Commodity Trader's Almanac 2O11

80

CRUDE OIL TAKES A BREATHER

In most years, crude oil prices make significant price gains in the summer, as vacationers

and the annual trek of students returning to college in August create increased demand

for unleaded gasoline. The market also prices in a premium for supply dis ruptions due

to threats of hurricanes in the Gulf of Mexico. However, towards mid-September, we

see a seasonal tendency of prices to peak out, as the driving and hurricane seasons are

behind us.

Selling on or before September 13 and

holding until on or about December 9 has

produced 18 winning trades in the last 27 years.

This gives us a 66.7% success rate and total

gains of $72,550 per futures contract.

Below is a chart of crude oil overlaid with

the price of Frontline Limited (FRO), a company

that primarily trans ports crude oil. What better

way to follow the price of a commodity that needs

to be transported? This company’s stock price

does reflect the fact that when demand goes up,

prices rise for both crude oil and the stock due to

the need for increased shipments. In this sce-

nario, the com pany should profit. However, as

demand for crude oil de clines, there is less need

for shipping, and the company’s revenues should

also decline.

This ebb and flow of supply and demand ten-

dencies are correlated, as the chart shows, with the

price of crude oil, FRO, and the seasonal historic

price of the company at the bottom. Frontline ...