What Economic Indicators You Need To Watch For As An Oil And Gas Investor
To determine the future of the petroleum industry, oil and gas investors need many detailed economic indicators to make the best investment decision. The production and distribution of oil and gas companies play a major role in the economic sector of a country.
It is really important for investors to know the future status of the oil and gas industry because it affects the stock levels, production of oil, international interests, and interest charges.
Oil supply is very important for many countries; after all, it is a key resource both monetarily and strategically. Countries, like the US, which have massive reserves of crude oil save oil for future consumption. An estimate of these reserves acts as an indicator for financiers in the industry to evaluate the future production and demand of the oil along with its inventory level.
The Energy Information Administration, in this regards, conducts a weekly review on the consumption of oil. Suppliers tend to increase sales by decreasing the prices whenever the production of oil increases. However, the decline in the production of oil may cause share prices to increase.
Refinery Capacity and Consumption
Another indicator for oil and gas investors is the ratio between the utilization of the refineries and their capacity. An increase in production may take a good amount of time due to the high cost and maintenance price of these refineries.
However, when the demand increases the consumption from the refinery increases simultaneously, and the prices may surge until the capacity of the refineries increases.
International Demand and GDP
Nations, like China and India, have a great demand for oil and gas due to their developing economy. However, during fiscal struggles, the prices of the oil and gas may decrease as many businesses, and households cut down the use to save money.
A great example of economic struggle was the recession that happened in 2007-2009 when there was a drop of approximately 40% in the prices of oil and gas in less than six months.
Presuming the synchronized relationship between GDP and demand for oil it is usually assumed that the economic performance of a country is a good indicator for most investors. Viewing these estimates would make it much easier for financers to estimate the oil and gas demand in the future.
Government Policies and Guidelines
Another economic indicator for investors in this sector is the interest rates. Changes in interest rates have a huge effect on various aspects of the oil and gas industry. It affects the stock levels, demand, and supply, and the investment cost for oil producers.
Impact of government tax policies on business performance and profitability is visible when taxes increase on various petroleum products, and the production is restricted; as a result, prices increase.
Burning of fossil fuels affects the environment, and due to this reason, governments must take some action. By increasing the taxes, governments can lower the consumption of oil.
With the help of the above four indicators, investors can easily make the best decision.