Understanding the US Crude Oil Inventories

As an indispensable commodity in the global market, crude oil prices are primarily decided by the law of supply and demand.

Energy traders generally closely follow the weekly US Petroleum Status Report released generally by EIA (Energy Information Administration) at 10:30 AM ET each Wednesday.

The report provides information about US oil demand, supply, retail trends, imports, and exports.

In particular, traders pay close attention to the level of crude oil reserves. To be more specific, you can find the number of barrels of commercial crude oil and its weekly change.

The level of inventories is market-driving data as it directly impacts oil prices.

Ahead of the report release, analysts will issue projections on inventory adjustments.

If there is a big gap between EIA's reading and analysts' estimates, oil prices may react dramatically and impact WTI（West Texas Intermediate） crude futures in the short term.

If the increase in crude inventories exceeds expectations, it implies stronger supplies and sends a negative signal for oil prices. The same can be said if a decline in inventories is below expectations.

In that case, traders may be bearish on the current oil demand and immediately sell their positions, causing a price retreat.

Likewise, if the increase in crude inventories is less than expected, it implies greater demand and signals potential oil price rises. The same can be said if a decline in inventories is more than expected.

A better-than-expected oil inventory figure may further indicate that demand is increasing. As traders enter trades again in the oil market, prices may be driven up.

Oil inventories can also impact inflation because they can move the prices of petroleum products.

Oil plays a major role in modern society. Apart from being a main source of energy, many everyday products are made from it, including plastics, fabrics for clothing, toiletries, and even chewing gum.

If oil prices rise, many consumer products will go up correspondingly, driving up the overall cost of living.

Moderate consumer goods prices may have something to do with falling oil prices, while the cost of living may shoot up amid oil price hikes.

Inflation seems to move in the same direction as oil prices. Oil inventories may shape inflation levels in the US.

Amid rising oil prices, the Federal Reserve (Fed) may hike interest rates to tame inflation, which will move the financial market.

While these weekly releases provide essential information about US oil supplies, traders must also take into account international politics and policy.

Members of the Organization of Petroleum Exporting Countries (OPEC) regularly meet to control oil production and prices. Since OPEC controls 60% of the world's oil production, OPEC policy changes can heavily impact global oil supply and demand.

The oil supply and demand can also be affected by other factors, including geo-political tensions, seasonal demands (heating in winter and road trip peaks in summer), refinery outages, and global events.