Commodity Inventories plays an important role in commodity trading, specially in future trading. It directly provides you an idea about commodity demand and supply. Inventories of commodites, with low inventories typically leading to more volatile future prices and increasing the risk of a “stockout” (inventory exhaustion). Commodity Calls collects the data for its members from various sources and present it for the your convenience. Inventory data of commodities is used on the relationship between inventories and commodity futures risk premiums.
For Crude Oil and Natural Gas, the US Energy Information Administration publishes inventory data each week, with the Natural Gas report released on Wednesday, and Crude on Thursday. The inventory reports contain a lot of information but to summarize, they comprise:
- The local and foreign reserves as of the current week
- Production information
- Consumption information
The crude and natural gas prices tend to rise or fall based on the variance of the inventory values Year-on-Year. For example, in September 2016, Natural Gas prices fell, due to the perception that the demand may not be sufficient to decrease stockpiles significantly . The natural gas prices are affected by weather, as gas-generated power is used for air conditioning in the continental US. The interpretation of the crude and natural gas reports are as follows:
- If the inventory levels increase abnormally as opposed to the same period in the previous year, it indicates sluggish demand and thus results in a correction
- If the inventory levels fall abnormally, again in comparison with the previous year, it implies a growing demand
- Prior to the release of each inventory report, weather forecasts tend to affect the price of crude as well as natural gas. For example, hot weather as explained above can drive demand for natural gas. Correspondingly, bad weather such as hurricanes, blizzards etc., can drive the demand for generator fuel and heating oil, thus driving demand for crude.
It is important to keep track of the news and updates immediately preceding and succeeding each inventory report, to ensure that your positions are safeguarded against sudden fluctuation in prices.