Why is The Weekly Crude Oil Inventory Important to Speculators?
Welcome to the Investors Trading Academy event of the week. Each week our staff of analysts and educators tries to provide you a better understanding of a major market event scheduled during the next week. This week we will focus on weekly EIA crude oil inventory. Once a week usually on Wednesday, the Energy Information Administration gives us a glimpse into what the future demand for oil is going to be by releasing its Crude Oil Inventory numbers.
The report also provides data on inventories of distillates and gasoline, which are refined products of crude oil. Crude oil inventory levels change based on demand and supply trends.
Demand comes primarily from refineries that process this crude into refined products like gasoline and heating oil. Supply comes from domestic production and imports from other countries. The Crude Oil Inventories number reports the number of barrels of crude oil commercial firms have in inventory.
Commercial firms report their inventory levels to the Energy Information Administration on a weekly basis, but the EIA must still make some estimates to arrive at the final number. Inventories increase when demand is lower and decrease when demand is higher than supplies for the week. Every week, analysts anticipate an increase or decrease in crude inventories based on demand and supply expectations in that week.
The difference between actual and expected changes in inventories affects crude prices.
Another important figure that the EIA reports is the level of crude oil inventories at Cushing, Oklahoma, which is a major inland oil hub in the US.
It’s the pricing point for the North American “benchmark,” WTI crude. Inventory levels at Cushing reflect the pace at which the increasing US oil supply is moving from major inland production areas such as the Bakken in North Dakota and the Permian in west Texas to the major refining hub situated on the Gulf Coast. A buildup of inventories at Cushing can pressure the price of WTI crude downwards, and vice versa. The amount of crude supply available, with respect to demand, also drives crude prices. A strong supply level is bearish for crude prices—unless it’s met with parallel demand.
Lately, this has been happening in the US. Strong production levels resulted in robust crude inventory levels. They haven’t been matched by demand.