How Inventory Data Affects Crude Oil

Crude oil is often considered the backbone of the global economy and trade. Crude oil is a commodity used in numerous industries, either directly or indirectly. As a result, crude oil prices have a widespread impact, which can impact not only businesses but also the economy as a whole. While tracking crude oil, its inventory data is highly important, especially for a country like India. In this blog, we will understand crude oil inventory data and its impact.

Crude Oil Dependency of India

Being a developing economy, India has been investing significant resources to support the growth across various industries. Along with the development across industries, the population of the country has also grown, resulting in an increase in consumption.

The consumption of crude oil in India has increased in conjunction with the economy. Since India’s production capacity of crude oil is not sufficient, it heavily relies on crude oil imports. India is one of the world’s largest crude oil importers, with its dependence on imported crude oil rising to 89.1% in FY25.

Since India relies heavily on crude oil imports, it is highly sensitive to the price of crude oil. Changes in crude oil prices have a trickle-down effect, which can impact consumption and inflation.

State-run oil marketing companies (OMCs) in India play a vital role in the country’s economy by producing, refining, and distributing oil & energy across the country. Crude oil prices and volatility in prices impact these companies as well. Moreover, a decline in demand for crude oil can have a negative impact on the sales volume of OMCs.

Apart from OMCs, companies across multiple sectors such as infrastructure, airlines, chemicals, and paints are significantly affected by the price of crude oil.

What is Inventory Data in the Oil Market?

Now that we have understood India’s position and reliance on crude oil imports, we can better understand crude oil inventory data and its role in the market.

Crude oil inventory data, also known as crude oil stockpiles, are the reserves of unrefined petroleum. The crude oil inventory data is measured in barrels.

The crude oil inventory data is released weekly and provides insights into the demand and supply of the commodity. The inventory data tracks changes in the stockpile from one week to another.

In the United States, crude oil inventory data is released weekly by the U.S Energy Information Administration (EIA) and the American Petroleum Institute (API). The International Energy Agency (IEA) releases monthly inventory data of 37 Organisation for Economic Co-operation and Development (OECD) countries..

Crude oil inventory data is highly important as it helps smooth out the changes in demand and supply. A rise in crude oil inventories can signal weak demand for the commodity, resulting in the market reacting accordingly. This coupled with other factors such as geopolitical cues, seasonal demand variation and production rates, also impacts price movements and inventory levels. Similarly, the decline in crude oil inventories can be seen as a rise in demand, resulting in an increase in the price.

Impact of Global Inventory Data on India

India is a country that heavily relies on crude oil imports. Given its high reliance on imports, India is directly impacted by the global demand and supply of crude oil. This is where inventory data comes into play. Changes in the crude oil inventories affect the global benchmark prices of Brent Crude and West Texas Intermediate (WTI).

When crude oil inventories increase, the supply for the commodity may increase as traders close their positions and crude oil sellers reduce the price to attract more buyers. In such a scenario, India can benefit from lower crude oil prices.

However, if crude oil inventories decline, the market may anticipate the rise in demand and purchase more crude oil, resulting in higher crude oil prices. Since the inventories of crude oil are low, the demand for the commodity increases, making it more expensive to purchase the commodity.

Moreover, the currency exchange amplifies the impact of a rise in crude oil prices. For example, the Indian rupee is weaker compared to the U.S. dollar. Further weakening of the Indian rupee reduces the purchasing power of the currency, resulting in the country being able to purchase fewer quantities of crude oil for the same amount of money.

Crude Oil Prices and Their Impact on India

Now that we’ve understood how the inventory data impacts global crude oil prices. Let’s understand the depth to which India is impacted by crude oil prices.

Crude oil inventory data are often used as indicators for the demand and supply of crude oil. Build-ups or drawdowns in the inventory influence global crude oil prices, which have a direct impact on import-reliant countries like India.

For example, a build-up of crude oil inventories could leads to a decrease in crude oil prices due to the reduced demand. Similarly, a drawdown in inventories often suggests higher demand, potentially increasing the prices. Higher prices make it more expensive for India to import crude oil. The increase in prices has a pass-through effect as it leads to an increase in the price of petrol, diesel, and energy. As fuel prices increase, the cost of production and transportation also increases, which has a widespread impact on the economy, resulting in an inflationary environment. As inflation rises, the currency weakens, making imports more expensive. This also has a negative impact on the country’s current account deficit and overall fiscal health.