Difference Between Crude Stock Builds & Draws
A quick video explaining what a build or draw in oil inventories is, and what its implications are.
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So there are essentially two weekly oil inventory measures that we look at. The first one is the API, which is short for American Petroleum Institute, which usually releases their data. Which usually releases their data close to the end of the New York trading session every Tuesday, and the second one is the Wednesday crude oil inventories report, which is released from the EIA. The Energy Information Administration in the U.S. they normally release their data at 3:30 London time on Wednesdays.
Now the most important one, arguably, is normally the crude oil inventory data from the EIA, which is released on a Wednesday, but the API data, or the private inventory data, is a very important precursor the day before, that normally comes out on the Tuesday, and often sets the stage for what traders expect of the crude oil inventories, because the API data basically accounts for roughly between 80% and 90% of the total production in the industry, and so that means that if the API data comes in much higher or much lower than expected, the market will have a similar upside or downside expectation for the EIA data, which comes out the day after. Now the reason why there are sometimes disparities between the API data and the EIA data is because the API data isn't a must for its members to release that info.
A draw means that there is less inventory stock than markets were anticipating. And a build simply means that there is more inventory than the markets were anticipating.
It basically had an expectation to draw by negative 2.1 millions, meaning that they were expecting there to be 2.1 million barrels less of crude stock this week compared to last week's report. So markets were already expecting less inventory.
So the markets were expecting there to be a 2-million-barrel draw, but they actually got an 8-million-barrel draw. So that was a much bigger draw than what was expected. Now a build will just be the exact opposite, right?
Let's quickly go to the EIA data. So if we go to the EIA data this week, we can see that the markets are expecting that negative 2-million-barrel draw, but if this number wasn't a negative, let's say it was a plus, for example, that would mean that the markets are expecting a build in the data. So let's say that this number here was a plus 1 million, meaning the markets were expecting a build of a million barrels, so 1 million barrels more this week compared to last week, and it actually came in at plus 3 million, there would be a build, a bigger-than-expected build, of 2 million barrels, if that makes sense.
Yesterday, we saw, we came in with a much-bigger-than-expected draw. So we came in at negative-8-million draw versus anticipation of a negative-2-million draw.
So that already gives the markets an expectation that the EIA data for today will come in at a draw of close to somewhere between 8 million, right? So even though the expectation poll, yeah, in Zenith, even though the expectation says negative 2 million, the markets are now actually already pricing, expecting a draw of 8 million due to the API data. Which means if we get a draw of negative 8 million, or close to that, we won't maybe see any meaningful price reaction in the oil, because the market's already expecting that draw of 8 million based on the API data. But because the markets are now expecting a bigger draw of closer to 8 million, the biggest reaction in oil will come from a surprise of either a much-bigger-than-expected draw than even 8 million, or a build in stocks.
So think about it this way. We started with an expectation of negative 2 million. That has now changed to an expectation of somewhere close to negative 8 million, based on the API data. So the biggest reaction in oil would come from a much bigger draw of much bigger than negative 8, so let's say a draw of negative 10 million barrels or 12 million barrels, or even more, a bigger draw than that. Or, on the other hand, a bigger reaction would come from a surprise build, or a positive inventory print.
Now how we normally look at it is in terms of supply and demand, right? So if we have a draw, meaning much lesser stock than expected, it means there was lesser supply, and that is normally good for price.
Now whenever we have a surprise build, meaning there's more supply in the system than was expected, that should normally be bad for your oil prices, and if you have a much bigger build than expected, you normally see price come down in terms of oil.
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We interpret and explain price moves in real-time, 24 hours a day. Our team of analysts produce text, video and audio commentary.
You understand the markets and trade with confidence. Learn more at our website here: https://bit.ly/2HFykNd
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So there are essentially two weekly oil inventory measures that we look at. The first one is the API, which is short for American Petroleum Institute, which usually releases their data. Which usually releases their data close to the end of the New York trading session every Tuesday, and the second one is the Wednesday crude oil inventories report, which is released from the EIA. The Energy Information Administration in the U.S. they normally release their data at 3:30 London time on Wednesdays.
Now the most important one, arguably, is normally the crude oil inventory data from the EIA, which is released on a Wednesday, but the API data, or the private inventory data, is a very important precursor the day before, that normally comes out on the Tuesday, and often sets the stage for what traders expect of the crude oil inventories, because the API data basically accounts for roughly between 80% and 90% of the total production in the industry, and so that means that if the API data comes in much higher or much lower than expected, the market will have a similar upside or downside expectation for the EIA data, which comes out the day after. Now the reason why there are sometimes disparities between the API data and the EIA data is because the API data isn't a must for its members to release that info.
A draw means that there is less inventory stock than markets were anticipating. And a build simply means that there is more inventory than the markets were anticipating.
It basically had an expectation to draw by negative 2.1 millions, meaning that they were expecting there to be 2.1 million barrels less of crude stock this week compared to last week's report. So markets were already expecting less inventory.
So the markets were expecting there to be a 2-million-barrel draw, but they actually got an 8-million-barrel draw. So that was a much bigger draw than what was expected. Now a build will just be the exact opposite, right?
Let's quickly go to the EIA data. So if we go to the EIA data this week, we can see that the markets are expecting that negative 2-million-barrel draw, but if this number wasn't a negative, let's say it was a plus, for example, that would mean that the markets are expecting a build in the data. So let's say that this number here was a plus 1 million, meaning the markets were expecting a build of a million barrels, so 1 million barrels more this week compared to last week, and it actually came in at plus 3 million, there would be a build, a bigger-than-expected build, of 2 million barrels, if that makes sense.
Yesterday, we saw, we came in with a much-bigger-than-expected draw. So we came in at negative-8-million draw versus anticipation of a negative-2-million draw.
So that already gives the markets an expectation that the EIA data for today will come in at a draw of close to somewhere between 8 million, right? So even though the expectation poll, yeah, in Zenith, even though the expectation says negative 2 million, the markets are now actually already pricing, expecting a draw of 8 million due to the API data. Which means if we get a draw of negative 8 million, or close to that, we won't maybe see any meaningful price reaction in the oil, because the market's already expecting that draw of 8 million based on the API data. But because the markets are now expecting a bigger draw of closer to 8 million, the biggest reaction in oil will come from a surprise of either a much-bigger-than-expected draw than even 8 million, or a build in stocks.
So think about it this way. We started with an expectation of negative 2 million. That has now changed to an expectation of somewhere close to negative 8 million, based on the API data. So the biggest reaction in oil would come from a much bigger draw of much bigger than negative 8, so let's say a draw of negative 10 million barrels or 12 million barrels, or even more, a bigger draw than that. Or, on the other hand, a bigger reaction would come from a surprise build, or a positive inventory print.
Now how we normally look at it is in terms of supply and demand, right? So if we have a draw, meaning much lesser stock than expected, it means there was lesser supply, and that is normally good for price.
Now whenever we have a surprise build, meaning there's more supply in the system than was expected, that should normally be bad for your oil prices, and if you have a much bigger build than expected, you normally see price come down in terms of oil.
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There’s a link below were you can learn more about it
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