Retail figures push oil lower ahead of today's inventory report

Posted Jan 14th 2009 11:21AM by Michael Fowlkes
Filed under: International Markets, Forecasts, Bad News, Rumors, Oil, Recession

Oil is dropping today as demand concerns hit investors once more following today's dismal December retail figures.

Prices had been moving higher, but after news hit the market that December retail sales fell by 2.7%, investors got spooked, and prices are now down $0.29 a barrel to $37.49. Earlier in the session, oil had risen to as high as $39.45 on more OPEC rumors.

As the retail figures hit the market, the 2.7% drop in December sales was much worse than what analysts had been predicting we would see, with the average consensus going into today's report being that we would see a drop in December sales of around 1.2%, so the actual figures was more than twice the drop the market was looking to see.

The weak retail sales deepen concerns over how bad the current recession actually is, and how long it will take before we see some light at the end of the tunnel. It goes without saying, that the deeper the recession, the more oil demand is going to drop, and that is the main reason we have seen prices make such a sharp turnaround in today's session.

We will get another key piece of data later today when we get this week's oil inventory report. By most estimates, it is going to be bearish, but the question remains, just how bearish will it actually be. Analysts are predicting that we are going to see another rise in inventories, and are predicting an increase of 3 million barrels. If we see an increase that is well above that figure, look for more selling this afternoon.

One bullish piece of data for oil today came out of OPEC, which stated that it was considering lowering its output a bit more. OPEC has already cut production a lot over the past few months, with 2 million a day cuts coming during meetings in September and October, and another 2.2 million cut coming last month. The group signaled today that it would consider further cuts when it meets again in March if the market has not stabilized.

We will keep an eye on today's inventory numbers, and update you on the actual figures as well as the market reaction to today's report when it comes available.

Michael Fowlkes has worked as a stock trader for seven years and spent the last four years working as an analyst for the online investment advisory service Investor's Observer.

Tags: oil, oil prices, OilPrices, OPEC, retail, retail sales, RetailSales, rumors