What economic indicators are especially important to oil traders?

By Investopedia AAA
A:

Economic indicators are used by traders and investors in an attempt to understand the underlying fundamentals of the market. The specific economic indicators traders look at will often depend on the market in which the traders are operating. For oil traders, the major focus will be on economic indicators that provide information pertaining to the petroleum industry. For the most part, the indicators used by energy traders deal with inventories and production levels for crude oil.

One of the most popular indicators used by oil traders is the crude inventories (stock levels), which is the amount of oil currently stored for future use. This number, and any changes it undergoes, gives traders an idea of the trends in production and consumption of oil over a specific period of time. This measure includes all of the U.S. crude oil and lease condensate (mixture of heavy hydrocarbons and pentanes) currently held at refineries, within pipelines and at pipeline terminals.

This information is released in weekly estimates by the Energy Information Administration (EIA) every Wednesday at 10:30am EST. Energy traders will compare the crude inventory number to expectations along with past levels to gain insight into the future moves of the price of oil. As inventories increase over time, it is a sign that production outstrips demand, which should lead to lower energy prices. The opposite is true when inventories are decreasing.

Along with the release of crude inventories is a long list of data focused on crude oil production covering domestic production, refinery input and utilization, and other inventory levels (motor gasoline) and import/export data. All of this data is taken into consideration to try and gain an idea of the fundamentals of the crude oil market. For example, traders will look at refinery use to determine how much more capacity is available to get additional supply to the market. If refinery use is high, putting additional oil through refineries would be difficult - leading to lower supply and higher prices.

Oil-specific economic measures are not the only area watched by oil traders - they will also focus on general economic indicators, such as gross domestic product (GDP), to gain an idea of the overall economic picture. If the economy is growing quickly, it will likely consume more oil than it would if the economy were in a recession, as energy is an important input for economic growth.

For more information on economic indicators, see Commodity Prices And Currency Movements, Getting A Grip On The Cost Of Gas and What is the relationship between oil prices and inflation?

RELATED FAQS

  1. Does cash-on-delivery aid produce better results than a loan?

    Learn of the arguments about the efficacy of cash on delivery, or COD, aid to poor areas, as set forth by its proponents ...
  2. What are some alternatives to real GDP?

    Learn about economic measures used instead of real GDP and the limitations of real GDP. Find out in which situations nominal ...
  3. What effect has globalization had on international investments?

    Learn how globalization impacts international investment and transforms economies around the world. Understand the implications ...
  4. How much of an economy's performance is captured by real GPD?

    Learn about the economic information captured by real GDP. Find out how real and nominal GDP are constructed and the purposes ...
RELATED TERMS
  1. Indicator

    Indicators are statistics used to measure current conditions ...
  2. Nordic Model

    The social welfare and economic systems adopted by Nordic countries.
  3. Welfare Capitalism

    Definition of welfare capitalism.
  4. Benchmark Crude Oil

    Benchmark crude oil is crude oil that serves as a pricing reference, ...
  5. Lion economies

    A nickname given to Africa's growing economies.
  6. Christmas tree (oil and gas)

    A vertical assembly of mechanical elements used in oil exploration ...

You May Also Like

Related Articles
  1. Chart Advisor

    Commodity Traders Are Using Momentum ...

  2. Investing

    What Has Been Groupon’s Growth Strategy?

  3. Chart Advisor

    Falling Copper Prices Will Drag These ...

  4. Investing News

    The Best ETFs to Play 2015's Housing ...

  5. Chart Advisor

    Now Is The Time To Trade Industrial ...

Trading Center