How to Analyze Energy Information Administration Petroleum Data

This weekly number can have a profound effect on the movement of crude oil prices as it describes the current supply and demand balance.

The report is released at 10:30 am ET on Wednesday unless there is a holiday in the United States on the Monday or Tuesday prior to the release.  The report describes the imports that are brought into the United States, the refinery capacity, production, and demand.  The most watched number though is the change to inventories which is the headline number evaluated by traders.

The Department of Energy describes the change to crude oil inventories as well as distillates which include heating oil and diesel fuel, as well as, gasoline. The way traders evaluate these numbers is by comparing the results to the expectations.  On a weekly basis a number of survey’s compile what analysts believe the inventory report will show.  These numbers are compared to the actual release and that information is then priced into either crude oil, heating oil or gasoline markets.

Traders will not only evaluate the stock level of crude oil relative to expectations but also the inventory level relative to history.  As you can see from the chart below of crude oil stocks supply by the Energy Information Administration, stock levels of crude oil in the 4^th quarter of 2015 are well above their 5-year range and in fact at 80-year highs.

A trader can then use this type of information to determine if the price of crude oil is incorporating the currency levels of crude oil stocks.  Traders will also use the trajectory of inventories to determine if the current price is correct.  Historically you can see that inventories rise during the early stages of the 4^th quarter.

The reason for this is that refiners begin their maintenance during this period and let stocks pile up until the winter when they are needed to produce heating fuels.   There is generally a lack of demand during the early fall and early spring relative to the heart of the summer when many people are driving and the heart of the winter when heating fuels are in high demand.

Despite high level of inventories, if you saw that the trajectory of the increases was declining during a normal period when stocks were rising you might conclude that prices do not reflect decline future crude oil inventories.

Traders will go one step further and attempt to evaluate the quantity of crude oil stocks in an area where a specific index is generate.  For example, West Texas Intermediate Crude oil is priced in Cushing Oklahoma.  This is located in PADD 2, which is considered the mid-continent. If crude oil stocks are rising in a location where crude oil is priced, it can alter the supply and demand balance in that location and either push up the price of crude oil or reduce it.

The inventory report released every Wednesday is a key piece of data that can help a traders that is concentrating on crude oil make pertinent trading decisions.