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Seasonality

Exploring Seasonality in Crude Oil PricesWhat rises, must fall. What comes down, goes up again. This rings most true for crude oil prices. Both secular and seasonal trends are at play in crude oil prices. Demand for oil moves in tandem with global economic activities. Key secular trends impacting oil markets over this decade was covered in our previous paper . These range from falling demand from developed markets, and rising demand in emerging economies, among others. While secular trends unravel over a longer time, seasonal cyclical effects can be observed over a short term. This paper will explore consumption patterns driving annual seasonality in crude oil prices. In Part two of this paper, we will illustrate trading crude oil derivatives to harness opportunities arising from seasonality. CRUDE OIL SUPPLY CHAIN: AN OVERVIEW Gluts and shortages, economic growth and contractions, and geopolitics impact crude oil prices. Different events impact various segments of the supply chain. The global crude oil supply chain is complex and intricate. It can broadly be classified into Upstream, Midstream, and Downstream. Upstream and midstream sectors drive crude oil supply. Upstream outage or shortage affects available supply which are sometimes evened out by the midstream through adequate inventories. Downstream and midstream drives demand. End consumer demand is observed in distribution. Refineries adjust output based on their margins which in turn is derived from crude oil prices and refined product prices. WHAT DRIVES SEASONALITY? Seasonality in demand for refined products impact crude oil prices. Higher demand for refined products (gasoline, diesel, and kerosene) is observed in summer because of travel. While lower supply is caused by maintenance linked pauses in downstream during winter. Crude oil inventory shifts can be segmented into four phases, namely: (1) Inventory Build Up (Feb - May), (2) Summer Travel Spikes Demand (Jun - Aug), (3) Demand Shrinks & Supply Contracts (Sep - Nov), and (4) Winter led demand spike (Dec - Jan). This seasonality is evident in US crude oil inventory shifts as exhibited below. Impact of seasonality is not always directly apparent or predictable. Why? Crude oil is so deeply intertwined with global economics. Shocks, if any, can have an outsized impact on prices and volatility. Also, supply cuts from majors oil producers and GDP shifts in major consumers have jumbo effect on prices. Consequently, other factors moderate or nullify impact of seasonality. The below chart shows the average price behaviour of Crude oil from the start of each year over the past twenty (20) years by using CME front month crude oil futures price data from TradingView. Orange bars in the above chart represents average monthly price change measured over last twenty years. Meanwhile, the white bar shows monthly price change for the same period but after excluding the outliers. Outlier years include 2008 (global financial-crisis), 2020 (pandemic), and 2022 (Russia-Ukraine conflict). Crude prices go bullish on higher demand by refineries starting in March and continue to rise through the summer months as demand for refined products remains high driven chiefly by increased travel. However, by August, sufficient refined product inventories dampen demand. With refineries slowing for maintenance, crude demand declines leading to a moderation in price. Finally, a small uptick is observed in December as demand starts to rise again during peak winter. The average monthly returns for each month are displayed below. However, note that the standard deviation for these averages is non-trivial indicating that month-of-the-year effect on crude oil prices is uncertain and, in many cases, statistically insignificant. This conclusion is also arrived at based on various academic research papers. METHODS TO HARNESS CRUDE OIL SEASONALITY Three most common methods to harness gains from seasonality include: a. Futures (highest upside and highest downside), b. Call options (upside limited relative to futures and limited downside risk), and c. Call and/or Put Spreads (limited upside and limited downside). Traders can deploy options to express a directional view with unlimited upside and limited downside. In a long options position, the downside is limited to the premium paid. Conversely, a short position in options involves selling an option. This offers upside limited to the premium collected but exposed to unlimited downside. TRADE SET UP ILLUSTRATIONS From July until November, based on historical observations over the last twenty years, crude oil prices tend to fall. We could set up a trade using the December contract month of CME Micro Crude Oil Futures which expires on Nov 17th: 1. Short Futures: Short Futures position in MCL Dec 2023 contract (MCLZ3) at USD 70 per barrel with the anticipation that prices will fall by November. 2. Long Puts: Long Put options on MCLZ3 at a strike of USD 69 per barrel with a hypothetical options premium of USD 3 per barrel. 3. Bear Call Spread: Bear Call Spread with a net premium of USD 1 per barrel on MCLZ3 comprising of a short call option at a strike of USD 71 a barrel (collecting options premium of USD 5 per barrel) and a long call option at a strike of USD 73 a barrel (paying options premium of USD 4 per barrel). The Bear Call Spread profits a fixed amount equal to the net premium when both options expire out of the money. When only the short call options expires in the money, the position loses by having to pay the options buyer. However, when both options expire in the money the profit from the long option partially offsets this loss resulting in a capped downside. Each CME Micro Crude Oil Futures contract represents one hundred barrels of crude oil. Accordingly, the above three trade set ups are illustrated across various price scenarios as shown below. Please note that these illustrations do not include (a) transaction costs comprising of exchange trading and clearing costs and brokerage fees, and (b) capital costs associated with margins required for establishing these positions. MARKET DATA CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com DISCLAIMER This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services. Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
NYMEX:CL1!Education
by mintdotfinance
4
Similarity between LTC halving and BTC halvingThe Litecoin (LTC) halving and Bitcoin (BTC) halving share some similarities, as they both involve a reduction in the block reward for miners. However, there are also some differences between the two events. Block Reward Reduction: Both LTC halving and BTC halving result in a reduction of the block reward. In the case of BTC, the block reward is halved approximately every four years, while for LTC, it occurs every four times the number of blocks mined compared to Bitcoin. This means that LTC halving happens roughly four times more frequently than BTC halving. Supply Reduction: Both halvings aim to reduce the rate at which new coins are introduced into circulation. By reducing the block reward, the inflation rate decreases, leading to a more controlled and limited supply of new coins. This reduction in supply can potentially impact the price of the respective cryptocurrencies, as it can create a scarcity effect. Market Anticipation: Leading up to both LTC halving and BTC halving, there is often a period of market anticipation and speculation. Traders and investors closely monitor these events, expecting them to have a positive impact on the price due to the reduced supply. This anticipation can drive up the price in the months preceding the halving. Miner Incentives: Both halvings affect the incentives for miners. As the block reward decreases, miners receive fewer coins for their mining efforts. This reduction in rewards can lead to a shift in mining profitability and may impact the overall mining ecosystem. Miners may need to upgrade their equipment or adjust their strategies to maintain profitability. Despite these similarities, it's important to note that BTC and LTC are separate cryptocurrencies with their own unique characteristics and ecosystems. While they share some fundamental concepts, they also have differences in terms of adoption, market capitalization, community, and development, among other factors. Therefore, the impact and significance of the halving events can differ for each cryptocurrency.
