Historical Seasonality Points Up For WTI Crude Oil And Down For Gold

by: Movement Capital

Energies: WTI crude and heating oil are in a seasonally strong period of the year, the natural gas term structure flipped back into contango.

Financials: The 30-year bond is in a big drawdown, spring is typically strong for the S&P, 12-month momentum for EUR/USD is negative.

Grains: The term structures of wheat and rice exhibit a high degree of contango, making it expensive to maintain long exposure.

Metals: Precious metals typically weaken at the beginning of March. Last week's performance stuck to this historical trend.

Softs: Cocoa is the worst performing commodity over the past twelve months, lumber futures typically fall into summer, and March has historically been a poor month for sugar.

This is my third weekly update that outlines seasonal trends and the term structure of futures contracts. All of the below data and graphs come from my Commodity Seasonality website. I break down the updates by asset class, so let's get started.


Heating oil (NYSEARCA:UHN) is typically strong in February, March, and April. Last week's price action definitely diverged from historical seasonality trends. Heating oil is now down roughly ~15% year-to-date.

The natural gas (NYSEARCA:UNG) market recently flipped from backwardation into contango. This makes it expensive to maintain long exposure to short-term contracts. In contango, longer term contracts are priced higher than shorter term contracts and longs are forced to "roll up" to the more expensive contracts when their positions get close to expiration.

WTI crude oil (NYSEARCA:USO) got smashed last week. Here's a look at seasonality for WTI futures over the last twenty years.

March and April have historically been the two best months of the year for WTI, so it will be interesting to see if oil's sell-off pauses.


30-year bond (NYSEARCA:TLT) futures are currently in their third largest drawdown over the past decade.

JPY/USD (NYSEARCA:FXY) typically has a weak spring and then strengthens into the summer.

The S&P's (NYSEARCA:SPY) start to 2017 is outpacing its average performance at this time of the year. The S&P typically has a strong spring and weak summer, the complete opposite of JPY/USD futures. This makes sense because the two are (typically) negatively correlated, with the Japanese yen viewed as a safe haven currency.

12-month momentum in EUR/USD (NYSEARCA:FXE) futures is firmly negative.


Here are two charts that show just how much a negative drag contango is. First, the historical seasonality of wheat (NYSEARCA:WEAT) futures.

You probably notice that all three multi-year averages trend down as the year progresses. This is because the wheat term structure is persistently in contango. Longs incur this "negative roll yield" when they roll their positions forward. They have to sell the near-term less expensive contract and buy the higher priced further out contract.

Rice is another commodity that's typically in a high degree of contango.


The first few months of the year have been historically positive for copper (NYSEARCA:JJC) futures.

Gold's (NYSEARCA:GLD) recent sell-off has fit perfectly within the historical seasonal peak in late February and early March.

Seasonality for silver (NYSEARCA:SLV) looks about the same.

Platinum (NYSEARCA:PPLT) did extremely well in January and February of this year, which fits within the average monthly performance over the past twenty years.

Soft Commodities

As a broad asset class, commodities (NYSEARCA:DBC) have done very well over the last year. Cocoa (NYSEARCA:NIB) is the lone exception, falling roughly ~35% since last March.

Lumber futures spiked in late January. Traders should be aware that lumber is typically weak until the end of summer, then has a strong winter.

Over the past twenty years, average monthly performance in sugar (NYSEARCA:SGG) futures has been horrible.

Here's a view of the historical term structure and momentum in coffee (NYSEARCA:JO) futures.


That wraps up the coverage of individual contracts. I'll close with my most important charts:

First, here are the average 20-year monthly performance numbers for March. The best performing contracts have been RBOB gasoline (NYSEARCA:UGA) and the S&P 500. The worst performers have historically been sugar and cocoa.

Here's a look at the current amount of contango or backwardation for each contract. As a reminder, I compare the contract with the highest open interest to the contract with the third highest open interest to generate the below numbers. Oats and orange juice exhibit a moderate amount of backwardation while natural gas and wheat are in steep contango.

Finally, here's the roll-adjusted twelve-month momentum for each contract. Natural gas stands out as the strongest contract, while cocoa is the worst performer.

I hope you've found this article to be useful. It's meant to cut down on your research time and save you some money.

Follow me to receive my weekly seasonality updates on Seeking Alpha. Let me know if you have any questions in the comments below.

Disclosure: I/we 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.

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