Oil is entering a weak season at the same time that the monthly cycle peaks. The combination of the bearish seasonality and the declining cycle are highly likely to bring lower prices. The weakest six months of the oil seasonality runs from August 15th to February 15th. Oil has fallen in of the 22 of last 36 years in that time span.
The monthly cycle has only been 50% correct on sell signals, but there have only been two signals in the last year. If we extend the out-of-sample period back two years, four of six sell signals have been correct. But let us realize that the next three months are seasonally very bearish as we see in the monthly histogram below. Oil has apparently already begun the correction. If oil closes the month of August on the upside as it did, then the most bearish following month has been October, up only 35% of the time.
Price has met the projection that oil could reach the mid-to-high 40s in August. A long retracement of the April-July rally is likely to begin. The target is $31 per barrel.
– Forbes