How
Crude Oil Inventories Impact The Market
A unique dynamic of the global
oil industry supply-chain is the use of stored oil, called inventories, to
buffer changes in supply and demand. Unlike many other commodities where
production feeds directly into demand (e.g. production of oranges transported
to the grocery store), oil producers have the ability to use inventories as
well as new production to satisfy demand. Specifically, inventories allow
producers to draw on reserve supply in response to unexpected shocks to supply
and demand. Therefore, oil inventories – by being a component of supply –
reflect market pressures on oil prices and provide a good barometer of oil
price change.
There are a multitude of factors that can influence global oil
inventories: from technological advances which increase production and storage
capacity, to changes in taxation policies, to political unrest in the Middle
East encouraging the increase of stockpiles. However, generally changes in
inventory levels are the result of two main factors:
(1) producers build or
draw down discretionary inventories based on their price expectations and sale
opportunities,
and/or;
(2) uncertainties or unexpected changes in supply and
demand.
Regardless of the cause of their change, inventories provide
an indication of whether the market is in a state of excess demand or
over-production. For much of last year the oil market was in a state of
over-production as producers operated at full-tilt trying to cash-in on record
high oil prices
READ BELOW REFERENCE LINK FOR FURTHER KNOWLEDGE
http://www.timberlake.co.uk/download/oxmetrics-conference/Bello-OxM14-SaheedPaper.pdf
READ BELOW REFERENCE LINK FOR FURTHER KNOWLEDGE
http://www.timberlake.co.uk/download/oxmetrics-conference/Bello-OxM14-SaheedPaper.pdf
