Friday, September 30th, 2011

[email protected] www.schorkreport.com EIA Estimated Underground Storage (Bcf) w/e 23-Sep-11 Region East West GoM Total U.S. Region East West GoM Total U.S. Stock 1,820 456 1,036 3,312 Prev. Week 1,753 445 1,003 3,201 67 11 33 111 % 3.8 2.5 3.3 3.5 Prev. Year 1,860 496 1,047 3,403 5Yr Avg 1,872 453 982 3,307 (52) 3 54 5 (40) (40) (11) (91) % (2.2) (8.1) (1.1) (2.7) % (2.8) 0.7 5.5 0.2

Weather forecast courtesy of Commodity Weather Group

Capacity 2,205 558 1,340 4,103 82.5% 81.7% 77.3% 80.7%

CRUDE AWAKENINGS TRADING BIAS DAILY

Initial Jobless Claims Lower Than A Really High Level.

(See omnium-gatherum p.6) Chart of the Day: Cumulative Injection vs. Total Storage (Bcf)

WTI: NEUTRAL a/o Sep 26 S- 79.95 R- 84.33 BRN: NEUTRAL a/o Sep 26 S- 102.23 R- 105.67 NG: BEARISH a/o Aug 17 S- 3.688 R- 3.806 RB: NEUTRAL a/o Sep 26 S- 250.59 R- 261.13 HO: NEUTRAL a/o Sep 26 S- 278.08 R- 287.24

TRADING BIAS WEEKLY

WTI: BEARISH a/o Jun 06 S- 76.18 R- 83.52 BRN: BEARISH a/o Jun 27 S- 99.74 R- 108.2 NG: BEARISH a/o Jun 06 S- 3.568 R- 3.834 RB: BEARISH a/o May 09 S- 243.35 R- 267.59 HO: BEARISH a/o Jun 27 S- 268.21 R- 290.95
TRADING BIAS MONTHLY

WTI: BEARISH a/o May 2011 S- 90.24 R- 133.54 BRN: BEARISH a/o May 2011 S- 91.85 R- 136.16 NG: BEARISH a/o Oct 2010 S- 3.25 R- 5.82 RB: BEARISH a/o May 2011 S- 220.8 R- 357.02 HO: BEARISH a/o May 2011 S- 264.19 R- 377.15
ENERGY PRICES WERE MIXED YESTERDAY crude oil rode the equities higher following initial jobless claims dropping to the lowest point since April and a betterthan-expected increase in domestic GDP for the second quarter. Natural gas was not so lucky with a huge 111 Bcf injection from the EIA. As for today, U.S. personal income is expected to increase by 0.1% in August, while expenditure is forecast 0.2% higher MoM.
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EIA Review Bulls: 0, Bears: 111 By all accounts yesterdays natural gas injection was expected to be bearish, with median analyst estimates coming in at 103 Bcf, 2 Bcf more than the largest injection on record for the reference week (seen back in 2003). In turn the market was trending lower from its open with lows of 3.756 by 10:00AM EST. Yet even the bears must have been surprised when the
2011 THE SCHORK GROUP, INC Page 1

EIA reported a huge 111 Bcf injection to total natural gas storage at 10:30AM EST. In the minutes after the release, prices were testing lows of 3.685. The bulls would love to be able to say that the large injection is simply a function of production coming back on-line after Tropical Storm Lee/power outage related disruptions in the Gulf. This is simply not the case as drawn in todays CotD, the cumulative injection for the first four reports of September comes to 351 Bcf, the second largest on record, beaten only by 2003. Yet consider that total storage at the same week in 2003 came to 2.82 Tcf, in 2011 it is 17.45% higher at 3.31 Tcf, the third highest level on record. When we see the second largest injection of all time when inventories are at the third highest level on record, we think bearish. The root cause of the injection was, simply, continued strength in production. The EIA reports that production was up 0.1% for the week which would place it around the ~62.85 Bcf/d level. In turn, the Gulf of Mexico region reported a 33 Bcf injection, 83.33% above the seasonal average and the largest injection ever seen for this timestep. Similarly, shale production helped the East region report a 67 Bcf injection, 52.97% above the seasonal average and, of course, the largest number on record. The demand side was no better, with national electricity output down by 3.72% WoW, with drops as large as 7.06% in the West Central and South Central regions. From a seasonal perspective, the West Central region came in 11.70% below last year while the national average was 6.46% below last year and 4.01% below seasonal norms. Considering how low output is, the 5.9% YoY deficit in nuclear generation no longer seems that bullish.

