Does the price of oil display a seasonality pattern?
[We last looked at this in 2014 in this article; time to update the figures.]
To briefly recap, the original study found that since 1986 the price of oil displayed a seasonality for two parts of the year-
- March-September when WTI is strong, and
- October- February when the WTI price has been relatively weak
Let’s see if this is still the case.
The following chart plots the average month returns of the price of WTI (West Texas Intermediate) for the period 2000-2016.
A two-part pattern for the year is still observable, but the periods have shifted slightly.
As can be seen, since 2000, WTI month returns have tended to be high in the period February to June. The strongest month of the year in this period has been February with an average return in the month of 4.8%.
The weak part of the year has also shifted: to September to January. The weakest month has been November, with an average price return of 3.2%.
The following chart plots the proportion of monthly returns that were positive over the same period.
This pattern of positive returns largely supports the preceding analysis.
Since 2002 WTI has seen negative returns in February in only 3 years.
By contrast, September has seen positive returns in only 6 years since 2000.
The new seasonality pattern can thus be summarised as-
- February-June when WTI is strong, and
- September-January when the WTI price has been relatively weak
The following chart plots the cumulative performance of WTI for two portfolios:
- WTI (Strong Months) – this holds WTI in just the strong months identified above (February-June), and is in cash for the rest of the year
- WTI (Weak Months) – this holds WTI in just the weak months (September-January), and is in cash for the rest of the year
For benchmarking purposes WTI (continuous holding) and the S&P 500 Index are also plotted. All series are re-based to start at 100.
Starting at 100 in 2000, the WTI (Weak Months) portfolio would have fallen to a value of 16 by 2016. The S&P 500 would have a value of 145, and a continuous holding in WTI a value of 182. But the WTI (Strong Months) portfolio would today have a value of 1047.
Further articles on oil.