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When we looked at oil prices yesterday, we noted that the market was going to pay close attention to today's inventory report from the Depart of Energy.Oil was already weak after yesterday's report on consumer confidence, and today's oil inventory report showed a much larger than expected increase in oil inventories, pushing prices sharply lower.
Today's report showed that oil supply increased by 5.1 million barrels last week. Analysts had been expecting the report to indicate oil inventories had actually fallen last week, and were looking to see a decline of about 1.2 million barrels.
In addition to the bearish inventory report, oil is also being effected by a lower stock market. Stocks have been trading lower today in reaction to news that demand for durable goods fell by 2.5% in June as opposed to the drop of 0.5% that analysts had been expecting.
Consumer confidence and demand for durable goods are two very important factors in the economy. Both are being negatively impacted by the nation's current unemployment situation, and unfortunately unemployment is expected to continue its rise.
It is expected that unemployment will rise above 10% by early 2010.
We still have another big piece of news coming out later this week. Friday before the market opens we will be seeing second quarter GDP numbers. It is expected to be the fourth straight quarter of shrinking GDP, and the real question is how close to the estimate the actual results will be. Analysts are predicting that GDP shrank by 1.2% during the quarter.
The unexpected jump in reserves was enough to bring out the sellers, and oil has fallen $3.78 on the day to $63.45.
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