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

Explore Topics and Trends impacting today's markets

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.

Experience the excitement, energy and decision-making environment of real-time trading of Micro WTI Crude Oil futures and options (and other CME Group products) during the annual CME Group University Trading Challenge. Learn more or register here.

OpenMarkets is an online magazine and blog focused on global markets and economic trends. It combines feature articles, news briefs and videos with contributions from leaders in business, finance, economics and politics in an interactive forum designed to foster conversation around the issues and ideas shaping our industry.

All examples are hypothetical interpretations of situations and are used for explanation purposes only. The views expressed in OpenMarkets articles reflect solely those of their respective authors and not necessarily those of CME Group or its affiliated institutions. OpenMarkets and the information herein should not be considered investment advice or the results of actual market experience.

Neither futures trading nor swaps trading are suitable for all investors, and each involves the risk of loss. Swaps trading should only be undertaken by investors who are Eligible Contract Participants (ECPs) within the meaning of Section 1a(18) of the Commodity Exchange Act. Futures and swaps each are leveraged investments and, because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for either a futures or swaps position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles and only a portion of those funds should be devoted to any one trade because traders cannot expect to profit on every trade.

BrokerTec Americas LLC (“BAL”) is a registered broker-dealer with the U.S. Securities and Exchange Commission, is a member of the Financial Industry Regulatory Authority, Inc. (www.FINRA.org), and is a member of the Securities Investor Protection Corporation (www.SIPC.org). BAL does not provide services to private or retail customers.

In the United Kingdom, BrokerTec Europe Limited is authorised and regulated by the Financial Conduct Authority.

CME Amsterdam B.V. is regulated in the Netherlands by the Dutch Authority for the Financial Markets (AFM) (www.AFM.nl).

CME Investment Firm B.V. is also incorporated in the Netherlands and regulated by the Dutch Authority for the Financial Markets (AFM), as well as the Central Bank of the Netherlands (DNB).

©2021 CME Group Inc. All rights reserved