When it comes to trading commodity futures, supply and demand are the primary drivers of asset values. Accordingly, the time of year can greatly influence each side of the equation. Simply put, if you’re an aspiring commodity futures trader, then it’s a good idea to be aware of seasonal trends.
Often referred to as the “lifeblood of economic growth,” crude oil exhibits its own unique brand of seasonality. Let’s examine the historic pricing tendencies of oil with respect to the calendar month.
Seasonal Trends in Crude Oil Pricing
For all practical purposes, crude oil and natural gas are the backbone of the global energy complex. Their values depend upon supply and demand, both of which evolve in relation to the time of the year. When it comes to crude oil pricing, the demand for refined fuels is a key lynchpin in valuations.
There are two types of crude oil traded on the futures markets: West Texas Intermediate (WTI) and North Sea Brent (Brent). Traders from around the world engage these two products as tools for speculation and risk management. WTI is considered to be the U.S. benchmark for crude oil values; Brent serves as the international measure.
Generally speaking, both WTI and Brent crude oil pricing are sensitive to the Northern Hemisphere’s seasons. Here is an overview of the WTI pricing trends of the Northern Meteorological Calendar from 1986-2018:
- Winter (Dec. 1-Feb. 28): Winter oil prices are normally the lowest of the year. Aside from a short-term bump in demand stemming from holiday travel, WTI prices remain depressed.
- Spring (March 1-May 31): Prices gradually appreciate, rallying from the lower 25 percent of the annual range.
- Summer (June 1-Aug. 31): Summer commonly features strength in WTI pricing. Bullish sentiment is dominant as prices hold firm and trade at or near the top 25 percent of the annual range.
- Fall (Sept. 1-Nov. 30): WTI prices peak, posting yearly highs in the early fall. As the season progresses, values begin their descent in concert with the onset of winter.
Of course, these trends are simple generalities; actual prices may fluctuate wildly from year to year. A wide variety of factors influence crude oil pricing, including geopolitical tensions, armed conflict, and macroeconomic cycles. However, given “normal” market conditions, crude oil has a tendency to gain value from May to September.
Peak Demand and the Summertime Rally
So why are oil prices higher in the summer and lower in winter? The answer is intuitive: increased demand for refined fuels. This phenomenon occurs for several reasons:
- Travel: The summer months feature several holidays and are a popular time for vacation. Keeping cars, motor homes, boats, and airplanes fueled is a key driver of summertime oil demand.
- Industrial activity: Many industries ramp up operations in the summer. Agriculture and logistics are two sectors that boost operations during the North American summer months.
- Fuel additives: A removal of winter season fuel additives (such as ethanol and butane) can increase the consumption of gasoline and diesel. Although gas and diesel mileage may improve, the higher-quality fuels can be more crude oil intensive.
Like that of all commodities, crude oil pricing is tied to supply and demand. Barring any outliers, such as the COVID-19 pandemic, the oil markets are subject to the production-consumption paradigm. Typically, summertime in the Northern Hemisphere is a period of peak demand for crude oil.
Interested in Trading Crude Oil Futures?
Without a doubt, WTI and Brent futures are some of the most exciting markets available for public trade. Featuring consistent volatility and robust liquidity, these two products are ideal for many active traders worldwide. To learn more about how crude oil futures can become a valued addition to your portfolio, schedule your free one-on-one consultation with a member of the StoneX team today.
