Understanding oil inventory: five terms ahead of EIA data

Ahead of Wednesday's EIA data, five terms that traders will be monitoring are explained.

According to a Reuters poll, US crude inventories likely increased last week while fuel stockpiles declined. But early industry data suggests a different direction for crude. The following explains the expectations and the meaning of key terms in the weekly reports.

Analysts' expectations for the week

Crude inventories are forecast to have increased by nearly 2 million barrels in the week ending 2 October, according to the Reuters poll. That is roughly in line with the five-year average. Gasoline stocks are projected to drop by a similar amount, while distillate supplies are expected to fall by about 2 million barrels. Refinery utilisation is seen edging lower from around 92.5% of capacity.

Last week's official numbers came as a surprise. Crude inventories climbed by roughly 900,000 barrels to about 427 million, whereas analysts had anticipated a modest draw.

The API figures

Data from the American Petroleum Institute, published after Tuesday's close, pointed the other way. Market sources indicated the API recorded a crude draw of about 2 million barrels, versus expectations of a build. Gasoline stockpiles decreased by approximately 1.4 million barrels, and distillate inventories increased by about 460,000 barrels.

The API figures originate from a voluntary survey of industry participants and frequently vary from the government's data. The official EIA report, considered the market's reference, is scheduled for Wednesday at 10:30 am ET (14:30 GMT).

Explanation of key terms

Crude inventories: the quantity of unrefined oil kept in commercial storage throughout the US, including tank farms, terminals, and refineries. It does not include the Strategic Petroleum Reserve, which is reported separately. An increase is termed a 'build' and indicates that supply exceeds refiner demand; a decrease, a 'draw', suggests the market is tightening.

Gasoline stocks: gasoline is the biggest product derived from US crude, making its inventory level a direct indicator of consumer fuel demand. A drop in gasoline stocks while refineries operate steadily typically signals strong pump demand.

Distillates: includes diesel and heating oil, which power trucking, agriculture, industry, and home heating. Distillates are under particular scrutiny now as diesel prices are at record highs. A draw would indicate the shortage is still not easing, while an unexpected build might provide some relief.

Refinery utilisation and refinery runs: refinery runs represent the daily volume of crude processed by refineries. Utilisation is that volume as a percentage of total capacity. At roughly 92%, US refiners are operating at high rates. A decrease often indicates seasonal maintenance, which usually increases in autumn. Utilisation connects crude and product data: lower refinery activity reduces crude purchases, generally increasing crude inventories and decreasing product inventories. Analysts expect that pattern this week.

Builds, draws and surprises: markets respond more to the deviation from forecasts than to the absolute size of a build or draw. A draw when a build was anticipated, like in the API figures, usually supports prices. A build that is smaller than expected can also be supportive.

Key points to monitor

Wednesday's critical issue is whether the EIA echoes the API crude draw or the analysts' projected build. In product markets, the distillate figure is most important: with diesel at record highs and emergency stock releases being arranged, any indication that inventories are being replenished will receive close attention.