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A Monday Morning Musing from
Mickey the Mercenary Geologist
Early this year I presented a musing documenting seasonal moves in the
price of gold over the past 20 years (Mercenary Musing, January 4, 2016).
Employing the same tools, I now report our research on the price of crude
oil from 1996 to 2015.
In a series of normalized charts, I will show that regardless of overall
year-over-year bull, bear, or neutral market conditions, there are
predictable intra-year trends in the price of the North American benchmark
oil, West Texas Intermediate crude (WTI).
The chart below plots the 20-year record of oil prices. Please note that
all data is spot WTI, Cushing, Oklahoma, at daily New York close:
 
Over
20 years, the price of oil has shown significant fluctuations and at times,
extreme volatility and wild swings in five market cycles of varying duration.
Besides basic supply and demand fundamentals, there are many other inputs
that directly affect the oil price. They include: the health of the world's
economy; influence of the OPEC cartel and especially, Saudi Arabia on swing
supply; geopolitical events mainly in the Middle East but also in Eastern
Europe and Asia; advent of new technologies for exploration, development, and
recovery; and recently, global environmental and economic policies designed
to curb use of fossil fuels.
In addition to the above, supply-demand fundamentals and external factors
are exacerbated by worldwide speculation in petroleum market derivatives. The
result is a highly volatile and cyclical market for crude oil.
The following series of five charts shows the percentage change in the
daily price of crude normalized to January 1 for each year:
Based on annual opening and closing prices, we define bull years for crude
oil (green) as those in which the price closed the year > 10%
higher than it opened; bear market years (red) as those in which the
price closed the year >10% lower than it opened; and neutral years (black)
as those in which the percentage change was less than 10%:
WTI Oil($ / bbl)
|
Year
|
Jan Open
|
Dec Close
|
% Change
|
|
1996
|
19.83
|
25.90
|
30.61
|
|
1997
|
25.55
|
17.65
|
30.92
|
|
1998
|
17.41
|
12.14
|
30.27
|
|
1999
|
12.42
|
25.76
|
107.41
|
|
2000
|
25.56
|
26.72
|
4.54
|
|
2001
|
27.29
|
19.96
|
26.86
|
|
2002
|
21.13
|
31.21
|
47.70
|
|
2003
|
31.97
|
32.51
|
1.69
|
|
2004
|
33.71
|
43.36
|
28.63
|
|
2005
|
42.16
|
61.06
|
44.83
|
|
2006
|
63.11
|
60.85
|
3.58
|
|
2007
|
60.77
|
95.95
|
57.89
|
|
2008
|
99.64
|
44.60
|
55.24
|
|
2009
|
46.17
|
79.39
|
71.95
|
|
2010
|
81.52
|
91.38
|
12.10
|
|
2011
|
91.59
|
98.83
|
7.90
|
|
2012
|
102.96
|
91.83
|
10.81
|
|
2013
|
93.14
|
98.17
|
5.40
|
|
2014
|
95.14
|
53.45
|
43.82
|
|
2015
|
52.72
|
37.13
|
29.57
|
The volatility from annual beginning to end averaged nearly 33% over the
20 years in this study. Crude oil is arguably the most volatile natural
resource commodity traded on world market exchanges.
The following four charts present composite yearly trends from January 1
to December 31 for the entire 20-year period, seven bear years (1997-1998;
2001; 2008; 2012; 2014-2015), eight bull years (1996; 2000; 2002; 2004-2005;
2007; 2009-2010), and five neutral years (2000; 2003; 2006; 2011; 2013):
The composite charts illustrate some interesting seasonal trends for the
price of North American crude oil:
·Oil dips from the first part of the year until mid- to late February for
the 20-year composite. This period lasts significantly longer in bear years
(mid-April) than in bull years (mid-February). In neutral years, the price
actually rises before falling back sharply in mid-March.
·A late winter to late spring rally holds for all four charts. It peaks in
late May in bear market years while in bull years, oil rises rapidly in
mid-February thru April and flattens for the month of May. In neutral years,
the overall rise is choppy and volatile.
·Overall, the price increases continue until Labor Day. However for bear
years, the spring rally ends abruptly and the price goes on a slow downtick
into the late summer. In bull years, there is a steady rise until Labor Day.
In neutral years, the uptick is over by late June and the price is flat thru
late August.
·The end of summer and the fourth quarter show strong divergence between
bear and bull markets. The composite trend is flat to a slight downtick in
September followed by a strong Q4 downturn until December's rising price.
Considering only bear markets, the oil price goes on a steady and significant
decline that continues thru year end.
In bull markets, there is an oscillating pattern with no gain until a
sharp rise in December. For neutral years, the four-month pattern is volatile
and spiky but with an overall strong uptick.
Let's list some likely supply and demand factors for the oil price trends
documented above:
·It is obvious that the price of crude oil anticipates seasonal demand for
derivative refinery products of most import (gasoline, diesel, and heating
oil) by two to three months.
·The dip in price during the early part of the year can be attributed to
the upcoming end of the heating oil season with sufficient stocks having
already been accumulated.
·The late winter to early spring rally is driven by the anticipated
increase in demand for gasoline and ramp up by refineries as the summer
driving season approaches.
·A complex relationship exists between the general health of the economy,
the price of a gallon of gas, and the summertime driving habits of Americans.
These factors have a direct impact on whether the oil price goes up or down
during the late summer.
·The declining price after Labor Day is due to the end of vacation season
and lower demand in the fall. The general rise in December foreshadows winter
demand for heating oil in the northeastern tier of the United States, with speculation
somewhat dependent on the mid-term weather forecast.
Our research indicates there is a pronounced seasonality in the crude oil
price over the past 20 years regardless of bull, bear, or neutral market
conditions. This seasonality affects the movements of speculative money in
both the spot and high-risk paper derivative markets. The world economy runs
on oil and banks, traders, hedge funds, oil companies, sovereign governments,
and other speculators are major participants in these markets.
Unlike gold, where individual hoarders, traders, and speculators can readily
buy physical product or an EFT to take timely advantage of well-defined
annual seasonality, speculation in oil is big-boy football.
And in my opinion, folks, playing that game is best left to the pros.
Ciao for now,
Mickey Fulp
Mercenary Geologist
Acknowledgment: Gwen Preston is the editor andSteve Sweeney is the
research assistant for MercenaryGeologist.com.
The Mercenary
Geologist Michael S. "Mickey" Fulp is a Certified
Professional Geologist
with a B.Sc. Earth Sciences with honor from the University of Tulsa, and
M.Sc. Geology from the University of New Mexico. Mickey has 35 years
experience as an exploration geologist and analyst searching for economic
deposits of base and precious metals, industrial minerals, uranium, coal, oil
and gas, and water in North and South America, Europe, and Asia.
Mickey worked for junior explorers, major mining companies, private
companies, and investors as a consulting economic geologist for over 20
years, specializing in geological mapping, property evaluation, and business
development.In addition to Mickey's professional credentials and experience,
he is high-altitude proficient, and is bilingual in English and Spanish. From
2003 to 2006, he made four outcrop ore discoveries in Peru, Nevada, Chile,
and British Columbia.
Mickey is well-known and highly respected throughout the mining and
exploration community due to his ongoing work as an analyst, writer, and
speaker.
Contact: Contact@MercenaryGeologist.com
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