The heating season in the Northern hemisphere means that energy consumption will rise. This is however offset by other factors, such as the use of alternative energy sources and prices that have often been agreed to in advance. What is the actual seasonal trend in crude oil?
Seasonally, the Oil Price is Set to Decline From Here on Out!
Let us take a look at the actual seasonal trend of the spot price of the most important oil grade West Texas Intermediate (WTI) based on a seasonal chart.
A seasonal chart shows the average trend in prices in relation to the time of the year. The horizontal axis depicts the time of the year, the vertical axis the average price move of the past 30 years as a percentage. Thus you can see the seasonal trend of crude oil at a single glance.
Crude oil, seasonal trend over a 30 year time period
The heating season encompasses the seasonally weak period for crude oil! Source: Seasonax
Contrary to what many market observers expect, crude oil prices typically decline during the heating season! In other words, sometimes, widespread expectations are not fulfilled – one more reason to always closely examine actual seasonality.
Crude Oil Often Posts Dramatic Declines Between October and February
I have highlighted the weak season in dark blue above. It lasts from October 12 to February 11 of the next year. The average decline in crude oil in this time period was 8.67%. In 17 out of 30 cases crude oil fell, in 13 cases it rose. On four occasions crude oil even declined by more than 25 percent during this time period: by 43.07% in 1990, 55.73% in 2008, 43.08% in 2014 and 44.38% in 2015.
The following bar chart shows the price movements of all years since 1986 in the time period October 12 – February 11.
Crude oil, return in percent between Oct. 12 and Feb. 11. since 1986
Crude oil often declines very strongly between October and February. Source: Seasonax
The red bars represent losses. They are dominant both in number and extent. This makes clear that it is not only a single outlier that has created the weakness in the seasonal chart. Rather, quite strong price declines in crude oil have indeed frequently occurred in the time period from October to February. The price trend is seasonally weak right in the middle of the heating season!
In order to access the Seasonax app, either type “APPS SEASON” into your Bloomberg Professional Terminal, or select the App Studio in the Thomson Reuters menu. The Seasonax app can be launched from there.