NEW YORK (CNNMoney.com) -- Oil fell Wednesday after a report showed increased oil stockpiles, and instability in Europe sparked worries that energy demand and the economic recovery may be slower to materialize.
What's moving the market: Prices fell after a report late Tuesday from the American Petroleum Institute showed that U.S. crude inventories jumped 7.51 million barrels to an 8-month high of 351.5 million barrels.
Rising inventories imply lower demand, prompting worries over the strength of the economic recovery and putting downward pressure on oil prices.
A separate inventory report from the Energy Information Administration, due out later Wednesday, is expected to show that there was a 1.67 million barrel increase in crude stockpiles last week, according to a survey by research firm Platts.
Crude prices were also pressured in early morning trading by continued strength in the dollar against the euro. Concerns that Greece will need to tap the International Monetary Fund for a bailout, and a downgrade of Portugal's debt late Tuesday, sent investors fleeing the European currency.
The dollar was up over 1% against the euro to $1.335 in early trading. A stronger dollar makes crude, which is priced in dollars, more expensive for foreign investors. This, in turn, puts downward pressure on demand and prices.
What analysts are saying: "This [decline] is a dollar-related move," said Andrew Lebow, senior vice president of energy at MF Global. "The dollar is stronger today on the Portugal news."
Many analysts say that instability in Europe could continue to weigh on crude oil markets for some time, since that turmoil will boost the dollar.
"You may see funds exit from hard assets like crude and into equities and the dollar," Lebow said.
Oil prices are expected to fluctuate until more definitive signs of stability are apparent.
"Right now we're going to see a lot of sideways trading [in the oil markets], where we're just treading water until we get more definitive numbers," said Gianna Bern, president of Brookshire Advisory and Research, Inc.
Looking ahead: Traders will be keeping an eye on inventory data from the EIA today. Also on tap is a report due out Thursday on initial unemployment claim filings.
