Why Does Anybody Take API Numbers Seriously

Prices jumped a bit yesterday based on reports from the API of an unusually large draw on crude.  Then this morning the EIA reported a much smaller draw.  A draw should be at least nominally bullish.  Unfortunately, whatever bullish effect the draw may have had seemed to get knee capped because it wasn't as big as the wildly inaccurate API number. I understand that the people who cover this for a living gotta write about something, but portraying the API number as anything besides wishful thinking only works to cause extra volatility in the price.  You only have to look at how the API arrives at its number to know it's smoke and mirrors and often seems to curiously support whatever move the powers that be want in the price.  I've never put any stock whatsoever in the API number and traders seem to take the EIA number as gospel.  Still, every week we get this reporting.  It doesn't make any sense to me.  

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I totally agree in your opinion on these weekly reports from API and EIA.  I have read and observed with own eyes the comments and prices from all oil related markets or oil region (please educate me if misspoke on terminology).  @OilPro_Rolando I guess we can only learn and prosper on technical analysis or watch the candlesticks and price action on 1m or 5 min chart. 

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The impact of the US crude inventories reports on world oil prices is based on the somewhat false assumption that US oil inventories are a good indicator of the world oil inventories. But as we know, the level of US inventories can be easily manipulated : it is frequently reported that the Saudis are reducing the number of tankers sent to the US to  drain the inventories when they want to rise the oil price.

https://www.reuters.com/article/us-usa-oil-imports-kemp/saudi-arabia-curtails-crude-flow-to-united-states-kemp-idUSKBN1A615T

But these tankers not going to the US are instead going elsewhere and a draw in US inventories could be associated with a rise in inventories in China or elsewhere.

Crude inventories are like an iceberg. You try to guess the shape of the iceberg based on the small part  you can easily see above sea level but the huge part is under the water and out of sight.

 

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Appreciate the feedback.  I want to be clear though, I consider the EIA number to be reliable.  At the very least, it seems to carry more weight with traders than the API.  I could be wrong.  I know and understand the role that technical analysis has on trading decisions.  I don't have the technical expertise to make a counter argument for using the Fibonacci Curve.  I'll just say, my gut instinct has always been that's kind of a self-fulfilling prophesy feel to it.  I think it's effect is amplified but the use of automated computer trading systems.  But, as you say, you have to rely on something and at least technical trading is based on math.   

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16 hours ago, Guillaume Albasini said:

The impact of the US crude inventories reports on world oil prices is based on the somewhat false assumption that US oil inventories are a good indicator of the world oil inventories. But as we know, the level of US inventories can be easily manipulated : it is frequently reported that the Saudis are reducing the number of tankers sent to the US to  drain the inventories when they want to rise the oil price.

https://www.reuters.com/article/us-usa-oil-imports-kemp/saudi-arabia-curtails-crude-flow-to-united-states-kemp-idUSKBN1A615T

But these tankers not going to the US are instead going elsewhere and a draw in US inventories could be associated with a rise in inventories in China or elsewhere.

Crude inventories are like an iceberg. You try to guess the shape of the iceberg based on the small part  you can easily see above sea level but the huge part is under the water and out of sight.

 

I think the relative importance that markets place on US Inventory levels/Reports ebbs and flows.  My opinion is that the Permian produces the swing barrel world wide.  So, it would seem natural that markets would place a great deal of importance on US Inventory Levels/Reports.  But yes, generally speaking the price of oil is set at the global level.    

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On 12/12/2018 at 1:40 PM, OilPro_Rolando said:

...A draw should be at least nominally bullish

 

Yes, theoretically that makes sense. But I think the reality is that the expected inventory levels are priced in before the report is released, so only a bigger draw than expected would cause price to really jump up, right?

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(edited)

On 12/13/2018 at 1:40 AM, OilPro_Rolando said:

Prices jumped a bit yesterday based on reports from the API of an unusually large draw on crude.  Then this morning the EIA reported a much smaller draw.  A draw should be at least nominally bullish.  Unfortunately, whatever bullish effect the draw may have had seemed to get knee capped because it wasn't as big as the wildly inaccurate API number. I understand that the people who cover this for a living gotta write about something, but portraying the API number as anything besides wishful thinking only works to cause extra volatility in the price.  You only have to look at how the API arrives at its number to know it's smoke and mirrors and often seems to curiously support whatever move the powers that be want in the price.  I've never put any stock whatsoever in the API number and traders seem to take the EIA number as gospel.  Still, every week we get this reporting.  It doesn't make any sense to me.  

