Crude oil prices have ground lower in a highly volatile way since peaking in April 2024. Contributing to this volatility are the upcoming election, the Israel/Iran conflict, and Opec + flip-flopping from increasing production to not. The recent rally of the US dollar has not helped oil prices find much new buying. During these volatile times, using seasonality can offer a road map of what a market has typically done historically.
Will crude prices' dominant seasonal sell pattern work again this season?
Crude oil, a core driver of economic growth, shows distinct seasonality. Pricing patterns are influenced by the Northern Hemisphere's seasons. Demand for refined fuels is crucial in oil valuations, which shift with seasonal trends.
West Texas Intermediate (WTI) and Brent crude are benchmarks for the US and global oil markets, respectively, and are actively traded for speculation and risk management. Price trends typically respond to seasonal shifts in demand, providing strategic entry points for traders familiar with the cyclical nature of energy markets.
In a recent 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."
Source: Barchart
The article was written in mid-September. Looking at the crude oil daily chart, we can see that prices did bottom and rallied into early October, which has historically been a month of high oil prices. From there, prices have declined in a classic downtrend fashion.
Source: Moore Research Center, Inc. (MRCI)
MRCI research has found that the December crude oil market makes a macro-seasonal high(blue line) in April and begins a slow grind lower into late November or mid-December, making its seasonal low. During this period, the market formed a high price in early October following its seasonal pattern lower.
More evidence of less oil demand during the fall into the winter season is that gasoline and heating oil refiners are taxed at the end of December for unused inventory. Once refiners have acquired adequate oil, they no longer need to buy as much oil in late fall. The following Commitment of Traders report details this decreased buying over the past three years (black trendlines.)
Source: CMEGroup
The long positions (blue bars) of commercial traders in the Producer/Processor category have declined weekly during late fall. This lack of buying contributes to less demand for oil.
Seasonal Pattern
We've discussed the crude oil market's macro bearish seasonal pattern. Now, let's review MRCIs research for a more micro view.
Source: MRCI
MRCI research finds smaller seasonal windows than the macro view, allowing traders to analyze markets more thoroughly. The upcoming seasonal crude oil pattern finds that January crude oil futures contracts have closed lower on approximately November 29 than on November 06 for 13 of the past 15 years, with 87% occurrence. The seasonal window does not indicate a trader should take this trade mindlessly. Still, it alerts the trader that crude oil will likely close lower at the end of this seasonal window. Traders should incorporate their technical and risk management skills to see if this alert meets their requirements for taking the trade.
Source: MRCI
The upcoming seasonal pattern has been highly successful, but during the 15-year research period, four years did not suffer a daily closing drawdown.
MRCI research has found that a bear spread position has a similar pattern to the outright position we just discussed to enhance this seasonal pattern.
Source: MRCI
Spread trading is another way of trading commodity markets. It reduces volatility and allows for more extended holding periods and accurate seasonal patterns.
In this example, MRCI has found that placing a bear spread of simultaneously buying the April 2025 crude oil contract and selling January 2025 resulted in the spread closing higher on December 09 than on November 04 14 of the past 15 years, a 93% occurrence.
Source: MRCI
The spread seasonal pattern has also been highly successful, but during the 15-year research period, four years did not suffer a daily closing drawdown.
How to participate
Futures market traders could trade the full-size (CL) crude oil contract, (QM) the mini-crude oil contract, or the micro-contract (CYZ). Equity traders may be interested in trading the exchange-traded fund (USO). Bearish oil prices, sometimes seen as a slowing economy, could discourage the stock market and result in a sell-off, trading the mini S&P 500 (ES) or the micro-contract (ET)to participate.
In closing…
Crude oil's seasonality can provide a robust framework for traders, particularly in the context of current market pressures, such as geopolitical tensions, OPEC's indecision on production, and the fluctuating US dollar. While these factors contribute to short-term volatility, macro and micro seasonal trends remain vital to the market landscape. Historical seasonal patterns, such as the typical downtrend from October through December, align with refinery needs and tax considerations that reduce demand. MRCI's research underscores how high-probability seasonal windows can assist in strategically timing positions.
For experienced traders, tools like spread trading further enhance opportunities, allowing for reduced volatility and potentially higher success rates by capitalizing on seasonal price movements. Using these insights alongside technical analysis and sound risk management can sharpen entry points and manage positions with greater precision. As crude continues to navigate seasonal and fundamental forces, traders well-versed in these patterns can position themselves to capture gains and mitigate risks effectively in this complex market.
On the date of publication, Don Dawson did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
