Hi guys I am new here I am also new to economics, I am reading a post on CNBC which states Weekly crude oil inventories unexpectedly fell, supporting further gains in oil prices. 1) Why does crude oil inventories unexpetedly falling make oil prices rise? 2) By Crude oil inventories falling do they mean stock running out due to mass purchase? 3) What could cause oil inventories to unexpectedly fall? I am assuming a purchase from somebody lowering stock overall could cause panic buying from others therefore temp demand making prices rise? - Probably wrong.
Wouldn't that be a sign of a reversal? Supplies are still coming in high but price not going down further
Hi BrokeBoy, Weekly crude oil inventories unexpectedly fell, supporting further gains in oil prices. "1) Why does crude oil inventories unexpetedly falling make oil prices rise?" Simply supply and demand forces at work. A key theme in the oil market has been an oversupply of oil. With many countries producing record oil output, oil has rapidly declined over this past year or so. An unexpected drop in crude oil inventories means there is less supply than expected and therefore the mispricing is corrected by causing a rise in oil prices. "2) By Crude oil inventories falling do they mean stock running out due to mass purchase?" No. As per FF calendar; Crude oil inventories data is the "change in the number of barrels of crude oil held in inventory by commercial firms during the past week;" couldn't of said it any better myself. "3) What could cause oil inventories to unexpectedly fall?" Less output than expected by oil producing countries. Excess demand. Etc.
How are supplies coming in high? If supplies where coming in high wouldnt inventories be rising not falling? I am completly new to stocks and economics, would you say I only need to look at the charts absolutly? and that anything gained in news can be gained from charts only?
As Father Guido Sarducci stated, Economics is: " Supply and Demand" It's always supply and demand, a stock falls in price because they're more sellers than buyers. Some may argue that, that's not correct there has to be a buyer for every seller. True If one only thinks in terms of the price in which transactions take place. Trade prices are only the point where the seller and the buyer meet. The price where supply and demand were at equilibrium. In our example of falling prices there would have to be more supply than demand or prices wouldn't have to decline to find that equilibrium. Now in the oil market, one is dealing with a physical commodity, one produced around the world, and one used around the world. All produces, Governments, organizations, businesses everywhere make decisions on output. (Supply) The extent of World commerce creates the requirements for the refined products (Demand). If supply remains constant, and the perception is that an economic slowdown is ahead for a major oil consuming country, region or globally. Crude prices will decline since supply is greater than demand. As prices fall the incentive for the development of new fields declines, existing rigs that require a minimum price to meet operational coasts may curtail capacity. Producers can and have made choices that reduce supply. Refiners may see the "Refinery Margin" decline with falling prices on the end products and reduce capacity when it's advantages to complete maintenance that reduce demand. The price will always reflect the point of equilibrium at that point in time. At some point the demand picks-up and start to exceed supply, cheap oil reduces the cost of manufacturing, cheap prices at the pump means an up-tick in auto use, finished product margins increase and refiners gear-up for to reap the rewards. The Supply Demand dynamic has gone full cycle for whatever reason, as it always has. So how does the street know, or at least get an indication as to what is happening in the market? The Crude Oil inventory report. If the report shows stocks are falling, then demand must have increased, increase in demand supports higher prices.