- Oil prices were on a tear in the third quarter, but are heading into a typically weak period for the commodity.
- In the last 25 years, U.S. crude traded positive 40 percent of the time in the fourth quarter with an average return of -7.5 percent.
- Analysts say there are seasonal reasons for U.S. oil's tendency to decline in Q4.
The sharp declines in oil futures on Monday put the commodity on pace to confirm a trend that has held in many fourth quarters past: U.S. crude does not typically perform well in the final three months of the year.
Oil prices have been on a tear lately, rising on the back of improved demand forecasts and geopolitical tension. International posted its best third-quarter performance since 2004. Meanwhile, U.S. West Texas Intermediate crude notched its best three-month gain since the second quarter of last year.
On Monday, both benchmarks were down about $1 a barrel.
To get a sense of the likelihood that oil can rally into the end of the year, CNBC performed a study using hedge fund analytics tool Kensho to see how U.S. crude typically performs in the fourth quarter.
Over the last 25 years, WTI traded positive 40 percent of the time in the fourth quarter. The average quarterly return was -7.5 percent.
Last year was an exception. U.S. crude surged more than 11 percent in the final months of the year as OPEC hammered out a production-cutting deal with a group of oil exporters that includes Russia.
Analysts say there are reasons for crude's tendency to fall in the fourth quarter. Refineries undergo maintenance, reducing their appetite for feedstock crude oil. Demand for refined products like gasoline also remains slack during the lull between the summer driving season and the holiday rush.
Demand for distillates like diesel and home heating fuel doesn't typically pick up until the back half of the quarter when temperatures start to drop.
"It's just a bad calendar-weather setup for the complex," said John Kilduff, founding partner at energy hedge fund Again Capital.
Tom Kloza, global head of energy analysis at Oil Price Information Services, said the key is to watch trends in refined products, which dictate demand for crude oil. Investors should be wary of early signals that start flashing in the third quarter, he warned.
"Diesel prices tend to move up in the end of Q3 in anticipation of a La Nina winter. They get up there to where they're priced for perfection and ... we haven't had a lot of perfection lately with winter temperatures," he told CNBC.
Disclosure: NBCUniversal, parent of CNBC, is a minority investor in Kensho.