Crude oil rallied on Wednesday but ran into good resistance at $89 a barrel, a clearly defined technical level. Crude was higher as the dollar fell across the board against most major foreign currencies. A weaker dollar and its resulting weaker purchasing power parity results in higher values for commodities. Oil retreated from its highs as the weekly inventory report released by the US Energy Department stated that crude stocks for the latest week showed a greater than expected increase in supplies. Crude is higher by 16% for the year. Crude stocks for the latest reporting week rose by 4.23 million barrels to 354 million. The trade had been looking for a decline of 500,000 barrels so when the number was released, some traders were caught on the wrong side of the market. The resulting profit taking dropped the crude in price by about $1.00 a barrel. The US is continuing to release crude from its Strategic Petroleum reserve to the IEA under a previous agreement. Crude stocks in Cushing, Oklahoma, the hub for the US benchmark West Texas Intermediate oil, dropped by 893,000 barrels to 33.7 million barrels, the lowest level since November. Supplies of distillate fuels increased by 2.45 million barrels to 154 million barrels, the highest levels since March. Gasoline stocks dropped by 3.51 million barrels to 210 million barrels. . This is the biggest decline since April. Consumption of gasoline was down 2.8% from year ago levels. The shift in gasoline to distillate by refiners has already begun as we are late in the driving season. At this point, OPEC sees no need to change quotas. OPEC output of oil increased to its highest level since December 2008. Money flow in crude oil is negative. September futures will come off the board early next week. Money flow in October Heating Oil is positive. Money flow in Gasoline is also positive. In short, a mixed market with many headwinds. Crude’s current correlation with equity prices continues.

Crude rallied nicely after a price rejection low but is now finding resistance at the mid Bollinger Band.

Heat is also at the mid band…

Gold futures rallied on Wednesday on the back of a weaker dollar and on news that wholesale costs were running hotter than expected. The Producer Price Index gained 0.2% last month, higher than analysts had been projecting. The core rate of PPI, which excludes food and energy, also rose by 0.4%, the most since January. Gold is up 26% so far this year. Euro Zone debt problems continue. A meeting between German Chancellor Merkel and French President Sarkozy only produced the idea of establishing a financial transaction tax, not an idea well received universally. Both leaders rejected the expansion of the region’s rescue fund and both agreed that there isn’t enough intergration between the 17 member states in the EU to coordinate the introduction of a Euro Bond. Meanwhile, the Swiss have been searching for ways to counteract their currency’s strength as it has severely damaged their export business. One idea was to temporarily peg it to the EC but that idea has apparently been wisely rejected. Platinum futures have rallied for eight consecutive days. For the first time, we see sellers emerging whenever the price of Gold trades above $1800.00 an ounce. Money flow for gold remains positive as it does for silver. An increase in gold margins didn’t materially affect traders.

Intraday ranges contracting; a warning sign. Sellers above 1800.00

Severely overbought short term

Oct Plat                                       1809.00                                            1875.00

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Coffee soared this past week. Coffee exports from Nicaragua are lower by 25% from last year at this time. The rebound was seen largely as technical in nature coming out of severely oversold levels. A threat of a frost in Brazil is remote at this time of year and the Vietnamese harvest may start sooner than usual as weather conditions have been ideal.

Should test highs of July.

Sugar shot higher on short covering. A weaker dollar helped to encourage buyers. Volumes are light. Brazilian yields are less than expected and this is a positive factor. Questions remain as to India’s desire to ramp up exports and this is another positive feature. Brazil is

projecting a 17% increase in sugar cane production over the next three years. A lack off hedge selling was also a positive feature.

Not as bullish as it may appear to be.

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Wheat futures moved to a two month high on the idea that dry weather in the Great Plains will result in a cut back in acreage planted for winter wheat. Key growing areas in Texas, Oklahoma and Texas have had about 25% of normal rainfall over the past month. Consequently, production of hard red winter wheat may fall by 22%. Farmers say that

it hasn’t been a good growing season and it doesn’t look to be a good panting season either. All of this puts upward pressure on grains and indicates to some that inflationary pressures are real. Red winter wheat is usually planted in September and is harvested in June. The US is the world’s largest wheat exporter. Wheat futures have been under accumulation 7 days in a row. Money flow in corn is positive but negative in soybeans.

Big range trade with defined highs and lows.