It was bullish figures with this week's DOE stats – crude, gasoline and distillate all posted draws. Crude draw was 300k bbls, gasoline 6.4m bbls, and distillate 1.8m bbls. Although the overall picture tightens, relative to last year and the five-year average, crude, gasoline and distillate stocks all moved closer to average.

Gasoline had large surplus since February and is now at 2007 levels as distillate. Gasoline demand declined versus last week even with lower retail prices.

Stocks are coming towards the historical equilibrium.

Just to put crude oil in perspective, prices have doubled since last year; the recent fall has reshaped the forward curve from backwardation into contango. Compared to last year where crude oil prices fell this summer, and we expect inventories to build. In consequence after possible range bound trading, we expect oil to trade lower by the year-end and next year.

Though prices often overshoot in the short run, they cannot defy physical realities in the longer term. Barring a physical disruption that may temporarily spike prices, we judge oil prices have peaked for the tear or two at least.

We acknowledge the risk of hurricanes or political disruption can create an oil spike but fundamentals have largely weakened.

In our view, the recent correction in oil prices was overdue and softness awaits in the next 12 months.

The recent oil correction since mid-July has been substantial (-23.84 per cent) and a relief technical bounce could be in the cards but it should be limited before a new wave down. For September crude oil a break of the recent lows at $112.72 will lead us towards the 200. Dma at $108.26 first solid support zone.

Resistance is at $117.50 and $120 area.

NATURAL GAS

Despite a weekly EIA Storage deficit of 2bcf natural gas plunged five per cent, a sign of the bearish sentiment englobing the market at the moment. Storage of 2.567 trillion cubic feet is slightly below the five-year average for this time of year and 11 per cent below the same period in 2007. Market supply and demand suggests gas demand is lagging supply, therefore, we are expecting a natural gas inventory surplus by the end of the summer build season. On a trading perspective, we continue to believe the $8.00/7.80 area for October natural gas should offer good support.

PRECIOUS METALS

Gold momentum to the downside has accelerated this week with dollar strength. The $857. 50 support for the December contract has been the key. Once broken gold have thrown down the towel. We still have a support $772 area (76.4 per cent from the up wave $686-$1048) but the real target is $750 area. Also we expect the bearish sentiment to stay short term, we are not convinced the US dollar continuous strength in face of the current weaknesses from the banking sector, housing market and the consumer. The low-rate environment is still favourable to gold despite the actual headwinds.

We are looking for precious metals to stabilise by next week as the sell-off has been too quick. The 772 area should offer a support to retest 8.25 for gold December before turning down for our target at $750 area.

Copper has not been spared among the industrial metals although silver is showing the worst return with a 38 per cent drop in a month. Our September copper target for last week at 320 has been reached and if this zone 320/317 does not hold we would be for a test of last year December low at 290 September copper. We will enter a long position if we trade close to 320 area to target 332.

AGRICULTURE

Grains: The US farmers will produce 12.288 billion bushels of corn this year, according to a new US Department of Agriculture survey that shows a substantial increase from the government's July forecast. "If realised, this (corn) yield would be the second highest on record, behind 2004," For wheat, estimates on domestic production were more neutral.

While traders were looking for a bearish number and had priced a higher crop estimate, corn price action after the USDA release has been fiercer than expected. December corn touched the $5.00 symbolic level and bounced back five per cent. The next day corns spillover to wheat and soybeans, all of them ending limit-up. A long range forecast calling for dry weather during the next two weeks helped the rally. Also technicians say this year crop has a shallow root system and dry weather could have more of a negative impact that usual.

Corn December despite the recent bounce to 5.80 could be under pressure. It is now trading below its 200 day moving average at 5.68 but we have liked the recent price action where corn was surging despite dollar strength. We continue to believe the low inventories level will continue to support corn.

We believe wheat will continue to outperform corn in the coming months. The spread has been from 148 when we advised it two months ago to 310 as today although we expect a bit of corn bounce after the last month sell-off.

-- The author is strategist with Saxo Bank