Using historical analysis often shows seasonal patterns that can be used to understand the market. The following article will examine if there are any significant historical trends to pay attention to in oil stocks that would be key to traders and investors while understanding how these trends can play a part in the fundamental landscape of commodities. At the end of the article, we will try to gather the information into some tradeable plays.
Up to this point, oil has had a decent June where prices have been relatively stable. This stability comes on the back of OPEC announcing that it will keep supply constant so as to not disrupt recovering world markets. As we enter one of the peak summer months that is July and temperatures get hotter, what can we expect from oil stocks? We did some historical research to determine trends for these stocks during the first full month of the summer to determine if there are any patterns that they make as a result of the increased oil demand in the month. We took a look at how companies do in the month in the oil services, manufacturing, and equipment sub-sectors.
In our research, we looked at average gains of oil companies as well as their max drawdowns/max gains and the number of times share prices had increased or decreased over the last seventeen years. The companies we investigated are Baker Hughes (BHI), BP (NYSE:BP), Transocean (NYSE:RIG), Exxon Mobil (NYSE:XOM), ConocoPhillips (NYSE:COP), Halliburton (NYSE:HAL), and Schlumberger (NYSE:SLB) and Chevron (NYSE:CVX). Here are the average gains for past seventeen years:
As can be seen from the chart above July has been a relatively good month for these oil stocks as only two out of the 8 companies analyzed showed negative gains. These companies with negative gains are RIG and CVX. RIG has the biggest negative gain of 2.74%. When it comes to companies showing positive gains, we can't look past SLB and BP with both these companies showing gains for the month greater than 1.75%. HAL and BHI also show relatively big increases in share price in July. This historical strength for oil companies in July can be due to the start of the summer where people are driving more, using their AC units more, and generally growing their oil usage thus increasing demand.
To get a better trading idea, we continued our research by finding the max drawdowns and max gains that these companies usually have during the month of July. We can see from the chart below that XOM continues to be the least volatile of companies with a less than 10.5% movement during the month.
We also paid close attention to the companies that showed the biggest average gains in the previous chart. BP, SLB and HAL showed very high max gains while also showing us relatively low max losses making us believe that these are playable companies. SLB for example had the second highest max gain of 22.20% while it also had the second lowest max loss of -11.37%.
Finally we looked at the company's overall increase/ decrease in the month of July to get better idea of tradeable plays with our research.
From the chart above we can see that for the majority of companies over the last seventeen years share price has increased in July rather than decreased. In some cases such as CVX and BHI, the increase occurred more times than the decrease improving our convictions of this happening again.
From our analysis it obvious that historically oil companies have had a very positive July. Will this continue to happen this year?
We believe it will. As mentioned earlier, OPEC announced that it will keep oil supply stable so as to not disrupt recovering economies. As this occurs, oil demand increases as a result of the summer months and prices increase, which would benefit these oil companies. Additionally, oil prices may continue to rise due to concerns about a disruption in supplies from the Middle East. There has been a rise in violence in Syria after the United States said it plans to send U.S. weapons to Syrian rebels following proof the Syrian government had used chemical weapons against opposition forces. At this moment Syria is not considered key to global oil markets but this civil war may grow into violence to the whole region which would disrupt oil production and raise prices, also benefiting these oil stocks.
With this said, we have come up with two tradeable plays for oil in July.
- Trade #1: Baker Hughes , Long
- Trade #2: Pair Trade; Transocean Short, Schlumberger Long
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. The Oxen Group is a team of analysts. This article was written by David Ristau, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.