Buy Crude Before the Summer Rally

By Commodity HQ  MAY 06, 2013 12:10 PM

Here are three ways to profit from the cycles in crude oil's price. The commodity generally peaks a few days into August.

 


One of the most attractive features of the commodity space is its cyclical returns. While it may make it difficult for long-term investors, traders who know the patterns of certain hard assets can often turn a nice profit simply based on the natural price movements of different commodities. Crude oil is no exception to such patterns, as savvy investors have been profiting from the fossil fuel’s trends for years. Though crude has been exhibiting weakness with questions about its long-term future, its short-term seasonal trend may be a ripe opportunity for traders everywhere.

Crude Oil Seasonal Patterns

As the US enters the summer months, the world’s largest oil consumer will see peak demand for the energy source. This often translates into a pretty noticeable price trend for the commodity. According to the five-year seasonal trend, crude tends to make a top just before the month of May, when it will then experience a week or two of weakness. The commodity hits a major low around mid-May and then charges higher for the remainder of the summer.

A peak is typically reached a few days into August, when crude begins to pull back as demand does the same. Both five- and 10-year averages find early August to be a peak month, solidifying a decade-long trend for this hard asset. Below is a chart, courtesy of Signal Financial Group, displaying crude oil’s five-year seasonal trend.



As we move into mid-May, it seems that a buying opportunity for crude is presenting itself. Those wishing to make a play on crude have a number of options to play the market. Below, we outline three ways for traders to utilize crude’s clear seasonal trend.
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Editor's note: This article by Jared Cummans was originally published on Commodity HQ
No positions in stocks mentioned.