Oil prices have historically declined in the last three months of the year as refinery maintenance season cuts demand for crude, but this fourth-quarter period may prove to be the exception to the norm.
U.S. and global benchmark crude futures were poised Friday to post a third straight weekly gain but according to Dow Jones Market Data, October is the worst month for Brent crude, based on average monthly performance since 1990, while November stands as the worst for West Texas Intermediate.
In October, on average since 1990, Brent crude LCOZ8, +1.82% and WTI CLX8, +1.55% prices have declined by roughly 2.8%. In November, the global benchmark has seen a fall of about 2.8%, with WTI down 3.2%. Losses in December have been more modest, with Brent down 2.4% and WTI losing 0.5%, on average, Dow Jones Market Data show.
“We are in the time of the year when many refineries are down for maintenance” and prices are typically lower because maintenance means lower demand for oil,” said James Williams, energy economist at WTRG Economics.
Refiners choose this time of year to conduct that work on their facilities because “the driving season is over and the demand for heating oil does not rise for a couple of months,” he said.
There have also been a number of events that contributed to oil’s moves in the fourth quarter over the past decade, including Hurricane Harvey in 2017 and the 2008 market crash, said Denton Cinquegrana, chief oil analyst at IHS Markit’s Oil Price Information Service.
Towards the end of the year, “LIFO,” know as Last In First Out, an accounting practice among companies to draw down inventories to avoid taxes on barrels of oil remaining at the end of the year, “can cause some selling in the markets,” he said.
In the last few weeks, however, oil prices have been climbing, with the gains attributable a number of factors, according to Jeff Klearman, portfolio manager at GraniteShares, a New York-based exchange-traded fund issuer.
Those include “increasing supply concerns resulting from impending U.S. sanctions on Iran,” as well rising concerns over the Organization of the Petroleum Exporting Countries’ and Russia’s willingness to increase production to make up for any Iranian shortfall, and continued strong demand for oil, he said.
Crude prices on Thursday saw gains as a U.S. official reportedly said there are no plans to release oil from the nation’s Strategic Petroleum Reserve, despite some speculation that the government would use the emergency reserve to cap further price gains. Prices rallied on Friday as well, with WTI’s October contract trading at $73.22 a barrel and Brent’s December contract at $82.83.
‘There’s more upward than downward bias in prices the last quarter of this year.’
The next three months are a “special situation,” given the sanctions on Iranian oil set to begin in early November, which is “already reducing their exports,” said Williams.
Even if the Saudis increase production, that will reduce spare capacity, and “low spare capacity and low stocks of crude here and in the other OECD countries” have been lending support for the oil price, he said.
“There’s more upward than downward bias in prices the last quarter of this year,” Williams added.
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