Lower output to a certain degree is to be expected as we enter the shoulder months cooling degrees in New England stand at 3, as compared to 67 at the end of July. But even accounting for seasonal trends temps seem week. The preceding chart draws the % drop in cooling degrees between the last week of July and the reference week. The seasonal average decline in CDDs comes to 53.09%, a reasonable number. In 2011 it came to 70.30%. The West North Central was even sharper, with a historic drop of 67.46% and a 97.14% drop in 2011. Put simply, cooling degree days are effectively over for the season. At the same time, heating degree days are strong, but not large enough on an absolute basis to fuel significant demand the U.S. average came to 31 HDDs last week as compared to the seasonal normal of 15 HDD. Was there anything encouraging about yesterdays report? Well, we would love to say the West region saw a small injection as CDDs in the Pacific came in 37.40% above seasonal norms, but this was not the case. Instead, the West regions 11 Bcf injection was more than double the 5 Bcf seen last year and 2 Bcf above the seasonal average of 9 Bcf.

In turn, as shown above, basis pricing was weak across the board. Every single trading hub reported a drop between last Thursday and the prior Thursday, with an average drop of 5.34% and a maximum of 9.15% at the PJM hub. The bottom line is that we have maintained our bearish daily natural gas bias through thick and thin. Nothing in yesterdays report is inspiring us to change it.

Friday, September 30th, 2011

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2011 THE SCHORK GROUP, INC

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NATURAL GAS

NAT-GAS X Open 3.793 High 3.837 Low 3.685 Close 3.747 Chng -0.052

As far as next Thursdays EIA storage report goes, weather-related demand through the Midwest remains comfortable this week, but is cranked up in the Southwest. Through the first five days of the reference week degree-days are up by more than one-third from the previous timestep in the Houston market area. As far as the injection for this week is concerned, we typically see a number in between 62 and 79 Bcf.

NYMEX NG November '11 Daily

4.6
4.4 4.2

4
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3.6
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Daily Bias: BEARISH

As for today, strength above 09/23's 3.772 open opens the door to our 3.806 inflection high. Above here the bulls will potentially run towards our 3.865 intra-day. Then again, weakness below the 3.700 psych barrier leads to our 3.688 inflection low. Below here we look for offers to hit support at our 3.629 intra-day. OIL
WTI X Open 80.67 High 83.98 Low 79.64 Close 82.14 Chng +0.93 5

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Daily Bias: NEUTRAL

As far as today goes, weakness below yesterday's 23.6% retrace of 80.66 alerts to our 79.95 inflection low. Below here we will look towards our 77.75 intra-day. On the other hand, gains above yesterday's 76.4% retrace of 82.96 clear a path to our 84.33 inflection high. Through here the bulls could run to- and into - resistance at our 86.53 intra-day high.
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29-Sep

WTI was strong yesterday, breaking away from the rest of the complex with a 1.15% gain. Keep in mind that WTI lagged on Wednesday, so yesterday may be a function of arb traders moving in to balance the cracks, or simply retail investors who are trading WTI along with the equities or against the dollar. Meanwhile the front month spread rose to highs of -0.16, the highest since the November contract took over as the front month. We would advise watching todays personal income/expenditure data. As drawn below, the percentage of total expenditure on gasoline rebounded in July.

