Crude Oil Inventories

Crude Oil Inventories in Forex represent changes in the number of barrels held in Inventory in the US.

Increase in US Oil Inventories barrels is a sign for much oil in stock which cuts demand for more oil from Canada to US.

This makes oil cheap on the market hence bad for CAD.

Canada is one of the major oil producers and exporter in the world.  It is also the largest oil exporter to the USA economy compared to other oil exporters.

Oil price fluctuations highly affect the Canadian dollar because its economy mostly depend on oil exports.

The Canadian dollar always fluctuates following the oil price movements as well as the US crude oil inventories.

This makes it a commodity currency.

When  the prices of oil fall, the currency value falls too. The opposite is also true.

How crude oil inventories affect the CAD and USD

The Canadian dollar (CAD) and the U.S. dollar often have a strong correlation with the price of oil.

 When the price of oil rises, the value of the Canadian dollar ( loonie) also usually rises relative to that of the U.S. dollar.

This is because the Canada is one of the largest oil producer and exporter of oil. Its economy strongly depend on oil for its production and growth. 

Secondly, the fact that oil is priced in dollars, also calls our attention to look into it.  

Canada earns most of its U.S. dollars from the sale of crude oil.

When the prices of oil go high, it requires more U.S.dollars to purchase a few  barrels of oil.

This increases supply of the U.S.dollar on the market hence fall in its value.

Therefore, as the prices of oil increase the CAD becomes expensive and appreciates in value. 

Hence, the Dollar falls because more of it is exchanged for less of the CAD. 

The correlation between the Canadian dollar(CAD) oil prices is positive and negative with the U.S. dollar.

 As Oil prices rise, the Canadian dollar(CAD) rises but the U.S. dollar falls. The reverse is true.

Now let’s talk about the U.S crude oil inventories in forex;

The U.S crude oil inventories

The US crude oil inventories in forex represent the change in the number of oil barrels held in the inventory in the US.

As we earlier discussed, Canada is the largest oil provider/exporter to the US when you compare it to other oil exporters. It exports about 85% of its oil to the US.

When oil inventories fall in the US barrels, it shows a shortage in oil which leads to a hike in oil prices.

Subsequently,

as oil prices hike, the Canadian dollar appreciates over the dollar. This means more of the dollar will be required to purchase less of the Canadian oil.

This is an advantage to the CAD.

On the other hand,

when oil inventories rise more than expected, it means much oil is in stock. Oil prices will fall leading to fall in the value of the CAD compared to the dollar.

How to trade the US oil inventories

On data release, when the crude oil inventories is less than expected, it shows a fall in oil barrels in the US stock.

This is a sign for a future price increase for petroleum products in the market hence a hike in oil prices and good future for the CAD.

When this happens,

sell pairs in quote with the CAD such as USD/CAD, EUR/CAD, GBP/CAD, NZD/CAD, AUD/CAD and buy pairs like CAD/CHF.

USD/CAD is the best pair to consider because the USD and the CAD have a high correlation with the oil prices.

In this case you would sell the USD/CAD because as oil prices go up the CAD appreciates against the USD.

But if US crude oil inventories are higher than expected, sell the CAD and buy USD/CAD instead.

As oil prices fall the CAD loses value too.

This is because an increase in oil inventories in the US barrels cuts on demand for more oil from Canada to US.

This leads to much oil on the market and less demand for CAD in exchange with USD.

Similarly,when demand is less than supply, prices fall and this is bad for the Canada’s economy.

As a rule of thumb,when trading news on Crude Oil inventories in Forex, increase in oil inventories is bad for CAD and good for the US Dollar.

Also a fall in oil inventories in the US barrels is bad for the USD and good for the CAD.

Please don’t confuse the  oil inventories with oil prices.

Final Remarks

The Canadian dollar (CAD) and the U.S. dollar often have a strong correlation with the price of oil.

When the price of oil rises, the value of the Canadian dollar ( loonie) also usually rises relative to that of the U.S. dollar.

The reverse is true.

Canada is the largest oil provider/exporter to the US compared to other oil exporters. It exports about 85% of its oil to the US.

The US crude oil inventories represent the changes in the number of barrels held in the inventory in the US.

Increase in oil inventories in US barrels is a sign for much oil in stock which cuts demand for more oil from Canada to US.

This makes oil cheap on the market hence bad for CAD.

On the other hand,

A fall in oil  inventories in US barrels makes oil expensive and increases demand for more oil  from Canada.

This is due to shortage of oil in stock hence appreciates the CAD as simple as that.

 Sell/short the CAD when Crude oil inventories are more than expected and buy the CAD when Crude oil inventories are less than expected.

Similarly,

Buy the USD when Crude oil inventories are more than expected and Sell the USD when Crude oil inventories are less than expected.