😎

Edited by A/Plague
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On 12/14/2018 at 1:31 AM, OilPro_Rolando said:

...  I know and understand the role that technical analysis has on trading decisions.  I don't have the technical expertise to make a counter argument for using the Fibonacci Curve.  I'll just say, my gut instinct has always been that's kind of a self-fulfilling prophesy feel to it.  I think it's effect is amplified but the use of automated computer trading systems. ...

This is exactly the way i feel about it... technical analysis is very self fulfilling in that algos and other automated trading systems have only mathematical models to act upon, also technical based manual traders. Therefore when the avalanche begins, its gains momentum and the more automated systems there are, trading increasingly large volumes, they move the prices more than anything else out there - including the phyical buyers and sellers of the underlying asset. Fibonacci has gained such widespread acceptance that you would be absolutely insane not to consider these levels as you can clearly see on the charts how the price reacts voilently around these levels. What you dont always know - is which way it will go from those levels... This explains why API numbers etc often dont move the market as much as you would think - automated trading systems cannot be based on such inventory numbers etc as it is not known how much the market is surprised by the newss - these have to be human actuated manual trades. So when inventory numbers and other fundamental news hits the market - the market movers are real people not algos... and so what happens there is based solely on the convictions of those traders and what they are willing to do in the current market climate etc. Most adopt a wait and see approach unless the news is extremely surprising... otherwise you risk making a very expensive mistake...

 

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14 hours ago, catch22 said:

This is exactly the way i feel about it... technical analysis is very self fulfilling in that algos and other automated trading systems have only mathematical models to act upon, also technical based manual traders. Therefore when the avalanche begins, its gains momentum and the more automated systems there are, trading increasingly large volumes, they move the prices more than anything else out there - including the phyical buyers and sellers of the underlying asset. Fibonacci has gained such widespread acceptance that you would be absolutely insane not to consider these levels as you can clearly see on the charts how the price reacts voilently around these levels. What you dont always know - is which way it will go from those levels... This explains why API numbers etc often dont move the market as much as you would think - automated trading systems cannot be based on such inventory numbers etc as it is not known how much the market is surprised by the newss - these have to be human actuated manual trades. So when inventory numbers and other fundamental news hits the market - the market movers are real people not algos... and so what happens there is based solely on the convictions of those traders and what they are willing to do in the current market climate etc. Most adopt a wait and see approach unless the news is extremely surprising... otherwise you risk making a very expensive mistake...

 

good day. closed the short? 😋

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On 12/13/2018 at 9:36 AM, OilPro_Rolando said:

 

I think the relative importance that markets place on US Inventory levels/Reports ebbs and flows.  My opinion is that the Permian produces the swing barrel world wide.  So, it would seem natural that markets would place a great deal of importance on US Inventory Levels/Reports.  But yes, generally speaking the price of oil is set at the global level.    

I don't think there's really any doubt that the Permian produces the "Swing" barrel world wide.  A report showing a significant drop in Permian production would almost certainly spark a rally in prices worldwide and visa versa.  My main criticism was of the API report. 

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On 12/23/2018 at 7:55 PM, catch22 said:

This is exactly the way i feel about it... technical analysis is very self fulfilling in that algos and other automated trading systems have only mathematical models to act upon, also technical based manual traders. Therefore when the avalanche begins, its gains momentum and the more automated systems there are, trading increasingly large volumes, they move the prices more than anything else out there - including the phyical buyers and sellers of the underlying asset. Fibonacci has gained such widespread acceptance that you would be absolutely insane not to consider these levels as you can clearly see on the charts how the price reacts voilently around these levels. What you dont always know - is which way it will go from those levels... This explains why API numbers etc often dont move the market as much as you would think - automated trading systems cannot be based on such inventory numbers etc as it is not known how much the market is surprised by the newss - these have to be human actuated manual trades. So when inventory numbers and other fundamental news hits the market - the market movers are real people not algos... and so what happens there is based solely on the convictions of those traders and what they are willing to do in the current market climate etc. Most adopt a wait and see approach unless the news is extremely surprising... otherwise you risk making a very expensive mistake...

 

Great analysis.  

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The short version is that the API inventory data is dependent on "voluntary" submissions from industry. For example Valero didn't submit inventory data to the API so the data isn't necessarily quite as complete as the EIA data which is mandatory for industry data submission. Up until a few years ago the API also provided Natural Gas inventory data then the EIA did the same. The API subsequently stopped providing NG data.

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