Trading Strategies for Global Oil Inventories

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Global oil inventories represent the balance between supply and demand, and therefore, provide traders with valuable information regarding market conditions. 

However,  information on global oil inventories has historically meant compiling data from a multitude of sources with varying degrees of timeliness and accuracy. 

Ursa’s satellite-derived data provides a single, comprehensive source of global measurements that are timely and accurate. 

We then deliver the data to traders on a near real-time basis for integration into trading models to generate higher returns in physical and financial markets.

A list of tradable instruments includes: Crude Oil Futures, Equities, Currencies, and Refined Products.

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Cushing, Oklahoma and WTI Prices

Ursa’s satellite data on Cushing oil inventories provides traders with a time advantage over the US Energy Information Administration (EIA), impacting WTI prices.

Global Oil Inventories and Market Influences

The correlation between Ursa’s global oil inventory data and ICE Brent futures emphasizes its impact on oil equities and trading strategies.

Country-Level Insights and China’s Economy 

Ursa’s inventory data helps to gain insights into China’s oil consumption, refinery trends, and economic implications, influencing various tradable financial instruments.

Cushing, Oklahoma

Cushing, Oklahoma is the delivery point for the NYMEX WTI futures contract and the US’s largest oil storage hub. 

Oil inventories at Cushing are closely watched by traders, and can move WTI prices when the US Energy Information Administration (EIA) releases weekly inventory data Wednesday mornings. 

Ursa releases weekly Cushing oil inventory data every Monday morning, two days before the EIA data, giving traders a time advantage. 

The graph to the right shows a comparison of Cushing inventory data from Ursa vs EIA.

The correlation in the graph here is 0.98, underscoring the accuracy of Ursa versus EIA. 

Ursa’s weekly measurements were directionally consistent with EIA 43 of the 52 weeks in 2023.

Graph_ Cushing Inventories

Knowing that the Ursa Cushing data is accurate, traders can then incorporate the Ursa data into their trading models. 

There is a correlation of -0.77 between Ursa’s Cushing data and WTI futures: 

Global Oil Inventories

The global price benchmark, ICE Brent, is driven by a number of factors, including inventory data. While the contract can experience short-term volatility, inventories nonetheless exert significant influence over prices in the medium term. 

The economies of China and India impact demand more so than anywhere else, making them vital to understanding the market. However, outside the OECD, publicly available data is sorely lacking. Ursa’s inventory data – which covers 130 countries – fills an information void that would otherwise exist.

The graph below shows Ursa’s global oil inventories plotted against Brent futures since 2019, which shows a correlation of -0.77.

Oil sector companies have huge exposure to the price of oil. As a result, the share price of a publicly traded oil company tends to rise and fall alongside the price of oil. 

The graph below demonstrates this relationship using the S&P Global Oil Index, which measures the performance of 120 of the largest, publicly-traded companies engaged in oil & gas exploration and extraction & production from around the world. 

There is a correlation of 0.79 between oil prices and the S&P Global Oil Index.

By the transitive property, global oil inventory data serves as a leading indicator for oil equities. 

Indeed, there is a correlation of -0.78 between Ursa’s global oil inventory data and the S&P Global Oil Index.

Graph_ Cushing Inventories

This example is one of many trading scenarios that leverage the same concept. 

There are other oil equity indices and individual stock tickers, in addition to so-called commodity currencies, such as the Brazilian Real, Canadian dollar, Colombian Peso, and Norwegian krone. 

Oil prices have also figured prominently in the inflation crisis. As such, inventory data can be incorporated into macro trading strategies involving central bank decisions. 

China

Another angle is gaining country-level insights from the inventory data, particularly for China, the world’s 2nd largest oil consumer. Commodity demand is particularly insightful into China’s broader economy.

An excerpt below from September 2022 Bloomberg article – “China Runs Down Oil Stockpiles as Market Eyes Big Export Quotas” – shows how inventory data can indicate refinery trends.

“China has begun running down its crude oil stockpiles, which could signal that refiners are getting ready to boost fuel exports as part of the government’s efforts to revive the economy…  

“Satellite data firm Ursa Space Systems puts the figure at 1.05 billion barrels, down 7.5 million barrels from the prior week, and the fourth weekly draw in five, according to analyst Geoffrey Craig.” 

There are tradable financial instruments sensitive to such information, including Chinese equities

Physical oil traders can capitalize on knowing China is stepping up refinery activity to boost fuel exports, which in turn, influences prices for refined products. A significant increase in China’s product exports will place downward price pressure on gasoline and diesel, for example.

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