by George Kleinman | January 12, 2011 12:48 pm
This week, oil prices surged on news the Alaska pipeline was shutdown after workers discovered a leak. The Trans Alaska Pipeline has been shut down since last Saturday and while this has resulted in short term supply disruptions to refineries along the West Coast, the pipeline is expected to go back into operation in the next few days.
The real question is would oil prices have surged anyway, even without this news? My vote is “yes.” The reason has to do with one key to oil price moves I am going to share with you here.
The key is a publicly available number. This number is released every Wednesday morning – it’s called the EIA Energy Stocks Report.
EIA stands for the Energy Information Administration, a U.S. agency funded by Congress with the mission of disseminating independent energy information. The weekly stocks report is sort of like a Census for energy products; gasoline, heating oil and crude oil. I’ve found one big key to oil price data is unlocked by charting the trend of the data.
The most recent EIA Energy Stocks Report tells us 333 million barrels of oil are currently in stock. The 5 year average for this stocks number is 314 million, so the current number is a big number, right? Greater supply should equal lower prices, correct? However prices over the past 5 weeks have risen from about $85/barrel to over $91/barrel.
Now let’s analyze my key, this being the trend of stocks over the past 5 weeks. The first week of December stocks were 355 million and on the report that week went DOWN 4 million. The second week they were DOWN 10 million, the 3rd DOWN 5 million, the 4th & 5th down 1 and 4 respectively. This first full week of January (the latest data that came out this week) the stocks were also DOWN 2 million, the 6th down week in a row; therefore overall the trend of stocks is DOWN from 355 million barrels the first week of December to 333 currently. The supply trend is down, the price trend is up; one of my major keys to predicting oil prices.
As long as the supply trend is headed south I project a bullish trend to oil prices.
George Kleinman is President of the Lake Tahoe based commodity advisory and trading firm Commodity Resource. He trades oil (and other commodities) for himself and his clients. If you are interested in having George trade for you, email him for additional information at firstname.lastname@example.org.
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