Do you pay attention to the weekly oil inventory report? If you are a mediocre forecaster (i.e., a good guesser) and you are currently unemployed, then there may be a job opening. Announced each Wednesday at 10:30 (unless delayed a day by a federal holiday), the report, among other statistics, focuses on oil, gas, and distillate inventories for the previous week. Over a dozen analysts are surveyed by Bloomberg beforehand and their predictions are tallied as the consensus estimate. Here are some of the last few consensus estimates vs. the actual numbers:
January 28
Dept of Energy reports that crude oil inventories had a build of 6218K (consensus is a build of 2900K); gasoline inventories had a draw of 121K (consensus is a build of 2000K); distillate inventories had a draw of 1005K (consensus is a draw of 1000K).
January 22
Dept of Energy reports that crude oil inventories had a build of 6100K (consensus is a build of 1400K); gasoline inventories had a build of 6475K (consensus is a build of 1800K); distillate inventories had a build of 790K (consensus is a build of 500K).
January 14
Dept of Energy reports that crude oil inventories had a build of 1144K (consensus is a build of 2500K); gasoline inventories had a build of 2068K (consensus is a build of 1850K); distillate inventories had a build of 6346K (consensus is a build of 1050K).
January 7
Dept of Energy reports that crude oil inventories had a build of 6682K (consensus is a build of 800K); gasoline inventories had a build of 3334K (consensus is a build of 1000K); distillate inventories had a build of 1790K (consensus is a build of 1100K).
Do you notice a consistent pattern with this report? These analysts should be rewarded for how predictably incorrect they are in forecasting a weekly number. If we raid the analysts offices would we find dart boards hidden under their desks? I know forecasting is not an exact science but these analyst are paid for their educated forecasts-at least be close a majority of time. You may want to apply for a position-the odds may be in your favor. Just dust off your dart board and practice first.
So, what does THE CROSSHAIRS TRADER do with this information? THE CROSSHAIRS TRADER looks for patterns in the markets and there is a pattern here.
I used to trade the oil inventory report until I found the same pattern in my trading results as we find in the analysts reports. I was wrong most of the time. I would short oil stocks (buy puts) if there was a bearish report (a higher build in inventories) and I would go long oil stocks (buy calls) if the report was bullish (a bigger drawdown than expected). The result: I lost money on a consistent basis. If the oil analysts are wrong then who is right? The answer: the traders. The answer is always the traders. The Market (in this case the oil market) is never wrong. I have learned that trading the oil market immediately following the oil report is a loser’s game. THE CROSSHAIRS TRADER seeks a consistently rising equity curve which means on the oil battlefield it is best to step aside until the majority of the traders give us the direction of the next trade. It could be several hours, could be several days. The smart money will let us know what to do, if we will only listen. Beats the dart board approach every time.
TRADING IS WAR. PREPARE YOUR WEAPONS.
