Also known as crude stockpiles, inventories are the reserves of crude oil (unrefined) available to a nation. Typically, oil inventory figures help dictate global supply and demand of crude oil. But why do they matter so much? And why is it that they exert such controlling influence over the broader market conditions? The team here at TriStone Holdings Ltd, an emerging UK oil investment company, wanted to explain exactly that!
How Do They Influence Markets?
In any economic setting, supply forms a crucial role. After all, there’s a reason that so much of basic economic theory revolves around the founding principles of ‘supply and demand’. The Energy Information Administration (EIA) is the USA’s governmental body on all things energy-related. They provide detailed weekly updates on US crude oil inventories. Such is the influence of this weekly publication that the market often shifts significantly based on its findings. The US isn’t the only country to monitor their reserves in this weekly fashion, however.
The IEA is the International Energy Agency and they publish monthly inventory/stockpile data for the 37 countries that comprise the OECD (The Organization for Economic Co-operation and Development). The commercial inventories of the OECD countries serve as typically reliable market indicators.
Large Crude Inventories
When crude inventories build over time, and the market looks to be well supplied, then the tendency is for market prices to fall. Thinking back to that basic principle, the higher the supply is, the lower demand will be and this is reflected accordingly in market prices.
Diminished Crude Inventories
Conversely, inventory draws lead to an appreciation in market value. When inventories are being drawn from, it’s a sign of increased demand, diminishing supply and therefore a greater oil price, overall. It’s, of course, not as wholly simple as that but the general principles stand up to scrutiny. Traders work off of signals and crude inventories give a pretty good indication as to the state of market supply and demand.
Crude Inventory Records
Last year was an unprecedented year for the oil and gas industry, and not for altogether positive reasons. The Coronavirus pandemic, which has affected everybody significantly – led to market fragility, the likes of which hadn’t been seen before. Now, market strength is regathering but there was a period when the industry was in significant difficulty. This was reflected in the record inventory builds seen in April 2020. That month, crude inventories saw a staggering 19.25 million build amidst plummeting demand. The fact that some storage tanks were reaching capacity, something which had rarely (if ever) been a concern previously, is truly reflective of just how seismic the events of 2020 were.
Current State Of The Market
At the time of writing, bullish sentiment is growing amongst commodities market analysts. With prices having climbed back past pre-pandemic levels and some experts cautiously optimistic that barrel prices could reach $100 at some point this year, the market is in confident mood. This confidence is borne out in the fact that the market saw its longest gains streak in over two years earlier this week, with prices in New York rising for a seventh consecutive day.
What’s been driving this recent market growth? Well, primarily the news of the various vaccines continually drip-fed over the last few months, which in turn has led to market sentiment that ‘normality’ is not too far off, relatively speaking.
Contact TriStone Holdings
If ever you hear about crude inventories, pay close attention because the chances are traders will be too. If crude inventories are building, market demand tends not to be there. On the other hand, if they’re falling, it’s a sign of demand and therefore higher market prices. So, if you’d like to find out more about our UK oil investment company, then get in touch! Contact TriStone Holdings today on 0800 055 7079 or by emailing us at [email protected]