Trading Futures involves trading a derivative contract (Futures Contract) on the cash product of a Commodity. Because this Futures contract is going to track or lead what the cash market prices do it can be heavily impacted by the reports that are released throughout the calendar month.
Many of our traditional economic reports that are released throughout the month are very popular and most traders are well aware when they are coming out. When a Futures trader begins to trade physical Commodities they need to become more familiar with reports that will directly impact the market they are trading.
These reports can be released by Government agencies and/or private sector institutions. They will show a variety of information depending on the particular report. Some will show the physical supply/demand shift for a period of time, warehouse/storage facility shipments, quantity of equipment extracting or mining the Commodity etc.
As technical traders (those who use charts to make their buy/sell decisions) we don’t necessarily have to understand these fundamental shifts being reported, but at a minimum we should be aware of when they are released, what impact they may have (increased volatility) and related markets that may be impacted (market correlations).
A new Futures trader would use this information to stand aside the market just prior to the release of the report, reducing the risk exposure that could result in the volatile price reaction to the report.
An experienced Futures trader would use these reports to position themselves to take advantage of the out of balance supply/demand price action when the report is released.
The Energy markets have been very volatile lately since their hard sell off from the $120 price level down to the $45 level. Some of this volatility can be attributed to technical analysis from the wide variety of trading styles being used in the markets. While some of the volatility has been a direct result of the fundamental news (reports and geo-political events) hitting the newswire during the trading session.
Let’s look at some of the primary energy reports being viewed as of this writing that could have an impact on your trading.
The first one is the American Petroleum Institute’s (API) weekly report that is released every Tuesday afternoon at 16:30 ET, unless Monday was a holiday in which case it is released on Wednesday afternoon. I have hyperlinked their address for further research into how this report may impact the energy markets. This report can set the tone for the next trading session and create some late afternoon trading opportunities with the volatility in price action.
API’s weekly data bulletin reports total U.S. and regional data relating to refinery operations and the production of the five major petroleum products: oxygenated, reformulated and other finished motor gasoline, naphtha, kerosene, jet fuel, distillate and residual fuel oil. All of these being by-products of the Crude Oil market. These products represent more than 80% of total refinery production. Inventories of these products as well as Crude Oil and unfinished oils are also included along with refinery input data.
The Energy Information Administration (EIA) report is released each Wednesday at 10:30 ET, unless Monday was a holiday in which case Thursday at 11:00 ET is the release date.
This report measures the net change in the number of barrels of Crude Oil held in inventory by commercial firms during the prior week. Traders will pay particular attention to this report because it influences the price of petroleum products which ultimately could impact inflation or, as the case may be with low prices, deflation. This report also shows when economies around the world may be expanding or contracting as worldwide industries rely on Crude Oil to produce goods.
When this report is released watch how it can closely correlate with the Canadian Dollar due to the large exports of Crude Oil this country depends on.
The third report is an interesting one. A company called Baker Hughes has been releasing a weekly report on the number of oil rigs in operation since 1944. Baker Hughes is one of the largest oilfield services companies. With sites in over 90 countries around the world it knows a thing or two about the energy sector.
This report is released on Friday at 13:00 ET. What makes the report interesting is the point that it brings up about the significance of particular reports and market correlations that are purely related to where we are in any economic cycle.
Until Crude Oil prices sold off so much this report had very few traders paying attention to it. Now come Friday afternoon there are many traders leaning over their screens waiting for this number and a possible trading opportunity.
These are just some of the reports that can have an impact on your trading. I would recommend you get to know the market you are trading. Mistakes of not taking the time to learn before actually trading can be very costly.
“The brave may not live forever, but the cautious do not live at all.” Meg Cabot
– Don Dawson