Economic indicators are used by traders and investors attempting to understand the underlying fundamentals of the market. The specific economic indicators traders look at 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, every Wednesday at 10:30am EST, by the Energy Information Administration (EIA). Energy traders will compare the crude inventory number to expectations, along with past levels, to gain insight into 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 comes a long list of data focused on crude oil production, covering domestic production, refinery input, and utilization, and other inventory levels (motor gasoline) as well as import/export data. All of this data is taken into consideration when attempting to 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 get an idea of the overall economic picture. If the economy is growing quickly, it will likely consume more oil than it would were it in a recession, as energy is an important input for economic growth.