Why is it essential to follow crude oil inventories ?
What’s the gist?
Once every week, The Energy Information Administration gives us an insight into what the future hold regarding crude oil. This is determined by releasing the crude oil inventory numbers. There are a lot of people and trackers who are very much interested in this information because the volume of oil that the commercial companies possess in their inventory impacts the price of oil for consumers in a comparatively predictable way
What is the COI number?
The Crude Oil Inventory number lists out the amount of crude oil the private and commercial firms have in their inventory possessions. These firms are required to report their levels of crude oil inventory to the Energy information Administration every week, but the EIA makes the final estimates to arrive at an approximate number.
How are crude oil inventories significant?
It is a known fact that the oil prices determine the underlying health of the country’s economy and that it cannot be underestimated. Below are some of the reasons why Crude Oil Inventories are important:
Inflation is directly proportional to oil prices. That means that when oil prices go up, inflation goes up and vice versa. Oil is a non-renewable resource that is a basic need for the operation of the economy. From manufacturing to heat to transportation, we use oil for everything. So, the price of crude oil usually determines the prices of other related products. For example, If the prices of the oil rise, the prices of consumer products and transportation rises and hence the overall cost of living increases by the same margin. In the US, during the time of inflated oil prices, the Federal Reserve even adjusts their rates to stop further inflation from happening. This is just one example of how much oil is interrelated with the overall economy of the US
There has been a significant rise in the practice of quantitative and algorithmic trading. This basic principle here is always to understand the way oil prices increase or decrease and the factors that are responsible for that. EIA provides the weekly data which provides lots of beneficial points that can help us understand the current condition of US oil supplies. Traders and trackers must also observe the international policies and politics to see if your government is exercising control over the oil prices and the production quotas. These governmental policy changes can profoundly impact the oil demand and supply rate.
However, one significant challenge that arises out of analyzing the perspective of energy markets is that the supply and demand of oil and affected by countless factors that cannot all be observed at the same time. Some of them include seasonal elements, geopolitical tensions, and even world events.
Which oil stocks you should observe?
The Crude Oil Inventory number is very significant for stakeholders in huge oil companies. Because this has the power of solely determining the rate at which it drops or rises. If you observe that the Crude Oil Inventory number is increasing, it is actually a bad sign for oil companies. And it will negatively affect the prices of the stocks. Because the shareholders usually tend to make more money when the crude oil prices are high. If the numbers are falling, it is a good sign for the oil companies. And as a result, will have a positive impact on the stock prices
Here are a few of the oil companies you should observe as a tracker or a trader:
- Exxon Mobil Corporation (NYSE: XOM)
- Chevron Corporation (NYSE: CVX)
- PetroChina Company Limited (NYSE: PTR)
- BP plc (NYSE: BP)
There are many factors when it comes to trading oil. But it only requires a little patience and insight and preparation. In order to ensure that you garb all the opportunities that the current market provides you with.
In conclusion, Crude oil is a significant determiner of many items as it is the number one source of energy globally. If the price of crude oil increases, it can virtually affect anything and everything that we buy. Crude oil prices affect the inflation rates, economy, and even the currency exchange market rates.