Although they should never be relied upon completely to determine where commodity prices will go next, seasonal price charts can give some insight into the drivers of commodity prices as the seasons change.
The oil market is a case in point where WTI crude prices used to hit a low in the first quarter and then peak around the third quarter as demand reached a peak during the summer (the so called ‘driving season’ in the US and hot weather in the Middle East requiring air conditioning increasing demand for oil) while supply problems (such as the hurricane season in the US Gulf) came to a head.
The chart below shows how the seasonal price trend for WTI has changed over the past five years as the new technology of fracking and a corresponding increase of U.S. onshore production have drastically shifting the shorter-term seasonal pattern in oil.
To some extent this change may reflect the reduction in hurricane activity in the US Gulf seen over the last few years. But even accounting for this with a greater proportion of US crude output now onshore the risk to production, even in a particularly active hurricane season is likely to be much less.
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Given that energy accounts for up to 50% of the production cost for many commodities this change in the seasonal oil price pattern could have implications for other commodities too. The historical correlation between cotton and crude is the highest across all commodities at 0.45:1.
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Related article: Seasonal price trends in steel and base metals