KEY
TAKEAWAYS
- Crude, Brent, gasoline, and pure fuel are likely to dip and peak in the summertime months
- Though seasonality performs are enticing, they are not at all times dependable
- For those who’re trying to reap the benefits of seasonality developments, listed here are some technical ranges to observe
We’re heading deeper into the summer time months, which normally means greater demand for vitality merchandise, particularly crude oil and fuel. Whereas demand tends to be seasonal, your complete crude advanced can also be delicate to modifications in macroeconomic and geopolitical environments.
Briefly, all merchants and buyers perceive that it is not a viable technique to “go lengthy” in vitality commodities each June in anticipation of value will increase. Nonetheless, the seasonal context is price taking a look at and evaluating to each the present value state of affairs and elementary forecasts.
What Are Analysts Saying?
Crude oil costs proceed to rise, marking its finest efficiency since April, following a three-week streak of declines. Analysts count on summer time gasoline demand to attract down inventories and tighten the market, with oil stockpiles projected to lower by 850,000 barrels per day within the third quarter.
Regardless of blended financial information from China and US shopper sentiment prompting analysts to forecast weak point in vitality demand, the oil market nonetheless appears like it is going to tighten deeper into the summer time months.
What Does Seasonality for the Crude Advanced Look Like Relative to the S&P 500?
Summer time doldrums within the broader inventory market might exhibit seasonal consistency, however should not predictable. The identical may be stated for growing vitality demand. Nonetheless, let’s check out the crude advanced over the past 10 years utilizing StockCharts’ Seasonality charts.
Observe: We’re evaluating seasonal efficiency in opposition to the S&P 500 as a result of it is the benchmark in opposition to which you’ll regulate your portfolio.
WTI Crude Oil (USO as proxy)
CHART 1. 10-YEAR SEASONALITY CHART OF USO AGAINST THE S&P 500. Make sure you take a look at the higher-close fee (above the bars) and the typical return (backside of the bars).
Over the past 10 years, and relative to the broader market, July is USO’s second-to-worst-performing month when it comes to common return (-5.5%) and worst month when it comes to greater closes (solely 22%). In August, its damaging efficiency eased up a bit, resulting in its finest seasonal efficiency in September, with a higher-close fee of 56% and a mean return of three.5% in opposition to the S&P. So is August a good month so as to add positions in the event you’re trying to go lengthy on crude oil?
Brent Crude Oil (BNO as proxy)
Brent crude (BNO) has an analogous profile, however its September efficiency has a stronger higher-close fee (78%) than USO (which tracks WTI crude) and with a barely greater common return of three.9%.
CHART 2. 10-YEAR SEASONALITY CHART OF BRENT CRUDE OIL AGAINST THE S&P 500. Observe that September is the BNO’s strongest month relative to the S&P.
RBOB Gasoline (UGA as proxy)
Whereas most buyers do not deal a lot in gasoline futures, it is a commodity that our wallets know fairly effectively (with both ache or aid on the pump). Because the seasonality chart beneath reveals, gasoline costs are likely to rise within the spring (see April) and summer time (see September) attributable to shifts in gasoline blends (amongst different, much less constant elements resembling refinery upkeep, crude oil costs, refining prices, and so on.).
CHART 3. 10-YEAR SEASONALITY CHART OF RBOB GASOLINE AGAINST THE S&P 500. Check out April, September, and December. You will see how these look on the day by day chart later within the article.
Relative to the broader market, UGA (United States Gasoline Fund) reveals similarities to WTI and Brent. Its damaging efficiency in July and August led to stronger efficiency in September, with a higher-close fee of 78% and a mean return of three.4%. Observe, nevertheless, that its April and December performances are the strongest.
Pure Fuel (UNG as proxy)
Pure fuel has been the weakest-performing asset among the many group, being the one one to exhibit damaging year-over-year returns. Nonetheless, it is noteworthy that UNG holds distinctive seasonal efficiency (in opposition to the S&P) in August, setting it aside from the opposite three property.
