Breaking News
0

What Oil Traders Can Learn From Sunday's #Oscarfail

By Ellen R. Wald, Ph.D.CommoditiesMar 01, 2017 06:05AM ET
www.investing.com/analysis/how-oil-trading-is-like-the-oscarfail-200177365
What Oil Traders Can Learn From Sunday's #Oscarfail
By Ellen R. Wald, Ph.D.   |  Mar 01, 2017 06:05AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

On Sunday night, the Academy of Motion Picture Arts and Sciences made a blunder of spectacular proportions. Just past midnight (EST), as every viewer sat waiting for the final, perhaps most high profile Oscar – best picture – to be awarded, the presenters named the wrong film! Actress Faye Dunaway and Actor Warren Beatty declared LaLa Land, a musical favorite, the winner. However, just as the acceptance speeches started, it turned out that the presenters had been given the wrong card and, in fact, Moonlight, an underdog independent film, had won.

Apparently the Academy has never made such a mistake before (although the 2015 Miss Universe pageant did) and the aftershocks were confusing and awkward for everyone involved. However, to those in the oil trading business, this kind of gaffe is surprisingly common and can have significant financial effects.

Take this example:

Back in March 2015, the Energy Information Administration (EIA) reported U.S. crude oil output was averaging 9.422 million bpd. Subsequent weeks’ data showed declining production. This signaled to traders that U.S. production had reached a peak and was beginning to decline. Oil futures prices began to rise. But then, at the end of May, the EIA suddenly reported that crude oil production jumped by 304,000 bpd. It turned out that this abrupt gain was not really a reflection of growing U.S. production. It was actually a correction of incorrect data from two months earlier. Those initial oil production numbers were really estimates the EIA made using a model. By the time May came around, the EIA had the real numbers to report from February and March. Instead of amending its previous data, the EIA rolled it into the May 22 report. This was a big mistake with consequences for the market.

Since then, the EIA has changed its methods of reporting. In September 2015, the EIA stopped relying on state agencies to report tax information and production data, which can often lag by as much as a month, the EIA moved to a survey method that uses production samples from producers in multiple states and the Gulf of Mexico. During times of great volatility in the oil market, traders and investors rely on the EIA’s weekly production statistics to understand how U.S. oil production is reacting to the market.

Had the EIA reported accurate production numbers, the price of oil might not have soared up to $60 a barrel that spring, because traders would have understood that U.S. production was not dropping nearly as quickly. At that time, many market watchers concluded that oil prices had bottomed out in January at $49 from their plunge induced by OPEC. In fact, WTI did not bottom out until it hit $29 in January 2016.

The lessons here are twofold:

1) Understanding how data is collected, processed and released to the public is almost as important as the data itself. When it comes to crude oil production, collecting and reporting accurate data every week is challenging and is not accurate all of the time. Multiple sources of data (for example, API, Platts, IAE, JODI, TankerTrackers.com, and Thomson Reuters) are useful, but investors must understand the drawbacks of each.

2) Stay up to watch the end of the show. You never know when there might be an interesting, maybe even profitable, twist.

What Oil Traders Can Learn From Sunday's #Oscarfail
 
What Oil Traders Can Learn From Sunday's #Oscarfail

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments
Do Deikins
DoRight Mar 01, 2017 3:00PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
What? We can't depend on govt figures? Who would have thought it? Thank you for supplying us with good alternatives for comparison (e.g. TankerTrackers). Though, I thought the take-away would be that most of us need to come out of the moonlight (loca luz de la luna) and stop living in LaLa land. (Or is that what you *did* say, albeit in a very nice manner?)
Reply
0 0
yeong shin
yeong shin Mar 01, 2017 9:20AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Great article thank you
Reply
0 0
Tony Mahomi
Tony Mahomi Mar 01, 2017 8:56AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
All the US Petrol Datas are nonsens, because why he public more storage than expected , when US import more than 10 millón barrel every day ! The point is that the World need 100 Millions of barrel every day , and the worldwide production are around 90 millones ! That is the Data to keep it in eye !
Reply
0 0
Brad Smith
Brad Smith Mar 01, 2017 8:56AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
That may be but the demand growth has been slowing in the recent years while the US production has been on the rebound. The US oil rebound has been significant enough to nullify the OPEC production deals. The oil price is stable right now but I don't think we'll be seeing oil reach its previous highs any time soon.
Reply
0 0
Timochin Khan
Timochin Khan Mar 01, 2017 8:31AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Well done...Thank you ...
Reply
0 0
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email