105

NYMEX CL November '11 Daily

100
95 90 85 80

75

ICE Brent

Brent X Open 103.00 High 105.82 Low 102.35 Close 103.95 Chng +0.14

Prices in London were flat yesterday, an unpleasant surprise for sellers of the WTI Brent spread. As mentioned in yesterdays note the spread was selling off in the after-hours Wednesday to lows of -24.00. Instead, the crack settled yesterday at -21.81, the third consecutive settle above the 50 day MA. Next stop for the technicals? The 100 day MA of -20.235. As far as today goes, strength above 09/27's 104.77 open opens the door to our 105.67 inflection point. If crossed, we will look for bids to our 107.38 intra-day. On the other hand, a drop below 09/28's 103.23 low print alerts momentum to our 102.23 inflection low. Below here we will look for offers towards our 100.52 intra-day. LIGHT ENDS

122 120 118 116 114 112 110 108 106 104 102 100 98

Brent CO November '11 Daily

RBOB X Open 256.50 High 261.72 Low 254.96 Close 255.86 Chng -1.67

Despite a severe correction in initial jobless claims and encouraging personal consumption data for the second quarter, RBOB fell by 0.65% yesterday. Yet the low print of 254.96 was well above our 254.41 lower alert and our 251.74 inflection low. Combined with an encouraging DOE report, we will look for the RBOB crack to remain above its 200 day MA of $25.15 in the short term. As far as today goes, weakness below 09/22's 252.44 low print alerts to our 250.59 inflection low. Below here we look to our 245.31 intra-day. On the other hand, a rebound above yesterday's 258.34 pivot high opens the door to our 261.13 upper inflection point. Above here the bulls should bid towards our 266.41 intra-day high. MIDDLE DISTILLATES

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HEATING OIL X Open 281.90 High 288.12 Low 280.25 Close 282.66 Chng -0.05

Heating oil prices were effectively flat yesterday, settling 0.02% lower. Traders may have been encouraged by the Kansas City Fed manufacturing activity index, which was expected to remain flat at 3 in September but instead doubled to 6. The heating oil crack dropped below its 50 day MA yesterday, but was inching higher in after-hours trade. We expect increased volatility today as the contract for October delivery goes off the board. As for today, strength above yesterday's 284.19 pivot high builds a bridge to our 287.24 upper inflection point. Once crossed, the bulls should run towards our 291.82 intra-day high. Then again, weakness below yesterday's 280.25 low print signals momentum to our 278.08 inflection low. Below here we will look for offers down to our 273.50 intra-day low.
Friday, September 30th, 2011 [email protected]

330 320 310

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2011 THE SCHORK GROUP, INC

4-Jul 7-Jul 12-Jul 15-Jul 20-Jul 25-Jul 28-Jul 2-Aug 5-Aug 10-Aug 15-Aug 18-Aug 23-Aug 26-Aug 31-Aug 5-Sep 8-Sep 13-Sep 16-Sep 21-Sep 26-Sep 29-Sep

Daily Bias: NEUTRAL

NYMEX XB November '11 Daily

Daily Bias: NEUTRAL

NYMEX HO November '11 Daily

Daily Bias: NEUTRAL

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Natural Gas Burnt in NPCC Region by Sector

8.E+06 7.E+06
6.E+06
Dekatherms/day
Residential Sector Power Sector

ELECTRICITY RECAP Following a record breaking 67 Bcf natural gas injection in the East region, PJM West prices dropped sharply yesterday. However, the low print of $38.75/Mwh was just above our lower price regression of $37.203/Mwh. Additional pressure was likely put on prices by a tiny 2.04% increase in natural gas burn rates. Nuclear generation in Region 1 stands 1.6% above last year, the only region to report a YoY surplus. Further, generation as a percentage of capacity stands at 93% in region 1, the highest of any region and a stark contrast to the 78% level in Region 2.

