SUPPLY REPORTS

Although modern markets have added extra layers which distort the natural market somewhat, at their cores the markets continue to be driven by the law of supply and demand. This is especially true in the commodities markets, and traders of those markets look closely at supply and stockpile reports, which reveal the current relationship between a commodity’s supply and the demand for it.

One of the most important supply reports from a market perspective is the Energy Information Administration (EIA) weekly report on various energy sources: petroleum, natural gas, and coal being the most market-applicable. The publication, This Week in Petroleum, is a must-read for any serious energy commodity trader because it contains current supply and stockpile data for coal. Each month the agency also releases Petroleum Supply Monthly, which contains inventory data for petroleum products.

Supply reports are important not simply in how they relate to data given in previous reports, but in how they relate to analyst predictions. In fact, data released in the previous week or month is generally supplanted rather quickly in the market by guesses as to what the next report will reveal. The market then reacts to these predictions, and when the next report is released the market swings based on how accurate those predictions were – if predictions were for greater supply than turns out to be the case, commodity prices will swing upward; if there turns out to be a greater supply than predicted, commodity prices will swing downward.

While energy commodities are the most visible to use supply data, in fact agricultural commodities tend to depend on them much more. While energy commodity supplies are generally relatively stable – excepting drastic events like hurricanes, or the discovery of new reserves – supply levels of agricultural commodities can be radically altered overnight. Heavy frosts can destroy half the orange crop in Florida, causing the price to spike overnight, and good weather can cause bumper crops, which will result in high supply reports that drive the commodity price down.