Monthly seasonality of oil

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.

Mean returns

The following chart plots the average month returns of the price of WTI (West Texas Intermediate) for the period 2000-2016.

Crude Oil (WTI) [2000-2014] Monthly return average

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%.

Positive returns

The following chart plots the  proportion of monthly returns that were positive over the same period.

Crude Oil (WTI) [2000-2014] Monthly return positive

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-

  1. February-June when WTI is strong, and
  2. September-January when the WTI price has been relatively weak

Cumulative performance

The following chart plots the cumulative performance of WTI for two portfolios:

  1. 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
  2. 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.

WTI Seasonality Performance [2000-2016]

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.

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Gold and US presidential elections

How has the price of gold reacted to US presidential elections?

Day returns

The following chart plots the average daily returns of gold for the nine days around the US presidential elections (1968-2012). So, the chart covers the period of the 4 days before the election and the 4 days after. For example, for the 12 US presidential elections from 1968 the price of gold has increased on average 0.2% on the day of the election itself (D0).

Gold and US presidential elections [1968-2012] (1)

As can be seen…well, in fact, nothing much can be seen as there’s no clearly discernible pattern of behaviour here.

Let’s now see if there’s any significant difference in behaviour depending on whether a Democrat or Republican wins the election.

The following chart plots the average daily returns for gold for the election day and four following days. The averages are split as the  average for the five times a Democrat has won compared to the seven times a Republican has won.

For example, in the five elections that a Democrat has won the White House, the average daily return of gold the day following the election (+1D) has been 1.1%.

Gold and US presidential elections [1968-2012] (2)

Generally, the price of gold has been stronger following a Democrat win, and especially strong on the day following the election.

Let’s now zoom out time-wise and look at gold’s month returns around the elections.

Month returns

The following chart shows gold’s average month returns for the three months before, and three months after, US presidential elections.

Gold and US presidential elections [1968-2012] (3)

Historically, the gold price has been weak in the month leading up to the election (-1M) with an average month return of -1.8%. Following the election the price has tended to bounce back, with an average return in the following month of 1.1%.

The following chart plots the proportion of months seeing positive returns in these six months around the election. For example, the price of gold has only risen four times in the month before an election in the 12 elections since 1968.

Gold and US presidential elections [1968-2012] (4)

This chart largely supports the the observation in the preceding chart which is that the price of gold is weak in the month preceding an election, and strong in the following month.

Now to see if there is any difference in the behaviour depending on whether Democrat or Republican wins the White House.

Gold and US presidential elections [1968-2012] (5)

In the month following an election gold has risen on average 1.7% if a Democrat won, and 0.7% if a Republican won. The performance differential becomes more pronounced in the second and third month after the election – with gold seeing month returns of over 4% in the case of a Democrat win, and negative month returns in the case of a Republican win.

Caveat: this analysis involves a very small sample size (there have been just 12 elections since 1968) so the results can not be regarded as statistically significant. But, given that caveat, it does seem that gold loves Democrats!

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Silver

On 27 March 1980 the silver market collapsed. Panic swept the financial markets and there was a fear that several brokerage firms may collapse. To avert this a consortium of banks provided a line of credit of over $1bn to two brothers. The brothers were called Hunt and they had tried to corner the silver market.

Silver may not be as popular as gold as a store of wealth, but come the zombie apocalypse it may well be more useful than gold as a medium of exchange.

But how does it stack up as an investment?

Here we will look at two aspects of sliver: its seasonality and relationship with the stock market.

The following chart shows the average price returns for gold by month since 1963.

Silver($) monthly return average [1963-2015]

While the next chart shows the proportion of months that have seen positive returns.

Silver($) monthly return positive [1963-2015]

It can be seen that silver has been historically strong in January, February, July and September, and weak in June, August and October. This profile of behaviour would seem to have some persistency as the same pattern can be seen for the period 1990-2015.

Silver and equities

The following chart shows the ratio of the FTSE All Share Index to silver since 1968. (One can regard the chart as the UK equity market priced in silver.)

FTSE All Share Index-Silver [1963-2015]

The ratio peaked at 662.60 in April 2001 and then fell to a low of 65.05 in April 2011 after which is has been steadily falling in price against stock prices. Since 1963 the ratio average is 205.25.

Note: There are several silver ETFs/ETNs listed on the LSE, for example: PHAG($), PHSP(£), SLVR($), XSIL($), SILG(£).


Extract taken from the newly published The UK Stock Market Almanac 2016.

Order your copy now!

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Monthly seasonality of oil

This article looks at the monthly seasonality in the price of crude oil (West Texas Intermediate, WTI).

From 1986

The following chart shows the average price change by month of WTI for the period 1986-2014. For example, since 1986 the price of WTI has increased on average 0.5% in January. 

Crude Oil (WTI) Monthly return average [1986-2014]

From the chart it can be seen that, historically, March, April and August have been strong months for WTI, while October and November have been weak.

Further, we can divide the year roughly into two parts:

  1. March-September when WTI is strong, and
  2. October- February when the WTI price has relatively been weak

The following chart plots the proportion of monthly returns that were positive over the same period. For example, since 1986 48% of the WTI price changes in January were positive.

Crude Oil (WTI) Monthly return positive [1986-2014]

The pattern here largely repeats that seen for the average returns: the strong months are March, April (with July also being strong), and the weak months are October and November.

From 2000

To assess the persistency of the behaviour, the following chart plots the average price change by month of WTI for the period 2000-2014 (i.e. this is similar to the first chart above, but the starting point is 2000 instead of 1986). . 

Crude Oil (WTI) Monthly return average [2000-2014]

Roughly, the two-part nature of the year can still be seen in the monthly performance: the WTI price is relatively strong March-August, but the now weak part of the year starts in September, through to December.

The big change in recent years can be seen in the strength of the WTI price in February: since year 2000 WTI has an average price change of +5.4%.

For completeness, the following chart plots the proportion of monthly returns that were positive over the same period.

Crude Oil (WTI) Monthly return positive [2000-2014]


 

Further articles on oil.

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