A weaker dollar and key technical levels have spelt a comeback for commodities, which climbed higher last week and look set to see a new wave in the weeks ahead.

Last Wednesday, oil built levels not seen since 2005, as the Oil DOE Inventories hit 9.4 million barrels. However, not all draws came in at record numbers, as gasoline attracted a draw of 6.2 million barrels and we saw a smaller than expected build in distillates. The culprit? Higher than average imports, at close to 11m b/d, while deliveries also increased to 1.3m b/d versus last week, reaching the highest levels since January 2007.

Once again, the volatility in imports is difficult to predict and could be due to one-off factors. Nevertheless, this stock build trend has shaped up to be a solid one since June and may well last into the Fall.

Demand for gasoline and distillates has declined, with gasoline demand since June at 20,000 b/d lower than the five-year average and 200,000 b/d lower than last year. However, the distillate demand fall is most likely due to lower exports, rather than any substantial demand trend. So, all in all, despite eye-catching numbers, the product dynamic remains unchanged relative to last month's with weak demand a continuing theme.

Meanwhile, some severe production cuts could be on the discussion agenda at the next Opec meeting in September following comments made by the International Energy Agency, speculating cuts ahead of the recent oil correction as they fear prices of around or less than $80 per barrel.

Despite little significant news, Thursday saw the dollar weakness act as a trigger for the energy complex to bounce sharply higher. But it was more about technical indicators, with key resistances taken out, as the market also found support from the IEA comments.

Nymex October contract broke up past the $117.40 resistance holding for 10 days and the swing target at $119.81 was easily reached. If oil holds the $117.40 support, the $128/$129.50 level will be within reach. Despite the fact that we could have found a short-term bottom at $111.50, we still believe in a next wave to sub-par $100 area. As winter closes in, traders are keeping a close eye on inventory levels. UK winter gas is up more than 15 per cent in two days after Statoil announced the closure of a gas field. This outage represents five per cent of the UK winter market which should be replaced by LNG.

This situation has helped to push US gas prices higher. As expected, the $8 area is a sticking point for natural gas.

PRECIOUS METALS RALLY

Precious metals continued their rally with a stronger energy complex and a weaker dollar. The break of the strong $825 resistance for the December contract proved to be a trampoline for gold to reach the swing target at $842.90. And it was reached in lightening time, gaining more than $20 in a couple of hours. It could be the first weekly to achieve a positive close in six weeks and should offer some short-term support to gold. Provided we don't break the $824 support, we expect the $857-$870 area to be tested.

Last week's Industrial metals have been tested to the extreme with losses close to 40 per cent in platinum and silver. We had a closer look at silver as we reached an interesting long-term support at $12.30 and bounced from there. We expect this level to hold and the $15-$16 level to be tested in this week.

CORN SURGES

Corn leapt to a six-week high as the US grain market gained on US dollar weakness and the oil surge. We saw incoming funds also supported by significant rain across the corn belt. The $625 level has been reached this week and December corn could take a breather for a few days. The $590 area should offer decent support in case of consolidation to target $650.

We maintain a technically bullish outlook on December wheat with the $880 level as a good support. We could see some sideways trading but the $880-$850 area should be solid enough to propel wheat towards $1,000 in the next weeks.

The writer is a strategist with Saxo Bank.