Seasonality of oil production
The easiest oil trade is based on the seasonality of oil production and refining from early October to early December and is sold short.
The first component of oil seasonality is associated with a decline in Atlantic hurricane activity. It’s very simple: storms disrupt tanker logistics and oil production on floating platforms. Statistically, this significantly increases the cost of oil production and transportation by tanker. Consequently, when hurricane activity subsides, oil production and transportation costs fall. As a result, oil prices fall.
The downturn in Atlantic hurricane activity begins in September, but the number of tropical storms is still very high throughout October. From the end of October, the number of hurricanes decreases significantly.
The second component of the seasonality is based on a decline in asphalt production due to a slowdown in road construction and a decline in bitumen consumption since October.
The third component of the seasonality is based on the end of the US driving season. Gasoline, and hence oil, consumption on the part of gas stations declines from September to a minimum level of consumption in December.
Below is the profitability of the January delivery futures selling strategy from October 11 to December 11 of each year, from 1984 to 2021:
The average profit for 1 contract is ~ $3000. The probability of making money on this trade is 66%. The average profit to the average drawdown ratio is 0.65, which is an excellent result.
I use such trading opportunities regularly in my portfolio. And the most important secret is to manage risks correctly. In this case, such a trade generates 1.5-2% of an absolutely safe annual return for the portfolio. Yes, it’s not much, but what if we have not just 1 trade, but 10 or 20 similar trades in the portfolio ; )
Do you have any remarks or questions regarding this article? Leave a comment below this article or contact me here. I always answer all questions without exception.
See you in the following articles and good luck with your trading!
