HardAssetsInvestor

Written by Brad Zigler & Sumit Roy  |

March 17, 2011

Oil Market Indicators Explained: Part 1

Details

Given recent events in the oil market, we're taking a second look at our most commonly used oil market indicators. This week, we look at the fundamentals.

A couple of days a week, the Desktop is given over to market indicators, and Wednesdays belong to oil. Midweek, we highlight the key fundamental and technical indicators underlying crude oil and its essential refined products. The Wednesday oil roundup coincides with the U.S. Energy Department's weekly release of national petroleum inventory data.

Given the interest shown in the Wednesday Desktop, we figure it's time for a more thorough oil market backgrounder. (We took a preliminary look at the space back in January's "A Primer On Oil Indicators.") So without further ado, we present the first installment of our petroleum guide:

Inventory Recap

In anticipation of the Energy Department's data release, sell-side and independent analysts make forecasts on the ebb and flow in crude oil, distillate fuels and gasoline stockpiles. We recap these predictions and contrast them with the estimates made by the oil industry-supported American Petroleum Institute. All the prognostications are then held up against the definitive supply numbers published by the Energy Department.

The Street's forecasts and the API estimates often drive trading ahead of the government's data release. Surprises, such as unanticipated changes in crude oil and product stocks, can move prices in the Wednesday session following the data release as well.  Be mindful, however, that exogenous events can overshadow these reports. The current volatile situation in the Middle East and North Africa, for instance, is much more important to the overall oil market than U.S. inventory numbers. When things cool down overseas, however, we can expect the API and DOE reports to regain their larger impact on the space.

Domestic Crude Oil Inventories

Supply and demand - Expectations for refinery utilization are also contrasted along with a comparison of refinery output and consumption trends.