Objective research to aid investing decisions
Value Allocations for Sep 2018 (Final)
Cash TLT LQD SPY
Momentum Allocations for Sep 2018 (Final)
1st ETF 2nd ETF 3rd ETF
CXO Advisory

Crude Oil Seasonality

October 4, 2017 • Posted in Calendar Effects, Commodity Futures

Does crude oil exhibit an exploitable price seasonality? To check, we examine three monthly series:

  1. Spot prices for West Texas Intermediate (WTI) Cushing, Oklahoma crude oil since the beginning of 1986 (31+ years).
  2. Nearest expiration futures prices for crude oil since April 1983 (34+ years).
  3. Prices for United States Oil (USO), an exchange-traded implementation of short-term crude oil futures since April 2006 (11+ years).

We focus on average monthly changes/returns by calendar month and variabilities of same. Using monthly prices from respective inceptions of these series through August 2017, we find that:

The following chart shows average change in WTI crude oil spot price by calendar month over the available sample period, and over two equal subperiods. Notable points are:

  • Price tends to rise with consistency during April and May.
  • Price tends to fall with consistency during November and December.
  • Price is consistently unchanged during October.

For additional perspective, we look at standard deviations of price changes by calendar month.

The next chart shows average changes in WTI crude oil spot price by calendar month over the available sample period, along with one standard deviation variability ranges. Notable points are:

  • Ranges are generally large compared to average monthly changes, ranging from 6.9% to 11.7%, making average findings difficult to exploit.
  • Variability is largest for March, August and December.
  • Variability is smallest for April, June and July.

Spot price changes are not directly exploitable by investors (commodity speculators). What about results for crude oil futures?

The next chart shows average changes in WTI crude oil nearest futures price by calendar month over the available sample period, and over two equal subperiods. Results are very similar to those for spot prices.

For additional perspective, we look at standard deviations of returns by month.

The next chart shows average WTI crude oil nearest futures price changes by calendar month over the available sample period, along with one standard deviation variability ranges. Variability ranges are again generally large compared to average monthly changes, such that average findings are difficult to exploit. Variability by month is again highest (lowest) for March, August and December (April, June and July), ranging from 6.6% to 10.9%.

Findings are somewhat more exploitable than those for spot price changes, but data do not account for the roll yield inherent in maintaining a continuous crude oil futures position.

How about the easily investable USO?

The next chart shows average USO returns by calendar month over the available sample period, along with one standard deviation variability ranges. Notable points are:

  • Average returns are materially positive for February-April and materially negative for July-January.
  • Variability ranges are again generally large compared to average monthly returns, such that average findings are difficult to exploit. January-April offer the greatest reward/risk.

As a robustness check, we directly compare results for the three price series.

The final chart compares average WTI crude oil spot price changes, nearest futures price changes and USO return by calendar month over respective available sample periods. The most consistent findings are strength in March and April and weakness in November and December. Easily tradable USO (focused on more recent data) is notably different from the longer underlying series for most months.

In summary, evidence from simple tests supports some belief that crude oil tends to have strong months (March-April) and weak months (November-December), but high variability inhibits exploitation.

Cautions regarding findings include:

  • Sample periods for all three series (emphatically for USO) are short for calendar-based analysis.
  • To the extent that distributions of monthly price changes are wild, the average and standard deviation statistics lose predictive meaning.

For energy sector seasonality, see “Sector Performance by Calendar Month”.

Why not subscribe to our premium content?
It costs less than a single trading commission. Learn more here.
Daily Email Updates
Login
Research Categories
Recent Research
Popular Posts
Popular Subscriber-Only Posts