CHART 4. 10-YEAR SEASONALITY CHART OF NATURAL GAS AGAINST THE S&P 500. Pure fuel spikes in August. Will this rally materialize this summer time?
Over the past 10 years, UNG has had a higher-close fee of 89% and a mean return relative to the S&P of seven.8%. What accounts for this? Elevated demand for electrical energy, hurricane season, and decrease storage ranges throughout the summer time are among the many elements that are likely to make pure fuel bounce in August.
Ranges to Look ahead to USO, BNO, UGA, and UNG
USO
CHART 5. DAILY CHART OF USO. Worth is rallying, however shopping for strain is sinking.
USO is trying to rally, however, regardless of the sharp value rise, momentum has given approach to promoting strain, primarily based on the Chaikin Cash Stream studying. The bulls’ goal is to get USO previous $81—a swing level coinciding with a cluster of 2022 resistance ranges not proven within the chart above—to only above $83, marking the 2023 and 2024 highs. The bears purpose to strain costs again between $74 and $73, a formidable help stage with large quantity focus (primarily based on the Quantity by Worth indicator studying), presumably all the way down to $70, which marks the present swing low.
General, USO appears bearish within the close to time period, however, if it does fall between $70 and $73, that vary may be a good entry level for these trying to reap the benefits of a possible seasonal surge in September.
BNO
CHART 6. DAILY CHART OF BNO. Observe the divergence in momentum, which has similarities to USO.
As Brent crude is correlated with WTI, BNO’s CMF studying shouldn’t be that totally different from USO’s; each present dwindling momentum. Nonetheless, the thick black dotted line highlights a long-term uptrend that may be traced again to 2022 (not proven within the chart above). Whereas the bears’ goal is to see BNO’s value fall beneath help ranges slightly below $30 and $29, the uptrend line, which might rise to round $28.50, would probably function a robust help stage, notably for these aiming to wager on a September seasonal value improve.
UGA
CHART 7. DAILY CHART OF UGA. Observe the April, September, and December value spikes.
Assume that everybody is a bear with regards to RBOB gasoline, as not even a bull would wish to pay greater costs on the pump. Nonetheless, April, September, and December are UGA’s strongest seasonal months, and the inexperienced rectangles spotlight these value spikes.
Momentum-wise, the CMF is deep into damaging territory, indicating extreme near-term weak point (a aid on the pump?). However September is simply across the nook. For those who’re trying to reap the benefits of this seasonal play, you’ll be able to count on help at round $62 (see trendline), however hold an eye fixed out for resistance at $68.5 and the $73–$74 vary. The all-time excessive, reached in 2022, is at $80.
UNG
CHART 8. DAILY CHART OF UNG. Double prime?
Pure fuel, UNG, reveals a transparent break above the downtrend line, however is it double-topping (see blue arrows)? Supporting the probability of a near-term prime is the lower in shopping for momentum, as proven within the downsloping CMF.
UNG’s August seasonal surge hasn’t been as pronounced because it has been by way of a lot of the decade attributable to elevated manufacturing, hotter climate, and excessive stock ranges. However if you wish to place your portfolio for a possible rally within the subsequent few months, the swing low at $17 (or the 2024 low at $14) may make for favorable entry factors.
The Takeaway
As we transfer into the summer time, vitality demand normally will increase, notably for crude oil and fuel. Whereas seasonal performs may be enticing, they are not at all times dependable. And that is why it is best to take a look at the value motion to hunt potential tactical entry factors when profiting from seasonal alternatives. Additionally, it is necessary to think about the broader geopolitical and macroeconomic contexts, as these elements can considerably alter the provision and demand image for these commodities.
Disclaimer: This weblog is for academic functions solely and shouldn’t be construed as monetary recommendation. The concepts and techniques ought to by no means be used with out first assessing your individual private and monetary state of affairs, or with out consulting a monetary skilled.
