Despite OPEC’s efforts to boost oil prices, fears of persistent global oversupply slammed the price of oil in the second quarter of this year, pushing prices down for their worst first-half performance since 1998. Not only did oil prices suffer the worst start to a year in almost two decades—energy commodities as a whole logged in their worst H1 in 19 years.
The S&P GSCI Energy Total Return index lost 18.8 percent year-to-date through the end of June 2017, its worst start to a year since 1998, Jodie Gunzberg, Managing Director of Product Management at S&P Dow Jones Indices, said in a note last week.
“Each single commodity inside the energy sector didn’t just lose in the first half of 2017, but lost double digits,” Gunzberg said.
The first half of 2017 was only the second time all six energy commodities—Brent crude, WTI crude, gasoil, heating oil, natural gas, and unleaded gasoline—had dropped in the first half of a year, the first time being in 2010.
In the first half this year, two of the six energy commodities—natural gas and unleaded gasoline—lost more than 20 percent, “the mark that typically denotes a bear market,” Gunzberg noted.
Between January and June, Brent crude lost 17.4 percent, WTI crude oil slumped 18.8 percent, gasoil fell 15.8 percent, heating oil went down 16.5 percent, natural gas plunged 26.4 percent, and unleaded gasoline plummeted 22.3 percent.
The relatively heavy weight of the energy sector in all commodities also dragged down the S&P GSCI Total Return index to a loss of 10.2 percent year-to-date ending June 30, 2017, the worst first-half performance since 2010 when it lost 11.2 percent.
Although the energy commodities performance was poor, 12 of the 24 commodities in the S&P GSCI Total Return index, and three of five sectors, booked gains between January and June 2017. Related: Saudis Poised To Make Largest Crude Export Cut This Year
Without the energy commodities, the commodities booked positive performance in the first half, with the S&P GSCI Non Energy Total Return rising 4.1 percent and outperforming the S&P GSCI Energy Total Return by 22.9 percent, the most in a first half in 27 years, since 1990, Gunzberg said.
In crude oil, rising U.S. shale output in the first half this year and the recovery of Libyan and Nigerian production in recent months—coupled with still high global inventories—were pressuring prices down. In the second half of June, oil slipped into a bear market and prices hit a ten-month low.
Natural gas was the worst-performing major commodity in January and February as the U.S. posted its second warmest February on record, dating back to when data collection began in the 19th century.
Natural gas was also the energy commodity in the S&P GSCI Energy Total Return that performed the worst in the first half of 2017.
Just before the end of H1, Gunzberg said in a note: “Energy is back in a bear market now led by oil’s slide mainly due to rising output from Libya and Nigeria, two OPEC members exempt from cutting supply.”
The market is weighing the possibility of OPEC potentially putting a limit on Nigerian and Libyan production, but it’s also waiting to see convincing evidence that global inventories have started dropping faster than in previous months.
Many investment banks now believe that the slower-than-anticipated inventory drawdown would keep oil prices depressed well into 2018.
By Tsvetana Paraskova for Oilprice.com
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