BINANCE:LTCUSDShort
by NETchapter
2
Why ZEC (ZCASH) Could outperform all other coinsName PriceUSD Marketap Circulatingupply Maxupply Totalupply ATH ATL BTCNP ATH/PRc ATL/PRc "Zcash ZEC" 29.58 450,671,988 16,328,269 21,000,000 16,328,269 5941 18.94 24.88372019 200.872211 1.561774023 BTCNP is calculated as : CurrentPrice*(CirculatingSupply/CirculatingSupplyOfBTC). This shows the Price of the coin, when it would have the same Circulating Supply as like BTC. BTCNP von XRP: 1323 USD! BTCNP von ETH: 11719 USD! BTCNP von ZEC: 24 USD! With the above Formula you can compare all coins to BTC. You see above the basic data about zcash taken from Coinmarketcap.cap Max Supply and Totalsupply is smilar like BTC. So Zcash is scarse. AllTimeHigh/CurentPrice = 200 those times. So ZEC got 200 times cheaper than from its ATH, that means ZCASH is totaly oversold. AllTimeLow/CurrentPrice = 1,56m , that means Zcash is currently available to near ATL Prices. For BTC ATH/PRc=631299. That means bitcoint sells currectly to 631299-times Price of its ATL. That means Zcash is still very very cheap. The Pricerabge from current Price to ATH is 30 to 5941. Charts are usually symetrical and it appers to me that ZEC found its botto! So the the direction will be symetrical to the left side of the chart. So what are the targets: They are visible on the Chart: The range goes from 660% to 854000%. So I think that others will see those possibilities on the data too. So there is a lot of fantasy on this old darling of the coin community.
KRAKEN:ZECUSD
by hkmh
5
Gold H4 25th June InisightsGoldie June overall has been trading in a range, weekly inside bar created, price failed to take the high suggesting the supply is still in control. We have now finally broken lower than the previous week range and closed lower. H4 Interesting price action, the demand areas I have marked are creating some nice reaction points, still no solid break of structure on the H4 chart Would like to see gold trade to the daily gap I have marked, there are some very nice demand zones in confluence. Currently following orderflow on the higher time frame for higher probability trade direction Seasonally gold tends to be trading lower in the last week of June, so far this has aligned nicely with my technical analysis.
OANDA:XAUUSD
by Innova_Chartist
BKNG: Hidden Accumulation CuesThe big season for vacations starts this week as schools close, graduations begin, weddings increase, and families plan big vacations this year. BKNG has had HFTs attempting to sell it down several times but it holds within a sideways trend still. This implies hidden accumulation. If it breaks to the upside, then this sideways trend becomes support. BKNG must do as all other high-priced stocks have done: do a big split to lower the share price to $100 - 300. When the Board does so, the stock has more potential for runs up rather than down.
NASDAQ:BKNG
by MarthaStokesCMT-TechniTrader
NZDJPY to 0.89 - or overextended?Hey Traders! 👋 For Day 34/100 of our challenge, we will look at a data-backed NZDJPY long idea Technicals: - Overall bullish - Made a high at 88.50 - Expecting retracement to 87.60 - Target at 89 - If 86.80 is breached, idea is invalid Other data: ⬆️ Seasonality is still bullish expecting 90 level ⬆️ Pattern scan is also bullish expecting 90 before deeper retracement ⬆️ Supertrend is also bullish ⬆️ Retail traders have extreme short positions which we would want to go against 🤔 What's your take? Like and follow for daily high-quality trade ideas!
Long
by rob_WRLD_
6
Gold 4H insightsGold This has been stuck inside a tight range for some time now, since we had CPI & FOMC rates this week, gold has broken the low of the range however failed to continue higher. Weekly bullish swing structure, weekly pullback Daily bearish H4, stuck in a range, Thursday we can see there has been a strong bullish internal structure shift. Notice the 4 hour leg up has no inducement and the body has closed below the previous swing low. Seasonally we can see there is usually a sizeable pullback on gold during the middle of June before dropping off. My overall target for gold is to fill the daily gap, ideally before it resumes bullish momentum. 1984 is a key area to see if gold stays below this, we will likely see 1900. If gold breaks above 1984 and closes I will be considering the pullback is likely over and become bullish.
OANDA:XAUUSD
by Innova_Chartist
1