US crude oil
In the three months following US presidential elections, US crude oil (UWTI) active futures fell in two out of three instances between 2004 and 2012. During the 2004 US presidential election, US crude oil active futures fell 5.9% three months after the election. The implied volatility was 36.3%. Three months before the election, the implied volatility was ~37.1%.
Three months after the 2008 presidential election, US crude oil active futures fell 42.8%. The implied volatility was 81%—compared to 48% three months before the election. The spike in implied volatility explains the market’s expectation of large movement in crude oil prices. During that time, the movement in crude oil prices was likely influenced more by the meltdown following the subprime financial crisis. We discussed this in Part 1 of this series.
In the 2012 election, US crude oil futures rose 8.9% in the three months following the election. At that time, the implied volatility was 21.1%—compared to 29.4% three months before the election.
Natural gas active future fell 25.6% three months after of the US presidential election in 2004. The implied volatility was 45.3%—compared to 36.2% three months before the election.
During the 2008 election, natural gas’s implied volatility and prices followed the same trend as crude oil. In the 2012 US presidential election, natural gas active futures fell 5.5% three months after the election. The implied volatility was 32.9%—compared to 54.9% three months before the election.
For natural gas, barring the 2008 financial crisis, natural gas prices were likely influenced more by weather-based seasonal demand and supply patterns than the outcome of the presidential election.
Impact on ETFs
Natural gas prices and crude oil prices impact ETFs such as the Direxion Daily S&P Oil & Gas Exploration & Production Bear 3x ETF (DRIP), the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), the PowerShares DWA Energy Momentum ETF (PXI), the Vanguard Energy ETF (VDE), and the Fidelity MSCI Energy ETF (FENY).