How many hours did you spend surfing for a Black Friday special on Amazon? How did that work for you? One thing is for sure: whatever you found was priced higher than last year. Check out this Black Gold opportunity and see if it helps you be more merry as you celebrate Christmas this year.
Crude oil, often referred to as Black Gold, is one of the most high-demand commodities in the world. Its uses include creating gasoline, heating oil, diesel fuel, plastic materials, roofing shingles, and more. Gasoline is the most produced oil product from crude oil, accounting for 19.5 gallons out of a 42-gallon barrel. As of 2024, there were approximately 1.4 billion vehicles on Earth. More interestingly, 19% of those belong to residents of the world's most robust economy, the USA.
If you reside in the USA, you will know what I mean: People here are incredibly habitual. And that includes their seasonal driving habits. Gasoline demand is exceptionally high during the summer driving season. Demand drops after September when schools resume, and vacations are less frequent. Knowing when these demand levels change throughout the year can be like finding that perfect deal during Black Friday shopping.
Our Federal Government agency, the Environmental Protection Agency (EPA), is as habitual as the consumers. In the article for Barchart, "Cheaper Gasoline Prices And Higher Crude Oil Prices: But Why?" I wrote: "As gasoline demand wanes and temperatures cool in the fall, oil traders should note the fuel market shift as gasoline retailers switch to winter-blend gasoline starting September 15. Winter-blend fuels are cheaper due to fewer environmental restrictions from the Environmental Protection Agency (EPA). Still, the transition can temporarily drive prices higher as refineries and gasoline retailers adjust inventories. This brief price bump can present short-term trading opportunities for oil traders, particularly if weather events, like hurricanes in the Gulf of Mexico, disrupt production and supply chains, adding further volatility to gas prices during the late summer and early fall.
Unlike the mandatory Spring switch to summer-blend fuels, the Fall transition to winter blends is optional, yet many gasoline retailers opt for it to stay competitive in pricing. Traders should be aware that some gasoline retailers delay the switch until they have depleted their Summer-blend stocks. By the end of September into early October, oil traders can expect prices to decrease as demand subsides and more retailers shift to the cheaper winter blend."
Another event that happens each year involves oil refiners. As we approach December, many refiners have accumulated enough oil for winter heating and some for gasoline consumption. As December ends, refiners will be taxed for any unsold product they have. Refiners are incentivized to sell these products at lower prices, flooding the markets with supply and reducing prices. With refiners well supplied with oil for this period, another demand lull occurs, putting more pressure on lower crude oil prices.
I pointed out these very cyclical patterns to alert you as traders that seasonality can offer you a tremendous edge in your trading. As a crucial reminder, It's important to note that while seasonal patterns can provide valuable insights, they should not be the sole basis for trading decisions. Traders must consider other technical and fundamental indicators, risk management strategies, and market conditions to make well-informed and balanced trading choices.
Upcoming Black Friday opportunities
Source: Moore Research Center, Inc. (MRCI)
The May crude oil historical patterns (black line) chart has significant seasonal highs and lows throughout the year. I'm using the May contract, but almost any crude oil contract will work. But I wanted to illustrate the climax in May for the potential of each year's most significant oil rally.
The following chart will be a daily nearby crude oil chart marked up to illustrate last season's price action and the possible outcome for this season.
Source: Barchart
The chart has been marked with recent price data, which can be compared to the prior MRCI historical seasonal price chart.
Last year's seasonal fall price decline (red line on the left side of the chart) reveals how the decline was worth participating in. Prices then bottomed in late December and rallied until late April, when the market began to drift lower after the demand for crude oil declined. Refiners were well-supplied for the remainder of the summer driving season.
The 2024 fall season is following the same pattern, though with a weaker fall rally to sell into. Donald Trump's election as president likely impacted the fall rally. During his campaigning, he promised to "drill baby, drill," which would likely increase the oil supply. The election should help support lower prices further into the end of December. The crude oil market has a well-defined downtrend, bearish fundamentals, and a robust seasonal sell pattern from the early fall season.
Looking ahead to the December seasonal buying pattern, the most significant one of the year, we will need to wait until then, reassess the trend, and see if it begins turning up. At that point, traders can use their analysis for trade setups and risk management to participate in the upcoming seasonal buy window from December to early May.
Products to trade
Futures market traders could trade the full-size (CL) crude oil contract, (QM) the mini-crude oil contract, or the micro-contract (CY). Equity traders may be interested in trading the exchange-traded fund (USO). Bullish oil prices.could encourage the stock market to continue rallying, trading the mini S&P 500 (ES) or the micro-contract (ET)to participate.
In closing…
As traders, we constantly search for opportunities that offer the potential for returns, and seasonal analysis can provide a critical edge in navigating markets. Like savvy shoppers hunting for the best Black Friday deals, traders can use seasonal patterns to uncover favorable entry and exit points in the commodities market. Crude oil, or "Black Gold," exemplifies this opportunity, with its cyclical nature influenced by predictable demand patterns, regulatory shifts, and seasonal consumption habits. By understanding how these factors interact—such as the EPA's seasonal fuel blend mandates or the annual inventory tax refiners face—traders can anticipate shifts in supply and demand, positioning themselves for short-term profits or longer-term trends.
However, seasonal analysis alone isn't enough. Combining it with technical and fundamental indicators strengthens your trading strategy. You comprehensively understand market dynamics by monitoring price charts, historical trends, and economic events. For instance, the current bearish trends and reduced fall rallies highlight how external factors like political changes or oversupplied markets influence prices. As the December seasonal buying pattern approaches, a robust analysis will help you capitalize on crude oil's largest annual rally. Integrating this seasonal insight with disciplined risk management ensures you're not just chasing opportunities but making informed decisions. Embrace the power of seasonal analysis, supported by technical and fundamental frameworks, to seize the potential in crude oil and other markets.
