There are many factors that impact the price of oil, but the inventory numbers released every Wednesday morning might set the tone for price direction. These number basically tell how much oil we are producing and using. A build in stocks typically puts pressure on price, while a decrease in supplies typically supports prices.
The market will usually trade with quick and wild movements right after the report is released at 10:30. This is not a place for amateur day traders. It is best to not have any positions ahead of the report if you are a day trader. Often, it is best to wait for the dust to settle in about 30 minutes and then follow the trend.
The direction of the US dollar has a major influence on the price of oil. Oil is priced in dollars. Crude oil prices will feel pressure if the value of the dollar increases. Crude oil can have a sizeable move higher when the dollar decreases even if the fundamentals remain relatively unchanged. It is important to monitor the value of the dollar if you are trading oil.
Tensions in the Middle East also cause oil prices to become volatile. Crude prices typically spike on worries of military action in the area. The extent of the move will be determined by how much supply of oil will be disrupted. Sometimes investors are worried about a loss of production from a major oil country or pipelines and transport by sea can be disrupted. The more supply taken off the world market, the bigger impact on price.
Several issues seem to arise every year in the Middle East. The moves in oil are often short lived as the skirmishes often don’t escalate into a lasting battle or war. It is usually a good idea to take quicker profits on a nice move higher instead of holding on for WW III in the Middle East.
The product markets from crude oil are RBOB unleaded gas and heating oil. It is important to know the seasonal tendencies in these market. Most people expect heating oil to make a seasonal move higher in the middle of winter and gasoline to make a move during the summer driving season. They often can make sharp moves during these periods, but the seasonal moves happen prior to these time periods.
Unleaded gas often moves higher before the summer begins. This is because the wholesalers and distributors make their purchases ahead of the driving season to ensure they will have enough supplies. The bulk of the purchases are already made before the driving season even begins. Prices tend to peak around May. This is just a tendency. A strong driving season or other supply issues could cause gas prices to continue rising during the summer.
Heating oil prices tend to peak in October. This is because heating oil needs to be purchased and delivered to homes before the winter begins. Heating oil prices actually have a hard time trending higher on their own during the winter unless the weather turns out to be extremely cold and demand rises.
Natural gas isn’t as prone to the influence of outside markets and world events like the oil market. Natural gas is used in power plants to produce energy and in residential homes. A strong economy helps industrial demand, while extreme heat and cold can also increase demand.