tighter OPEC supply and increased geopolitical tensions. Product prices benefited from the onset of seasonal refinery maintenance with naphtha and fuel cracks gaining due to tighter supplies.

The IEA reports that total OECD industry oil inventories fell by 40.2 million barrels in December, as the fall in crude exceeded product stock builds despite a temperate start to winter in the US and Europe. Forward demand cover fell by one day from the end of November to 53 days, but remains one day higher on the year.

The IEA raised global oil product demand by 111 kb/d in 2006 to 84.5 million barrels a day and by 273 kb/d in 2007 to 86.0 million barrels per day following upward revisions in China. Despite a milder than normal start to winter, 4th quarter 2006 world demand was 1.3 million barrels higher than a year earlier.

Chinese apparent demand reaches according to the IEA 7.1 million barrels a day in 2006 and 7.6 million barrels a day in 2007 after incorporation of annual data for 2005 and more comprehensive refinery data, This lifts non-OECD demand growth to 3.6% in 2006 and 3.2% in 2007.

World oil supply grew by 175 kb/d in January to 85.5 million barrels a day in January with higher output in the FSU and other non-OECD producers.

What the report is saying is that near term supplies will tightened and longer term we could see demand outstrip supply in the next few years.

Was it another Saudi slip of the tongue? Yesterday a senior OPEC delegate said that for the March OPEC meeting all options are on the table for a cut or no cut. It seems the delegate was trying to clarify Saudi Oil Minister Ali al-Naimi comments that some in the market took that OPEC would not cut production at the next OPEC meeting. Mr. al- Naimi never did say that they would not cut but said that if the market conditions in March are as they are now they would not cut. Any way all options are on the table even though with raging demand they will not have to cut.

The late day rally was helped along yesterday because of a small fire at a Valero refinery in Delaware.

We're long March crude from apprx 5151 - raise stop 5650 and leave profit target at 6400.

We're long March heating oil from apprx 15600 - leave stop at 16200 and profit target at 18000.

We're long March RBOB from apprx 15200 - stop at 15100 and profit target at 17000.

We bought March Natural gas at apprx 720 - stop 690.

Phil Flynn

Alaron Research Team

800.935.6487

pflynn@alaron.com

www.alaron.com

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