September through mid-January is the period of greatest seasonal strength in oil prices. Early in this period, refineries shift from making gasoline to supply drivers to manufacturing heating oil in advance of winter in the northern hemisphere. There’s normally some friction in the supply chain as this takes place. But the key reason for current oil price strength, I think, is the typical behavior of wholesalers, retailers and end users accumulating supplies of heating oil for winter use as autumn commences.
This period of strength usually ends in late January–after which there’s be no time to get newly-refined heating fuel to users before the weather warms.
What follows from February through April is the period of greatest seasonal weakness for oil.
What to make of current firmness in crude. Is there any evidence that the proposed OPEC production limiting agreement is exerting upward pressure on the price?
My private hunch is that, yes, there is. At the same time, I also think there will be little lasting (meaning over six months or a year) collective discipline to keep to promised quotas once they’re seen to be having an effect. Budget deficits are too large and the third world us-against-them cohesiveness that enabled OPEC’s remarkable past cartel success is no longer present.
Still, I think that prices will be strong seasonally for a while in any event, so there’s no need to have a view on whether a production agreement will stick. That time will come early in the new year.
At that point, for 2017 investment success, having a (correct) opinion about oil will be crucial, I think. I’m hoping–and anticipating–that I’ll be able to make that decision on other grounds, i.e., the innate cheapness (or not) of shale-related exploration stocks, even without price increases. In the meantime, I’m content to be on the sidelines.