Technical Outlook:

Sept Crude Oil: Crude prices sold off sharply from a double top at the Q3 highs at 7855 as heavy profit taking kicked in fueled by Bearish inventory stats. A build of 360k was reported while analysts expected draws of 1.2m. The market got slammed to 7620 before closing the session out at 7656 losing $1.02. Despite the selling, the market remains in sideways congestion within the recent uptrend with a mixed to Bullish outlook today. Trade below 7600 negates the outlook and shifts to a short term Bearish outlook.

Buyers today can scalp the long side on dips into the 7650-7600 X Support range and will need a solid push above the 7700-7710 X Pivot Resistance to spark rallies to upper objectives at 7750-7765 XX to 7800-7855 XXX. Stabilizing trade above the 200 DMA at 7765-7750 XX jeopardizes the Q3 highs bringing the 7900 to 8000 range into play this week.

On the downside, sellers can lightly scalp against listed Resistance X’s using conservative stops while looking to cover on dips into the 7650-7600 X Target/Support range. Trade through 7600 is Bearish and resumes yesterday’s sell offs targeting lower objectives at 7550 XX down to 7500-7475 XXX. Any extensions through 7475 will aim for the lower 7400’s at XXXX.

Monthly Chart:

Click on image to enlarge!

Weekly Chart:

Click on image to enlarge!

Bullish factors:

(1) an increase in demand after total US fuel consumption for the week ended Jul 16 rose +3.2% to 19.4 million barrels a day, and (2) concerns that a weather system in the Caribbean may become the second named tropical cyclone of the Atlantic Hurricane season and threaten oil installations and refiners in the Gulf of Mexico after the National Hurricane Center said the system had a 60% chance of reaching hurricane strength.

Bearish factors:

(1) strength in the dollar, (2) the unexpected increase in weekly crude oil inventories (+360,000 bbl versus expectations of -1.0 million bbl), (3) the larger-than-expected increase in weekly distillate inventories which are now at their highest level for this time of year since at lest 1982 (+3.93 million bbl to 166.6 million bbl versus expectations of +1.75 million bbl), (4) the unexpected increase in the refinery capacity rate to nearly a 3-year high (+1.0 to 91.5% versus expectations of -0.3 to 90.2%), which bodes well for further production increases in gasoline and distillates, (5) the prediction from PFGBest that crude oil will drop as low as $45 to $49 a barrel by the end of the year as supplies outpace demand, and (6) demand concerns after Fed Chairman Bernanke said the economic outlook remains "unusually uncertain".

For more from Jeremy, visit www.chartwhiz.com and register for a 1-month free trial to follow his daily and intra-day commentaries.