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Seasonal Trends In Oil Futures Trading

, , | March 8, 2024 | By

When it comes right down to it, seasonality plays a key role in the trade of commodities. The ongoing relationship between supply and demand fluctuates throughout the calendar year, creating quantifiable trends. Aside from the markets of agricultural products, oil futures trading is regularly impacted by seasonality.

The Time of Year Matters

Even though oil doesn’t have a planting or harvest, the time of year is a critical aspect of pricing. Using the seasons of the Northern Hemisphere as a guide, oil experiences periods of both heightened and stagnant supply and demand. For those actively engaged in oil futures trading, it’s best not to ignore seasonal trends.

Here are the broad strokes of how the time of year impacts values of West Texas Intermediate (WTI) and North Sea Brent (Brent) crude oil futures:

  • Spring: The months of March, April, and May are a time of anticipation for the global oil complex. Peak demand is right around the corner, and production is typically ramped up to satisfy expectations. Crude oil futures have a tendency to gain bullish momentum for the first time during the calendar year.
  • Summer: Beginning in early June and running through the end of August, the summer season represents peak demand in the Northern Hemisphere. Industrial output is boosted, as is the consumption of refined fuels. Although institutional oil futures trading volumes are moderate in comparison to other seasons, prices tend to trade at or near yearly highs during the late summer.
  • Fall: Fall is frequently a transitional period for oil. The peak demand months of summer are over, and the holiday consumption season is not yet in full swing. Due to the time of year, it’s common to see oil prices begin to retreat in September, October, and November.
  • Winter: December, January, and February typically mark the annual bottom for the oil markets. Prices are frequently at or near yearly lows amid lagging demand. In addition, the inclement weather experienced during these months hampers many industries and lessens the need for refined fuels.

Given that 90% of the world’s population resides in the Northern Hemisphere, it stands to reason that the value of crude oil shifts in concert with its seasons. Fluctuating oil supply and demand levels often stem from refined fuel consumption in relation to travel or logistics. In addition, the warm weather months normally spur industrial activity. Add it all up, and the tendency is for global demand to increase in the summer, drawing supplies low and boosting oil prices.

Any trades are educational examples only. They do not include commissions and fees.

Seasonal Trends Aren’t Perfect

Although the tendencies listed above are frequently reliable in respect to oil pricing, they’re not foolproof. In fact, the spring of 2019 serves as a prime example of the fallibility of seasonal oil trends.

May 2019 brought significant bearish pressure to WTI and Brent Crude oil futures. Weekly inventory reports from the Energy Information Administration (EIA) and American Petroleum Institute (API) throughout this period came in unexpectedly strong. As a result of the unseasonal growth in stocks-on-hand were multiple 4% losing sessions for both WTI and Brent futures.

In addition, each posted a major decline in value on a month-over-month basis. Essentially, those engaged in oil futures trading limited risk exposure due to concerns over projected slowing economic growth (U.S.-China trade war) and exceptionally robust supply. While these fundamentals are not regular elements of the crude oil trade, they did undermine the annual late-spring and early-summer rally in pricing during 2019.

Getting Started in Oil Futures Trading

The global oil complex is attractive to many traders, specifically those interested in assuming risk. Few assets are as consistently volatile as those involved in oil futures trading. Geopolitics, armed conflict, and evolving supply and demand levels all have the potential to rapidly shake valuations to their core.

For more information on how crude oil futures can complement your game plan for the markets, schedule a no-obligation consultation with a member of the StoneX team today.

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