How to Trade the Crude Oil Inventories Number

01/29/2009 10:57 am EST

Focus: FUTURES

S. Wade Hansen

Co-Founder, Profiting with Forex (PFX) and Learning Markets

Crude Oil Inventories: A Glimpse Into Future Demand

Once a week, the Energy Information Administration (EIA) gives us a glimpse into what the future demand for oil is going to be by releasing its crude oil inventory numbers. As you will see in the video below, traders love this information because the amount of oil commercial firms have in inventory impacts the price of oil in a relatively predictable way.

The more oil commercial firms have in inventory, the less demand these firms will have for oil in the future, and the cheaper the price of oil will become.

The less oil commercial firms have in inventory, the more demand these firms will have for oil in the future, and the more expensive the price of oil will become.

Of course, there are certainly other factors you should be looking at when determining the future price of oil, so Don't Read the News in a Vacuum.

What Is the Crude Oil Inventories Number?

The crude oil inventories number reports the number of barrels of crude oil commercial firms have in inventory. Commercial firms report their inventory levels to the Energy Information Administration on a weekly basis, but the EIA must still make some estimates to arrive at the final number.

You can see the most recent crude oil inventories report here.

Oil Stocks to Watch

The crude oil inventories number is especially important for shareholders in the nations largest oil companies. When you see the crude oil inventories number rising, it is a bad sign for oil companies, and will typically have a negative impact on the price of their stocks because they tend to make more money when oil prices are high. When you see the crude oil inventories number falling, it is a good sign for oil companies, and will typically have a positive impact on the price of their stocks because, again, they tend to make more money when oil prices are high.

Here are a few of the oil companies you should keep an eye on:

- Exxon Mobil Corporation (XOM)
- Chevron Corporation (CVX)
- PetroChina Company Limited (PTR)
- BP plc (BP)

We’ve only scratched the surface here in the article, but we will go into more detail in this crude oil inventories video.

By S. Wade Hansen of PFXGlobal.com and LearningMarkets.com

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