Energize Weekly, January 9, 2019
Energy commodity prices—hit by a weak oil market—fell 21 percent in the last quarter of 2018 after having been strong for most of the year, according to in the S&P Goldman Sachs Commodity Index (GSCI).
It was the first time since 2015 that crude oil prices ended the year lower than where they were at the beginning.
From January to October 2018, energy prices had risen 25 percent in the GSCI, only to be followed by a fall in the index, which is a weighted average of commodity prices to reflect global commodity production quantities and futures contracts’ trading volumes.
“Although all components of the S&P GSCI fell in 2018, the S&P GSCI energy index fell more than any other sub-index. Steep declines in crude oil and petroleum product prices in the fourth quarter of 2018 were responsible for the decline” in the index, according to an analysis by the federal Energy Information Administration (EIA).
The index is heavily weighted to benchmark oil prices with West Texas Intermediate (WTI) and Brent. They account for 71 percent of the weighting in the GSCI.
“As a result, the energy index tends to follow major price movements in the crude oil market,” the EIA said. “The weights associated with individual commodities within the S&P GSCI are updated every year in response to changes in global commodity production quantities and futures contracts’ trading volumes.”
After plummeting to prices below $30 a barrel in early 2016, oil prices had been rising on concerns over supply constraints and declining global petroleum inventories. The price of Brent crude reached a four-year high of $86 a barrel on Oct. 3, 2018.
By that time, however, several factors were putting pressure on oil prices. Crude oil production in the United States, Russia and Saudi Arabia increased to record or near-record highs. Concerns about slowing global economic growth and its impact on oil demand also contributed to recent declines in crude oil prices.
Some oil-importing countries had begun reducing their imports of Iranian crude oil after the U.S announced that it would reinstitute sanctions against Iran. This was one element that pushed prices higher, but waivers granted to certain countries to import Iranian oil eased this pressure, the EIA said.
Petroleum-based products, which make up 22 percent of the GSCI, also posted price declines. Reformulated gasoline had the largest price decline among energy commodities, lower than the drop in Brent crude, as a result of high inventories and relatively flat gasoline consumption.
Natural gas makes up the remaining 7 percent of the index. It had the smallest price declines in the GSCI. Still, after remaining relatively stable, natural gas prices fell at the end of December, finishing the year slightly lower than they had started 2018.
