Crude Oil Supply Reports: Comparison of EIA, API, and Bloomberg Estimates

As I said in December 14th's blog, the profit making from the release of EIA's crude oil supply report comes within 2 to 4 minutes after this crude oil report. In the long term there is very little chance that this report, as well as other crude oil supply reports, will have any affect on future price. I compiled a comparison of crude oil supplies with EIA, API, and Bloomberg estimates. The results were as I suspect: sporadic, at best. Here's a picture of Crude Oil prices in a daily chart, with each line representing the release of EIA and API's report (API's report is release every Tuesday, but to make life simple I just put them both together):

 
The report's do give us the appropriate price direction on occasion, but since it is only sometimes, then you can not count on accuracy.   

EIA Petroleum Reports: How to Profit from this Report

The release of this report is done by the US Energy Information Administration (EIA), and it describes the current import/export and inventory levels of crude oil, gas, and other distillates (for me I'm more focused on Crude Oil since my broker only displays this type of future). To profit from this report (crude oil) you look at the current inventory supplies and depending on how much is gained/loss. Here is a summary:

• Strong demand (strong economy), low inventory - higher prices
• Strong demand (strong economy), high inventory - little to no change in price
• Weak demand (weak economy), low inventory - little to no change in price
• Weak demand (weak economy), high inventory - lower prices

In order to determine whether the economy is strong or weak you have to keep you ear to rail. That means looking at other reports such as Jobless Claims, or CPI, or current GDP.

For the most part, I find that this report only works in the VERY short term. That means in and out in a couple minutes, even seconds.

So here's an example of what to do:

• The report comes out 7:30AM Pacific Time
• The report says supply levels are down, so you believe the price will go up:

• Sure enough, the price goes up
• ....But not for long:

• The there is bigger story for commodies running today, that is making them decrease in price

So, the point to this example: Get out early!... unless the direction of the report coincides with the direction of other market sentiment.

Import/Export for November

Report from Bloomberg:



Export Prices (M/M)  -2.1% to 0.1%
Export Price (Y/Y)      6.3% to 4.7%
Import Prices (M/M)  -0.6% to 0.7%
Import Prices (Y/Y)    11.0% to 9.9%

Import Prices Indexes:
The price of goods produced abroad for the countries who are purchasing


Export Prices Indexes:
The price of domestically produced products for other purchasing countries


What does this mean? Well, import/export reports are used to measure future inflation trends, and inflation can make a currency decrease in value since it effects interest rates. So, according to the report import prices are increasing M/M, but this is off set by a decrease in Y/Y import prices giving us a mixed signal and the idea of inflation being relatively normal. The consensus for import prices was higher than expected, so that will add to a lower than expected inflation. Export prices have also increased M/M, but have decreased Y/Y, giving us another mixed signal. Overall, in a M/M basis: Export Prices is up and Import Prices are up, so inflation is slightly up.

What does this mean for the EUR/USD currency exchange? The USD will increase in value (ever so slightly), and the EUR will decrease in value.

Currency Markets: The Four Topics You Need To Know

The four topics you need to know to make an accurate decision on the value of the currency you are planning to purchase (from Boris Schlossberg book, Technical Analysis of the Currency Market):

1. Economic growth of the country
2. Interest rates
3. Trade balance
4. Political stability

Economic Growth:

• If GDP (economic activity) is increasing in a noninflationary environment, then the currency would most likely go up

Interest Rates:

• Higher interest rates could mean a increase in the country's economic activity 
• Lower interest rates could mean a decrease in the country's economic activity
• Higher interest rates during higher inflation rates does not guarantee that the currencies value will increase

Trade Balance:

• The more a country A buy from country B, the less the value of that country A's currency (country A is essentially buy country B's currency, therefor increasing country B's currency value) 

Political Stability:

• Unstable government, unstable currency market (downward price action)
• Stable government, stable currency market (upward price action)

GDP: What it means, and Why we bother with it

A Couple Rules about GDP:

• Decreases in GDP results in a decrease in employment, and lower rates of inflation
• Increases in GDP results in a increases in employment, and higher prices

Fiscal Policies:
Employ changes to the level of government spending and taxation with the goal of influencing economic conditions.

Discretionary Fiscal Policies:
A tool to improve economic conditions by changing the level of government spending and taxation.

Monetary Policies:
An economic stabilization tool that operates through changes in the money supply.

Human Resource Policies:
A stabilization policy aimed at lessening the amount of structural unemployment in the economy. 

A note on Public Debt (Government Debt):
"As the size of the debt increases, there is more concern over the negative aspects of such a debt. Some of these aspects are increased inflation, higher interest rates, the burden that is passed to future generations, possible income redistribution, and consequences of externally held debt."