How do I make a supply and demand model?
I still don’t understand this. Let’s keep it simple and say I wanted to build a supply and demand model for US Oil. Do I break down “supply” and “demand” into various components and then source data for that to see if it aligns with numbers from the EIA? In my head it seems very straightforward but I’ve never actually seen anyone build an actual model.
bump
In my experience (oil fundies internship so take with a grain of salt), best practice was typically to break things down by PADD or region and look at pipe & waterborne flows to take a view on S&D for each area. For example, if you're building a balance for the permian your supply side is (production) + (pipe & rail inflows) and your demand is (local refinery demand) + (rail outflows) + (pipe outflows). You could then do this for different PADDs/regions and sum it up for an overall balance. Unfortunately, the pipe flow data you can find will be a couple months old and live pipe flow data is found through spendy vendors and is oftentimes inaccurate.
If I were you, I'd look at the EIA components that make up the inventories number (exports, production, runs, etc.) and break each one down into more fundamental parts to forecast....so like for production maybe look at rig counts and decline curves. For exports, you could maybe look at Ti/Brent and see how that drives export flows. Basically, find factors that drive the inventory components and try to take a forward view on those factors to see how they could change inventories.
You can make it as simple or complicated as you want...you're gonna have to put in some meaty assumptions regardless though. And again, my only experience was an internship so hopefully someone else can chime in
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