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MichelGJulien

Are Seasonal Factors Really a "factor" in Oil Price?

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A lot of traders are aware that one factor behind the oil price fluctuations are the seasonal changes, which act as an important underlying influence in the supply/demand balance. It is widely believed that crude oil prices tend to be stronger in the fourth quarter when there is a high demand both by cold weather and by stock building. And also, that it gets weaker in the late winter as global demand falls with the onset of warm weather. Of course, crude oil prices are subject to a host of other influences. The high demand season, that is, late spring for gasoline and late autumn for heating oil, results in high prices of oil. But, is any of this "reliable" enough to adopt as a trading strategy?

 

CXO Advisory worked on this subject last year and found out that: 1) oil price tends to rise with some consistency during January, April, May and August; 2) oil price tends to fall with some consistency during November and December. But after a few other simple tests, they concluded that evidence supports PERHAPS some belief that crude oil tends to have strong and weak months of the year, but that the high year-to-year volatility by month inhibits exploitation of these evidences in terms of trading strategy. There you have it from the experts. But, if we only look at the crude oil FUTURES market (something CXO Advisory didn't limit itself to), we come up with the following chart:

 

attachment.php?attachmentid=36740&stc=1&d=1375028431

 

On this graph we can clearly see that from July to September there are indeed seasonal factors at play that make oil prices go up. So, who to believe? Is this evidence solid enough to justify buying in July and holding that position until September comes around? I'd say yes, but only if you are able to stomach oil price wild gyrations and volatility. In short, it is not a strategy for everybody.

 

More articles on my blog

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