Commodities · M5 · 7 min
Supply, demand and the data
Read a weekly oil stocks report against forecasts, work out how long stocks would last, and trace a supply or weather shock to prices.
In the news: Every Wednesday a US report on oil stocks moves crude. What matters is how far it differs from forecasts.
The essentials
- Builds and draws
- Stocks rise in a build, when more is produced than used, and fall in a draw. A draw means the market is tightening, which tends to lift prices.
- The weekly report
- The US on oil stocks is normally out on Wednesdays at 10:30am New York time. Prices trade the surprise: a 2m-barrel draw against a forecast 1m build is −3m, which is bullish.
- Days of cover
- How long stocks would last at current use: 400m barrels at 20m a day is 20 days. Fewer days of cover make a market fragile and tend to push the curve into .
- OPEC+ and shale
- , a group of big oil exporters, sets production targets; a cut removes barrels now, so the nearest futures rise most. US shale can add wells within months, which limits how far later months rise.
- Seasons, weather and China
- US petrol demand peaks in the summer driving season and heating demand in winter. Cold snaps in Asia pull cargoes away from Europe, and news from China, the largest crude importer and a big copper buyer, moves both.
Days of cover
Days of cover = stocks ÷ daily demand
- stocks
- inventories, such as million barrels
- daily demand
- use per day, in the same units
How it works
1. Stocks are the scoreboard
Nobody can count every barrel produced and used each day, but you can count what sits in storage. If more oil is produced than used, stocks rise: a build. If more is used than produced, they fall: a draw. A draw means the market is tightening, which tends to push prices up.
2. The weekly report
In oil, the US Energy Information Administration publishes US stock figures every week, normally on Wednesdays at 10:30am New York time: the . Traders read the stocks of crude, petrol and diesel, and how hard refineries are running.
3. Prices trade the surprise
Before the report, analysts forecast the number, and prices already reflect that forecast. What moves prices is the surprise: the actual change minus the expected change. Expect a 1m-barrel build and get a 2m-barrel draw: −2 − (+1) = −3m barrels. A negative surprise is bullish: it points to higher prices.
4. Days of cover
400m barrels sounds like a lot, but not if 20m are used every day. Days of cover = stocks ÷ daily demand: 400 ÷ 20 = 20 days. Fewer days of cover make a market fragile, because any disruption bites quickly, and near-dated prices rise above later ones, the shape called .
5. Supply: OPEC+ and shale
A group of large oil exporters, , sets production targets. A cut removes barrels now, so stocks draw and the nearest futures rise most. US shale producers can drill new wells within months, so a higher price brings more supply fairly quickly, which limits how far later months rise.
6. Demand follows the seasons
Demand has a calendar. Americans drive most in summer, so US petrol demand peaks then. Heating lifts gas and heating oil in winter. British power demand peaks in winter; in hot places such as Texas it peaks in summer, for air conditioning.
7. Weather, and the race for gas cargoes
Gas can be chilled into a liquid and shipped by tanker, as , so cargoes sail to whoever pays most. A cold snap in Japan or Korea lifts their demand and draws cargoes away from Europe, so European gas prices must rise to compete. After Russian supplies fell in 2022, LNG became 39% of EU gas imports, up from 23% in 2021.
8. China, the biggest buyer
China is the world’s largest crude importer and a dominant buyer of industrial metals such as copper. So news about its economy moves both: a programme of building and infrastructure means more copper for power lines and wiring, and more oil for transport.
Worked example
Illustrative numbers: analysts expect the EIA to report a 1.5m-barrel build in US commercial crude stocks. It reports a 2.0m-barrel draw, leaving stocks at 430m barrels, with refineries running 16.0m barrels a day.
- Surprise: −2.0m − (+1.5m) = −3.5m barrels: stocks fell 3.5m barrels more than expected.
- A draw against an expected build means demand outran supply: bullish, so crude tends to rise, the front most.
- Days of cover: 430m ÷ 16.0m a day ≈ 26.9 days of refinery demand.
- Then check the detail: if the draw came from a one-off drop in imports, the move may fade.
A 3.5m-barrel bullish surprise, with about 27 days of cover.
Check yourself
8 quick questions on the explanation above.
Practice
New numbers every set. Misses and guesses go into your review deck.
In the interview
Answer out loud in under a minute, then compare.
What would you watch every Wednesday if you traded crude?
How does an OPEC+ cut feed through to the curve?
Why do European gas prices care about the weather in Asia?
Remember
Days of cover = stocks ÷ daily demand
Markets trade the surprise against forecasts: a bigger draw than expected is bullish, and the front of the curve moves most.
Sources
- US Energy Information Administration — Weekly Petroleum Status Report: release schedule
- US Energy Information Administration — Today in Energy: China’s crude oil imports
- Kpler — Global LNG represents 39% of EU gas imports in 2022
Definitions and maths are standard textbook material; dated facts link to the sources above. Worked numbers are illustrative.