While it has been an uneventful year so far for equities, crude oil’s year has been anything but. After being down close to 20% on the year in March, WTI dug itself all the way out of the hole and was actually up over 5% YTD in May. While that rally off the lows has since petered out, crude oil is still up on the year which is pretty amazing given where we were a few months ago. So what does the second half have in store for black gold?
The chart below shows the performance of crude oil so far this year and overlays it to a composite of the commodity’s annual performance going back to 1980 and the prior five years. If history is any guide, summer may not be so bad for crude oil, but once we get into the fourth quarter, look out. Going back to both 2010 and 1980, crude oil has averaged negative returns in each of the three months that make up the fourth quarter, and we don’t have to remind you what happened in last year’s fourth quarter when crude oil was down by double digits in October, November, and December for a total Q4 decline of 42%. Now, last year was a special situation for the commodity, and we aren’t likely to see a decline of that magnitude for some time, but just like water, the fourth quarter and crude oil just don’t mix.