Crude Oil Trading Strategy – Weekly Inventory Report
Every week traders are treated to a fruitful opportunity by deploying this crude oil trading strategy.
If you catch the move, you can make your entire weekly profit in just one hour of day trading. TRADEPRO wants you to imagine catching the crude oil inventory report on the CL (Crude oil futures). Each cent of crude oil price movement is worth USD $10, on inventory reports crude can move over a dollar at a time, that is a gain of USD $1,000 per contract.
Just imagine the possibility, in just 30 minutes, every week.
This is one of our favorite weekly trades in our daily live trading room.
Crude Oil Trading Strategy – What is the Weekly Inventory Report
There are two inventory reports that are very important, each released weekly:
- American Petroleum Institute (API for short) – Tuesday at 4:30PM EST
- Department of Energy (DOE) – Wednesday at 10:30 AM EST (that one we trade)
What is the API report? The acronym stands for the American Petroleum Institute reports. The report covers the same thing as the DOE report on Wednesday. The API report announces the oil and product available in storage, giving investors and those interested a peek at demand in the US petroleum market. This is a precursor to the DOE report.
You should not construct a bias for the Wednesday DOE report based on API.
The API report that is released on Tuesday comes out to private subscribers first. However, because the number is released after most traders have gone home for the day – the opportunity is not worth the risk of trading in low liquidity.
DOE numbers are a different story. Each Wednesday at 10:30 AM EST we see an update of the last week’s change in the number of barrels of crude oil held in inventory by commercial firms.
These numbers can cause significant moves as institutional traders and speculators to rebalance their holdings, hedges and open positions. This liquidity can create some monstrous day trading opportunities for the educated trader.
Crude Oil Trading Strategy – How to Read the Weekly DOE Inventory Report
The official report is released on the Energy Information Administration website here at 10:30 AM EST
We rely on a more sophisticated news source which reads out the numbers in audio. This gives you time to action your trade rather than reading through report tables. The market moves really fast on this news, and you have to prioritize what information you are looking at.
If you want to learn about professional news sources for day traders click here >
This is the information we receive:
- DOE Crude actual vs the expected
- Gasoline actual vs the expected
- Distillates actual vs the expected
As a day trader, all you want to determine on this news is the event is bullish (the market will go up) or bearish (the market will go down).
Any number that is positive (or more positive) is an increase in inventory. Negative numbers (or more negative) is a sign of a “draw” down on crude oil inventory.
If you see an expected number on Crude inventory of 2.5M barrels positive storage, this is called a build. A larger build than expected means that there was more supply in the past week and prices will likely drop.
Alternatively, if the expected number on Crude inventory is 2.5M barrels, and the report announces -5.0M barrels. This is a huge draw, and we would expect for the upside to explode in the crude oil futures market.
It comes down to simple supply and demand when assessing the crude oil inventory report. More supply than demand makes prices go down as per economics. More demand than there is supply helps prices go up. Since there is a scarcity of a product, consumers are willing to pay more.
The other two factors of the inventory report are gasoline and distillate numbers. They may not have as much of an influence on the crude oil price as the DOE number. However, they should be considered as a cumulative total if there are large discrepancies.
Gasoline should be monitored if there is a large build in gas but a slight draw in crude oil, the report may be neutral and limited price movement may occur.
The most bullish scenarios occur when both crude oil and gasoline show a surprise draw versus expectations. This will almost always cause a massive move higher.
There is a lot more to the trade, but for now, these are the basics to get started and follow this trade.
Crude Oil Trading Strategy – How to Trade the DOE News Report
Now let’s talk about how to actually trade the number.
The first step is to determine if the data is surprisingly bullish or bearish. Once you have an idea of how the market should respond, you watch the chart to see how it actually does.
As soon as the number comes out volatility will explode, and oil will make a move in one direction. This impulsive move is driven by computers and algorithms that can execute a million trades in the time you blink.
Stay out of the way of this messy move.
Wait for the pullback as a day trader and get into the trade in the direction of the impulse move on a rotation back.
Let’s look at an example.
Crude Oil Trading Strategy – Live Trading Room Example
In this example, I will show you exactly how we traded the report on Wed March 21st, 2018. The inventory numbers are the ones show in the image above.
The surprise draw in crude was very bullish.
Notice how the initial impulse move was higher. The post-news move is highlighted in green.
Notice how after the impulse wave in crude oil futures, the prices started to drop back down once algorithms crowded the long side of the trade?
Next we waited to see a few rotations on price action using our TRADEPRO chart settings (templates and settings included for members).
Once we saw order flow and price action confirm, we took a long position to go in the direction of the prior move.
You can see that our entry was spot on using the analytical and timing tools in our Day Trader Pro course here >
We filled 3 lots of crude oil at an average of $64.33.
The first take profit was at $64.63 – for a total of 30 cents.
To put that in perspective, it’s $300 profit per single contract, or approximately USD $900 (excl. commission).
Not a bad trade for less than one minute. That’s the power of trading the weekly crude oil inventory report with our TRADEPROs.
But we did not stop there, we traded the upside for the rest of the morning adding to our initial profit.
Here is a video of how we do it every week without fail!
The oil inventory weekly report is a massive day trading opportunity that cannot be missed.
While it can be very exciting to a new trader, it is very important that you trade this in a professional group of traders.
Our live trading room is the perfect environment. We break down the numbers for you and call out if the price is expected to increase or fall.
We talk about the trade in real-time as it develops as well, giving you the pro analysis and updates.
I invite you to join our team and experience the TRADEPRO edge.
See you this Wednesday for another amazing day trading opportunity in crude oil.
This is by far my favorite crude oil trading strategy!
If you want to join us in our live trading room, check out the Day Trader package here >
If you prefer to trade more passively, checkout our newsletter, trade ideas and live analysis in the Swing Trader package here >
The information contained in this post is solely for educational purposes, and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable to your own financial situation. TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.