Technical Outlook:

Aug Crude Oil: Crude prices posted another new Q3 high on Wednesday at 7815 before pulling back in the close on profit taking to settle marginally lower on the day at 7704, down 11 cents. With the Bulls giving back their intra-day gains, the chart patterns and bias are mixed within the 7630 to 7855 range heading into Thursday’s session. Scalping opportunities exist on both sides of the market.

Buyers can scalp the 7700 level initially with trade holding there and pressing above 7750 likely to generate moves into the 7800-7855 XX Resistance target range. Buyers can also buy into the 7650-7630 XX Support range for a good bounce to 7700-7750. Bull breakout trade above 7855 renews strength triggering the next climb to 7900-7938 XXX with 8000 in close range for the week.

Sellers can scalp against 7750 and look for a press below 7700 to spark moves to 7650-7630 XX Support target range with room to 7600. Scale out of shorts from 7650-7600 as trade below 7600 is needed to shift momentum to the downside and target 7550-7540 XXX. Stable trade or a close below 7630-7650 alerts for follow through sell offs to 7500-7400 today and into Friday.

Weekly:

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Bullish Factors:

(1) the fall in the dollar index to a 2-month low, which boosts investment demand for commodities, (2) the larger-than-expected decline in weekly crude oil inventories (-5.06 million bbl versus expectations of -1.35 million bbl), and (3) the rally in the stock market which boosts confidence in the economic outlook and energy demand.

Bearish factors:

(1) the report from the API that said US oil and natural gas drilling activity increased by +38% y/y in Q2 to its highest level in 15 months,
(2) the larger-than-expected increases in weekly gasoline and distillate inventories (Gasoline +1.60 million bbl versus expectations of a +350,000 bbl build and distillates +2.94 million bbl versus expectations of +800,000 bbl),
(3) the unexpected surge in the refinery capacity rate to its highest level in 2-1/2 years which bodes well for further increases in gasoline and distillate production (+0.7 to 90.5% versus expectations of -0.1 to 89.7%), and (4) the Fed's FOMC minutes from the Jun 22-23 meeting in which policy makers stated that the economic outlook "softened somewhat" and as they cut their 2010 growth estimates to a range of 3.0% to 3.5% from an April estimate of 3.2% to 3.7%.

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