5.E+06 4.E+06
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2.E+06 1.E+06 0.E+00

5/25 5/28 5/31 6/3 6/6 6/9 6/12 6/15 6/18 6/21 6/24 6/27 6/30 7/3 7/6 7/9 7/12 7/15 7/18 7/21 7/24 7/27 7/30 8/2 8/5 8/8 8/11 8/14 8/17 8/20 8/23 8/26 8/29 9/1 9/4 9/7 9/10 9/13 9/16 9/19 9/22 9/25 9/28

ICE PJM West On Peak Real Time Daily

235
Close

30 day MA

185

In turn, on-peak spot prices at the Cinergy Hub declined by $2.61/Mwh as compared to the $3.86/Mwh drop seen at the PJM. On a national level nuclear generation stands 5.9% below last year but, as discussed above and evidenced by the large injection, mild temps have led to a commensurate decrease in demand. PRICE PATH

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TETCO M3 natural gas prices dropped to $4.000 yesterday, the third lowest value for the entire month. This was met by a more-than-commensurate decrease in electricity prices. In turn, the 10K spark spread dropped into negative territory for the first time since September 19 th. Keep in mind we have seen serious support at the $40.00/Mwh level recently, thus our regression ranges between $46.483/mwh and $36.403/Mwh.

Tetco M3 Spark Spread Surface

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Pennsylvania Railcar Coal Dark Spread Surface

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Friday, September 30th, 2011

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2011 THE SCHORK GROUP, INC

29-Sep

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ICE GASOIL Given the strong front month crack we were looking for a draw in gasoil inventories at the ARA hub yesterday, instead PJK Services reported a 28 K tonne increase. This strikes us as bearish and the markets did not disagree gasoil sold off 1.02% yesterday. Mogas inventories dropped 116 K tonnes.
1000
ICE Gasoil October '11 Daily

980 960
940 920

ICE Brent-Gasoil Crack Spread

18 17.5 17 16.5 16 15.5 15 14.5 14 13.5 13 12.5 12 11.5 11 10.5 10 16-Sep 19-Sep 20-Sep 21-Sep 22-Sep 23-Sep 26-Sep 27-Sep 28-Sep 29-Sep

900 880

860 840

As for today, offers through yesterday's 23.6% retrace of 883.75 alert to follow-through momentum towards our 882.25 inflection. We will look for weakness below here OMNIUM-GATHERUM Yesterday the Department of Labor released the latest weekly initial jobless claims, which analysts were expecting to come in at 420K, just below the previous weeks 423K level. Instead, they dropped to 391K, the lowest point since April 2011. While we recognize this is an improvement, we hardly find it encouraging. The chart below draws average initial jobless claims between 2003 and 2007 on a monthly basis against claims for 2011 (with a non-zero axis). Initial jobless claims may be at their lowest level since April but, like congratulating the most stable inmate at the insane asylum, this is a heavily modified compliment.

towards our 866.25 intra-day. On the other hand, continued strength above yesterday's 907.75 high print clears a path towards our 914.25 upper inflection-point. Above here we will look for bids towards our 930.25 intra-day.

Instead, yesterdays strength in the equities was likely due to the second quarter GDP data. Personal consumption rose by 0.7% as compared to the 0.4% expected by analysts, while total GDP rose by 1.3% as compared to the 1.2% expected. Yet for the energy complex the data was less than encouraging. Expenditure on gas and energy fell by 2.1% on the quarter despite a small 0.52% decline in prices. Meanwhile motor vehicles saw a 7.1% QoQ drop. This helps explain the weakness seen in front month RBOB, which fell 1.19% yesterday as compared to WTIs 1.15% gain. In fairness, traders are likely liquidating their positions in the October RBOB contract due to expiration today, yet even the November RBOB contract was weak yesterday. Instead, much of yesterdays GDP growth was due to the services sector medical care saw a 0.7% QoQ gain while housing saw a 0.5% gain. On a discretionary level, recreation services saw a 2.2% gain, an encouraging sign for consumer health. All told, yesterdays GDP data was bullish on the headline level, but on the breakdown puts a damper on Wednesdays encouraging DOE report for the products. Thus we maintain our neutral daily bias.

