When you think about the crude oil and gasoline markets, there are a few fundamentals that really drive prices up or down.
In my experience, one of the main forces behind these price swings is inventory levels — specifically, whether we’ve got a surplus or a deficit.
Let’s look at how these two scenarios play out and why they matter to anyone watching oil and gas prices.
The Backbone of Pricing
When there’s a surplus — meaning more crude oil in storage than demand calls for — prices tend to drop.
It’s pretty basic supply and demand: if there’s too much supply and not enough demand, the market gets flooded, and prices fall to adjust.
On the flip side, when we’re looking at a deficit, there’s less oil available, so prices rise as demand tries to catch up with that limited supply.
Now, you might be wondering, “How does this translate into real numbers?”
Let’s say we’ve got weekly or monthly inventory reports showing how much crude oil and gasoline are sitting in storage.
Typically, the U.S. Energy Information Administration (EIA) releases a report each week on crude oil inventories.
Traders watch these numbers closely because any significant increase or decrease compared to forecasts can set off price movements almost immediately.
One recent example involved inventory data that came in lower than expected.
When the market saw this deficit, prices jumped, and it wasn’t just a minor blip — it was enough to catch everyone’s attention.
Why? Because a lower inventory signals a shortage, which ramps up demand and, as a result, prices. It’s like any scarce resource: if there’s not enough of it, people are willing to pay more.
Why Does This Matter to Everyday Investors?
If you’re wondering why any of this matters to you, it’s because crude oil prices have a ripple effect across the entire economy.
When crude oil prices go up, sure you’ll notice it at the gas pump.
But it doesn’t stop there, because rising oil prices can also impact a slew of industries from manufacturing to shipping, and even retail.
Every business that depends on oil, directly or indirectly, feels the pinch when prices go up.
And as a trader, these price swings create both risks and opportunities in related markets, from energy stocks to commodities and even the broad indexes.
One Last Thing: How to Know if You’re Overpaying at the Pump
But there’s more to it than just understanding inventory levels and price movements.
Tomorrow, I’ll share a little trick I use to make sure I don’t pay a penny more than I have to for gas.
I’ll share with you the formula I rely on, including how taxes come into play to help me figure out what fair gas prices really are.
During the pandemic, finding a fair gas price was nearly impossible, but at least I knew where I stood. Stay tuned for those insights tomorrow!
— Geof Smith
P.S. Nate Tucci is going to be sharing one specific stock — and how he plans to use it to target a huge return over the weekend just from a tiny move in the stock. Register your spot for his FREE workshop.
