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Seasonality (commodity)

The recurring annual pattern in a commodity's supply, demand and price, driven by harvests, weather, heating and cooling cycles and driving seasons.

Physical commodities are produced and consumed on a calendar. Corn is harvested in autumn and stocks are tightest just before the next crop; natural gas is injected into storage from April to October and withdrawn from November to March; gasoline demand peaks in the summer driving season.

Seasonality shows up in the forward-curve as much as in flat price. A contract for the month after harvest is structurally cheaper than the one before it, and the shape repeats every year, which is why intramarket-spread traders study seasonal charts rather than price charts.

The caution is that seasonality is a tendency, not a rule, and it is already partly in the curve. Trading a pattern that shows up in eight of the last ten years still leaves the two years that ruin an account, and the sample-size behind most seasonal statistics is tiny.

Example: natural gas typically bottoms in September as injection season ends. Buying October gas every year from 2010 to 2020 would have won most years, then lost heavily in a warm winter when the expected rally never came.

Related: forward-curve, intramarket-spread, natural-gas-futures, crop-year, sample-size

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Bid-ask spread in an order bookSell orders stacked above buy orders with a gap between the best of each.SELLERS (asks)50.0690050.051,40050.0460050.011,10050.002,30049.99800spread = 0.03BUYERS (bids)
The bid-ask spread. Buy orders sit below, sell orders above, and the gap between the best bid (50.01) and best ask (50.04) is the spread you pay to cross. Bar length shows the size resting at each price.

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