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
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.
Crude Oil Futures (
: The NYMEX offers a suite of crude futures to help traders
directly track the commodity. The August contract will likely be
a trader's best bet; it has a long enough maturity to capture the
seasonal high and still holds a healthy amount of liquidity.
3x Long Crude ETN
(NYSEARCA:UWTI): For anyone looking to add leverage to their
position, UWTI is your fund. This ETN offers a 300% leverage on
crude oil futures and maintains a reasonable liquidity. Be sure
to use limit orders on the fund as the bid-ask spreads can get
pretty large on 3X leveraged funds.
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Editor's note: This article by Jared Cummans was originally
): For those who prefer to take a more diversified approach, the
world's largest oil firm may be a good bet. Exxon also has a fair
amount of profits tied to the natural gas sector, so it may offer
a bit of relief if crude breaks its summer trend.