Oil prices inched up slightly today, despite the fact that inventories swelled much more than the market had anticipated last week. Going into today's inventory report from the U.S. Department of Energy, analysts had been expecting to see an increase in oil inventories last week. But, on average, analysts had been expecting that the increase would be around 3.4 million barrels, and the actual increase was much larger, with a reported 6.2 million increase: a very bearish indicator. Typically when we see inventories rise so much higher than expected, we would expect to see traders push oil prices lower, but not today. Instead, oil was able to move a bit higher on the day, trading up 58 cents a barrel to $42.16. Earlier in the session prices had been up as high as $43.60.
The main reason why we saw prices moving higher today was the focus traders put on the Federal Reserve. After its current two day meeting, the Fed indicated that it saw risks in the economy, but that it believed we would start to see a gradual recovery in the latter part of the year. In reaction to the risks that still remain, the Fed did agree to leave the the targeted range for the federal funds rate between 0 and 0.25%.
There has also been focus on the new stimulus plan that President Obama is pushing hard for in Washington. The newly elected President is looking for Congress to pass an $825 billion package that he believes the country must have in order to get things moving in the right direction once more.
While a strong stock market, and enthusiasm over the next stimulus package may have resulted in prices moving higher today, it is still a very volatile market, and we are still left with the huge supply increase to deal with. We will see how the market looks tomorrow, but I would not expect to see this rally continue into tomorrow's session. The U.S. and foreign countries just simply have too much supply right now, and prices are going to have to move lower in reaction.
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.
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Reader Comments (Page 1 of 1)
1-29-2009 @ 12:02AM
daang7601 said...
Oil-price should be dropping big-time cause utility powers are knocked-out from Kansas, Ohio, NY, New England, and across the States due to freezing weather.
Those States says power won't be on till the mid of February... That means over millions of homes are not burning fuel...