What Oil Traders Can Learn From Sunday's #Oscarfail
Ellen R. Wald, Ph.D | Mar 01, 2017 06:05AM ET
On Sunday night, the 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 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 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, 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.
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