What to Watch in the Oil Market: A “Power Ranking” of Reports

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A while back, I put together a “power ranking” for crude oil fundamental data, sort of an active trader’s guide for what to focus on when trading crude. I thought this might be valuable due to the fact that some of the most important data in the oil markets is released weekly and a breakdown of that data can be nuanced, given different circumstances. With the recent spike in crude oil volatility, the circumstances have changed, and so have the rankings.

One of the things that has changed since the last piece was the launch of Micro WTI Crude Oil futures from CME Group, which is one-tenth the size of the standard crude contract. Market volatility is increasing, while U.S. production is still recovering from demand shock from the pandemic and delays from inclement weather. While U.S supply has lagged, OPEC has also indicated they will gradually start to increase supply. These market dynamics have given markets a bit of “supply anxiety.”

Demand is also on the rise, although that rise has been uneven as a result of vaccination rates and Delta variant infections.

Oil Market Data, Ranked

As mentioned above, the importance of each piece of data varies with the current circumstances, so they are ranked in order of importance relative to their ability to impact prices. I listed them in reverse order this time (least important to most important), with their previous rank in parentheses:

5 (previously 4): International Energy Agency Oil Market Report – The monthly oil market report from Paris-based IEA contains independent information on supply, demand, crude oil stocks, prices and refinery activity throughout the oil-producing world. I dropped its ranking by one spot, mostly because we have just gotten a look at the most recent report. It is often released very close to the monthly OPEC report, and the two can be looked at in tandem, providing checks and balances for the other. It is considered unbiased due to France’s low ranking in terms of oil production (71st in the world) but highly regarded as a source of balance to the often “bullish for price” OPEC report.

4 (previously 2): OPEC Monthly Oil Market Report – This report from OPEC is released monthly between the 12th and the 17th of each month and has taken on a lower level of importance as we see U.S. production remain muted. Compliance with OPEC’s production quotas is now the single most important part of this report, as their demand estimates tend to show unusual strength versus other independent analysis. Their demand estimates are very comprehensive, but it is often thought that the current level of price may skew them up or down.

3 (previously 1): EIA Weekly Petroleum Status Report – This may surprise some people, but we are only referring to the level of weekly inventory draws or builds reported by the EIA (or U.S. Energy Information Administration). Given some time, this report will reclaim the no. 1 position. Released every Wednesday at 10:30 a.m. Eastern time, it, includes figures on gasoline inventories, as well as refinery utilization (but we will be ranking refinery utilization separately). Although the importance of the release has dropped into third place, it is actually a batch of data that helps to demonstrate why Micro WTI Crude Oil futures are so valuable. The initial moves off EIA inventory reports can be large, but can reverse quickly and with wider trading ranges. A smaller, longer-term position in WTI can be a very effective way to express an opinion while mitigating short-term price risk.

2 (previously 5): Baker Hughes Rig Count – This ranking may be a little misleading as it only warrants the number two spot if it starts rising at a faster rate than it has been recently. If it stays on its current pace, you can drop this all the way down to no. 5 and move everything else one notch higher in terms of importance. Baker Hughes, the oil services company, has issued the rotary rig counts as a service to the petroleum industry since 1944. Rig count data is viewed as a proxy for increases and decreases in production in the U.S, but the correlation is not always accurate. One thing we know, however, is that in July 2021, the front month contract in WTI futures reached $76.98. Current rig counts sit around the 411 level, and the last time crude oil prices were as high as $77 was November 2014, when rig counts stood at over 1500.

1 (previously 3): EIA Refinery Utilization – The refinery utilization figure is getting more attention due to the weather in the Gulf Coast spurred by the prime of hurricane season. This data set takes first place very short term as refineries retool and perform maintenance to prepare to produce summer blended refined products, and as they recover from damages caused by two consecutive storms out of the Gulf of Mexico. Refinery utilization not only represents short-term demand at the bottleneck that is U.S. refineries. But we are in the heart of hurricane season, and until this danger to production passes, refinery utilization will retain this no. 1 position in my opinion. We won't be able to fairly judge the fall in U.S. demand from the end of the summer driving season until hurricane season is over, traditionally at the end of November.

As I mentioned in the last piece, crude oil is a pure supply and demand market, but the dynamics of both supply and demand can shift based on many factors. Keeping an eye on the five data points above can help you get a clearer picture of where those factors are and where supply and demand is in relation to price. If volatility continues to rise – Micro WTI Crude Oil futures can help you manage that.

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