U.S. oil inventories and their influence on the price

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If you are one of the investors who are interested in the price of Crude Oil and trading this commodity online, you probably know that the US Oil Inventories are one of the most influential fundamental indicators for this asset. That's why in this article we're going to take a look at the real influence of this data on the price of Crude Oil with some explanations on the mechanisms that lead to this effect and how you too can use this data in your investment strategies.  

Analysis N°1

First of all, we will follow with the greatest attention the various communications and meetings of OPEC. OPEC is responsible for strictly controlling the production of its member countries. Thus, it has a real influence on the volume of supply and therefore on the price per barrel.

Analysis N°2

It is also worth paying close attention to the communications of the IEA or International Energy Agency, which often issues opinions regarding the future of energy commodities such as crude oil and whose publications and estimates are particularly closely followed by investors.

Analysis N°3

Similarly, the geopolitical situation in the oil-producing countries will have an impact on the price of a barrel of oil because of the negative effects of certain conflicts on the production of black gold and therefore on the world oil supply.

Analysis N°4

The price of the dollar on the foreign exchange market will also have a strong influence on the price of oil, since it is in this currency that this commodity is quoted. Therefore, when oil is weak against other currencies, it makes the purchase of barrels more attractive and tends to increase the demand and therefore the price of this commodity.

Analysis N°5

Data on economic growth and in particular the health of the world's industrial sector are all indicators that will give us information on the need for oil at the international level and will therefore have a direct influence on the price of this asset.

Analysis N°6

Finally, one of the main indicators of rising or falling prices that we will discuss in more detail here is of course the release of US crude oil inventories.

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Definition and explanation of US oil stocks :

First, let's take a moment to explain what US oil stocks are and what they actually represent. As the name implies, US oil stocks are the oil reserves held by US companies that are necessary for their operations. In order to understand how these stocks are built up, it is important to understand that these companies buy large quantities of crude oil in order to ensure that they never run out and are not forced to stop production if there is a supply problem.

Of course, the evaluation of these American stocks is not an easy thing to do and that is why specific and specialised organisations are in charge of this evaluation.

The primary organization in charge of assessing U.S. crude oil inventories is of course the IEA or International Energy Agency. This agency is in charge of carrying out an inventory of these stocks every week by counting the stocks of crude oil available to companies in the country.

The second organization in charge of this task is the API or American Petroleum Institute, which is responsible for the official publication of these weekly inventories.

Note that if you wish to follow this indicator, you will find it in the economic calendar provided by your broker once a week and most often on Wednesday or Thursday.

 

How can US oil stocks influence the price of a barrel of crude?

You may be wondering how the crude oil inventories held by U.S. companies can affect the price of this commodity. That's exactly what we're going to explain here in detail.

To understand this effect of stocks on prices, it is important to remember that, like other stock market assets and commodities in particular, the price of oil is above all governed by the strength of world supply and demand and the balance between these two factors.

Because of this correlation, it is understood that when U.S. corporate crude oil inventories drop significantly, it indicates that these companies will have to buy back barrels and therefore tends to lead to a rise in the price of this stock. In the opposite case and if the companies' inventories are important or increase, we expect a weak demand in the following weeks and thus a fall of the price of this value.

The purely speculative aspect of this information should also be noted. Because apart from the fact that companies in need of oil will of course buy it back to keep their operations going, we know that investors, and in particular institutional investors who have a strong influence on the markets, will use this data to buy or sell oil and will therefore have a direct impact on the evolution of the price of this raw material.

 

How to analyse and interpret the oil stocks publication?

We will now get down to the nitty-gritty of how you can view, analyze and interpret these U.S. oil stocks in order to take a position on the best trend going forward.

First of all, as we mentioned above, these stocks are published by the API once a week, i.e. on Wednesday or Thursday. Therefore, you must first have access to an economic calendar such as the one you will find on your trading platform which will show you this data as well as other interesting information such as the value of the dollar or the communications and meetings of OPEC.

Of course, you can use this data as is for position-taking, simply by comparing the published stocks to the previous week's stocks. A rise in inventories will likely signal a drop in prices, while a drop in inventories is likely to indicate an upcoming rise in oil prices. But it's actually a bit more complicated than that.

Indeed, as you probably already know, the financial markets and stock market investment are above all a matter of anticipation. Also, as far as US oil stocks are concerned, forecasts are made by experts in this sector every week based on certain indicators. It is therefore much more interesting to analyze and use the difference between these forecasts and the actual stocks than the stocks alone.

Indeed, it is most often seen that when the forecasts made by the experts are correct, the price of oil remains relatively stable, as the markets have anticipated the changes in demand thanks to these forecasts and before the actual publication of the U.S. inventories. But if the published inventories are lower than the forecast made by analysts, there is a good chance that the price of oil will follow a bullish trend right after this publication. Of course, in the case that the inventories turn out to be higher than expected, a bearish trend is most likely to occur.

For example, let's imagine that expert analysts are expecting oil inventories to be 100,000 barrels for the coming week. If, when the official figures are released, it turns out that the actual inventories are only 70,000 barrels, this will have a positive impact on crude oil purchases, and thus on the price of this commodity. Indeed, American companies will order black gold on a massive scale in order to replenish their stocks, which are likely to decrease more and more sharply due to significant economic activity in the country. This will result in a significant increase in demand and therefore a rise in crude oil prices.

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