Friday, September 30th, 2011

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2011 THE SCHORK GROUP, INC

4-Jul 7-Jul 12-Jul 15-Jul 20-Jul 25-Jul 28-Jul 2-Aug 5-Aug 10-Aug 15-Aug 18-Aug 23-Aug 26-Aug 31-Aug 5-Sep 8-Sep 13-Sep 16-Sep 21-Sep 26-Sep 29-Sep

Daily Bias: NEUTRAL

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BIOFUELS Monday 09/26 - Ethanol futures for December delivery weakened for a third straight week along with heavy losses in the gasoline and corn markets. The contract finished at $2.435/g or 5.1% below the prior Fridays close. The CBOT crush averaged an unremarkable $0.32/g, however, the crush between prompt f.o.b. ethanol in Chicago and the bid for 2 yellow corn in Chicago has doubled over the last two weeks to $1.03/g. According to the DOE, for the week ended September 16th, gasoline demand in the U.S. ticked up by 11 bps to 8.86 MMb/d. Demand over the last four weeks averaged an anemic 8.99 MMbbl/d, i.e. a ten-year low. Meanwhile, discretionary gasoline blending (conventional + ethanol) rose for the first time in three weeks as economics continue to skew their way. Over the last four weeks discretionary blending accounted for fivein-nine gallons of the entire gasoline pool. As go the biofuel Ag feedstocks, in Chicago the amount of CBOT corn futures owned by money managers dropped for a second straight week and fell to a two-month low. Per the CFTC week ended Tuesday, September 20th, the amount of speculative length fell by 12.13% to 247,010. In New York, speculative money in the NYBOT/ICE sugar WEEKLY OUTLOOK (September 26th to 30th) Henry Hub weakness below the week ending 10/22's 3.613 high print alerts to our 3.568 inflection low. Below here we will look for offers to our 3.435 intra-week. On the other hand, a rebound above last week's 3.761 pivot high opens the door to our 3.834 inflection high. Once crossed, the bulls should run towards our 3.967 intra-week high. WTI strength above the week ending 08/26's 82.42 open should send the bulls towards our 83.52 inflection high. Above here they will likely hit resistance at our 87.18 intra-week high. On the other hand, a correction below last week's 77.55 low print leads to our 76.18 inflection low. Below here we look for offers to our 72.52 intra-week. Brent strength above last week's 106.61 pivot point opens the door to our 108.20 inflection high. Above here the bulls will run to (and in to resistance at) our 112.43 intra-week high. On the other hand, a drop below the week ending 02/18's 100.73 low print alerts to our 99.74 inflection low. Below here the floor falls through to our 95.51 intra-week low. RBOB strength above last week's 265.90 pivot high clears the path to our 267.59 inflection high. If the bulls break through here they could hit resistance around our 279.70 intra-week high. On the other hand, a correction below the week ending 02/18's 246.20 low print alerts to our 243.35 inflection low. Below here we look for offers to our 231.24 intra-week low. Heating Oil strength above last week's 286.50 pivot point opens the door to our 290.95 inflection high. Above here we look for bids to our 302.31 intra-week. Then again, a correction past 08/09's 270.20 low print alerts to our 268.21 inflection point. Below here the bears should claw to our 256.85 intra-week low.
A note about the Ibis: The Ibis folklore has it that other birds look to the Ibis for leadership. The Ibis uses its instinct to detect danger. It is the last sign of wildlife to take shelter before a hurricane hits, giving warning that danger is imminent. approaching.
Friday, September 30th, 2011 [email protected] 2011 THE SCHORK GROUP, INC Page 7

market fell by an even larger 12.149%. The net length of sugar futures in the hands of money managers dropped to a five month low of 114,143 contracts. After hitting a life-of-contract high at the end of August, Chicago corn futures for December delivery have plunged 18% to 638.50. As far as this week goes, offers through 619.00 alert to follow through weakness towards our 599.50 weekly inflection point. Below here we will look for offers towards our 582.75 weekly top. Otherwise, a rebound through 678.75 cautions for renewed strength towards our 709.25 upper inflection point and then to our 734.75 intra-week low target. As far as Mar-12 sugar goes, last Friday the market plunged 1.8% below our 24.46 intra-week low. As far as this week goes, offers through 22.80 alert to follow through weakness towards our 21.81 weekly inflection point. We will look for weakness below here towards our 20.99 intra-week low. Otherwise, a rebound through 26.14 clears a path towards our 27.76 upper inflection point. We will look for strength through here towards our 29.14 intra-week high.

As the storm passes the Ibis is the first to reappear, a sign the clear skies are