The Bloomberg Commodity Index finished July down 12% YTD and 28% over the last 12 months. It is currently 60% off its highs in June 2008 (remember $150 oil?). Several large commodity funds closed in July. Does this asset class make sense? Our answer – absolutely YES – but commodities aren’t stocks so let’s stop benchmarking and investing in them the same way.
The biggest macro-economic event in the past year has been the collapse in crude oil prices. Since mid-July, WTI crude oil spot prices are down over 50%.
Crude is the most liquid (no pun intended) and most analyzed commodity on the planet. Its covered exhaustively by a wide array of shareholders and stakeholders; public and private oil producers and consumers, physical traders, banks, and geopolitical think tanks just to name a few. This is why the most interesting aspect about this huge move in crude is that no one foresaw the magnitude or velocity of this decline. Bloomberg had an article back in December on the hedging strategy of some U.S. shale drillers which showed that those companies certainly did not anticipate a decline in crude prices like what we’ve seen.