How To Trade And Invest In Oil Stocks (Trading Strategy And Seasonality)

Last Updated on June 19, 2022 by Quantified Trading

There are plenty of seasonalities in the markets that you can develop into seasonal trading strategies. Today we look at seasonalities in the oil price.

It turns out that all the gains in oil and energy stocks since 1986 have come from December until the end of May, while the other months have produced negative returns. Thus, being invested only half the time might be a good idea?

Seasonalities in the markets

We have already covered some well-known and tradeable seasonalities in previous articles:

But what about oil and energy stocks?

Seasonalities in oil and energy stocks

It turns out that energy stocks have strong seasonalities. Just look at the 35 years of data of the ticker FSESX, Fidelity’s energy fund:

The first column indicates the month. April, February, and December are the three best months. The return is measured from the close of one month to the close of the next month.

Actually, all the gains have come from being invested only from December until the end of May. The other months have produced huge negative returns.

It has paid off handsomely to be invested from the close of November until the close of May:

The CAGR is 10.2% compared to buy and hold of only 2.75%.

If we were only invested during the bad months, ie. from June until the end of November, the equity chart looks like this:

The CAGR is a whopping negative 7.2%.

The ten largest current components of the FSESX are these:

Schlumberger Ltd SLB 19.74%
Baker Hughes Co Class A BKR 12.57%
Halliburton Co HAL 7.22%
TechnipFMC PLC FTI 6.27%
ChampionX Corp CHX 5.78%
Cactus Inc Class A WHD 4.58%
National Energy Services Reunited Corp NESR 4.33%
Oceaneering International Inc OII 4.02%
ProPetro Holding Corp PUMP 3.76%
NexTier Oilfield Solutions Inc NEX 2.91%

Seasonality in oil – conclusion:

The oil seasonality has been consistent for at least 35 years, but perhaps not as consistent as it was before.

Is this a tradeable seasonality? Only you can find out, but this is not a wager we put a huge amount of money on.

 

 

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