Ask a Broker
ISSUE 402 | FEB 2005
Q: I've been watching crude oil and I keep hearing about the API and DOE numbers. What are they and what do these numbers tell me? -Oil Watcher.
Lind Plus Senior Market Strategist Adam Klopfenstein answers:
A: As crude oil has gathered more and more attention over the last few years, traders have searched for insight into the current supply/demand fundamentals. Data from the American Petroleum Institute (API) and the Department of Energy (DOE) can shed some light on this. While both entities take similar measures to assure accuracy, they do tend to vary from one another as they formulate their results. The API is a private entity, while the DOE is a government entity. Based on conversations with many energy trading participants, I have found people tend to take sides to support which agency's release number they think should be the one to follow. But in the end, I believe the best way to determine the outlook of the overall situation is to take an average of both figures. That gives you a good handle on actual draws, or builds, in inventory storage. The significance of these numbers increases as productions levels drop, and changes to current sentiment can change the opinions of traders in minutes. The most important thing I try to get across is that even if you're a long-term trader and you put positions on for months, you should know where the current supply/demand situation is progressing. Being in the dark as this equation is altered--and believe me, it does change--can cause major-league losses as well as the ability to minimize these losses.
These numbers are released every Wednesday (barring holiday interruptions that delay it one market day) at 9:30 a.m. Central Time for crude oil, heating oil (distillates), and unleaded gas. Natural gas inventory numbers are released every Thursday at 9:30 a.m. Central Time. Having these results is a valuable tool as you try to determine the pulse of the market. Obviously, having one tool, such as this information, is not a fool-proof way to make money. But as part of your trading arsenal, it can help you be positioned on the right side of the market. I try to make sure all my customers have access to this information the second it hits the newswires, and I encourage all participants with money on the line in these markets to be sure they get this information in a timely manner.
While I have outlined the basics of the API and DOE, if you need more clarification, I'd be glad to help you seek it out. I'd also like to add that I feel it is important to incorporate technical analysis into these fundamental releases in any market that is leveraged, in order to help you pinpoint possible entry points. One contract of crude should be viewed as 1,000 barrels of oil, and it's very important to keep this in perspective. If the market is trading at $47, you are controlling $47,000 worth of crude oil, and posting a margin less than 10 percent of the outright cash value of the contract. Leverage can bring power, but also adds risk—so it's important to trade responsibly. Please don't hesitate to call me if you'd like more information on this topic, or other market matters.
Adam Klopfenstein is a Senior Market Strategist with Lind Plus. He can be reached at 800-266-0551.
Kristina Zurla Landgraf is editor of Lind eWire. She can be reached by email at editor@lind-waldock.com. To submit a question for Ask a Broker, contact the editor at that address.
© 2005 Lind-Waldock, A Division of Man Financial Inc. All Rights Reserved. Futures trading involves the substantial risk of loss and is not suitable for everyone.
