OIL MARKET WILL MOVE SHARPLY ON INVENTORY DATA
MARTIN SLANEY
HEAD OF DERIVATIVES, GFT
OIL, glorious oil. It is undoubtedly one of the most popular CFD markets around and it continues to enjoy a steep growth in popularity among traders. The popular Brent and WTI are unavoidably topical and irresistibly volatile. After sinking to near $30 a barrel at the end of 2008, the price of oil has more than doubled to over $70.
And it’s not just the long-term moves which catch the eye. Daily volatility has taken a huge leap in recent weeks – there are now few days where the high-low range is less than a dollar, or 100 pips in the CFD world.
The surge in volatility has been stoked by a number of factors, not least by forecasts of a rebound in global consumption and the recent equity rally, shifts in supply, the increase in energy demand in China and other emerging markets.
One of the prerequisites for trading oil – whether your market of choice is the Brent or WTI futures, or the corresponding spot markets quoted by GFT – is a fastidious awareness of the upcoming news and economic numbers which could have a pronounced effect on the market. And number one on your list has to be the weekly mayhem that is the oil inventory data. The numbers released every Tuesday by the American Petroleum Institute (API) and every Wednesday by the US Energy Information Administration (EIA) give us a snapshot forecast of future demand. A drop in the inventories of commercial oil companies indicates higher demand and a corresponding price rise and vice versa for an increase in the inventory number.
But when it comes to market reaction, nothing is guaranteed. Particularly key with the oil inventories is how the actual figures compare to forecasts, as is how the data compares for the time of year. Either way, if you are holding an open position in oil or oil-related stocks over these numbers, be prepared for some massive price swings as the market digests the implications.