Seasonality can be an important factor for commodities investors and that could particularly true this year for oil.
While the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, have notched some impressive 2018 returns, the next couple of months could be trying for crude on a seasonal basis.
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“Any hit to refinery demand would cause inventories to balloon, particularly as the U.S. ramps up production. The Energy Information Administration estimated on Wednesday that the U.S. surpassed Russia and Saudi Arabia as the world’s largest producer of crude oil,” reports CNBC.
Other factors contributing to oil’s surge this year was the U.S. exploring the possibility of tapping into their emergency reserves to stymie disruptions in oil supply, notably the slashing of Iranian oil imports. The U.S. is currently pumping oil at record levels of around 11 million barrels per day.
Autumn Issues for Energy Demand
Data confirm that the summer months usually mark peak energy demand in a typical year.
Energy demand typically surges in the summer months on increased travel, with a strong U.S. economic engine supporting the overall market. However, the fall months are typically a weak period for crude oil, which typically sees a dip in consumption and a subsequent fall in prices, the Wall Street Journal reported.
Analysts further warned that trade tensions and weak global growth could also hit oil demand while further support the U.S. dollar, which would add additional pressure on commodity prices – USD-denominated commodities like oil will be more expensive for overseas buyers.
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“The world oil price we believe is going to be closer to $80 for the rest of the year and particularly in November and December for Brent, and maybe even a little bit more upside if the handcuffs on Iran are tightened just a bit and Libya slips into more chaos,” said Tom Kloza, co-founder of the Oil Price Information Service, in an interview with CNBC.
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