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Oil's ugly stretch is latest blow to commodity investors

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11/12/2018 | 08:15am EDT

By Amrith Ramkumar A plunge in oil prices is raising fresh questions about the health of the global economy. Oil had been a rare bright spot for commodity investors in 2018. Then last week, prices posted their longest losing streak since 1984, with the U.S. crude benchmark sliding into a bear market.

 

Oil's swift decline marks its entry into a club of commodities that have been flashing warning signals about the economy for much of this year. Copper has tumbled 18% in 2018, while sugar is down more than 15%. Raw materials -- because they are vital for industries like transportation and manufacturing -- are used by analysts and economists around the world as a barometer for global growth.

After falling for 10 straight trading days, U.S. crude has now erased its 2018 advance and pulled the S&P GSCI commodity index -- heavily weighted toward energy -- into the red for the year. The more equal-weighted Bloomberg Commodity Index is now down 6% in 2018, trailing the 4% advance by the S&P 500, the U.S. stocks benchmark.

The S&P 500 is now on track to outperform the GSCI index for the sixth year out of the past eight and set to top the Bloomberg Commodity Index for the seventh time in that stretch.

Oil joining this year's materials rout is the latest setback for commodity investors still recovering from punishing selloffs in 2014 and 2015.

"They just got sideswiped. Now the question is: Do they stay in or get out of the trade?" said Bart Melek, head of commodity strategy at TD Securities. "We're getting inquiries from all over the place."

Worries that Chinese economic growth is slowing have dogged resource prices. China is the world's largest materials consumer, so a tariff fight with the U.S. that has dragged on has stoked worries about future commodity demand.

For a while, bullish oil investors were unperturbed by the broader declines in resources, saying that U.S. sanctions against Iran would lead to crude supply shortages. Now, tepid global-growth projections, waivers granted to several buyers of Iranian crude and robust supply figures have converged to send oil prices into a tailspin.

The extended plunge has spread to other assets, with copper and gold also down last week and even U.S. stocks dropping Thursday and Friday.

Mr. Melek said supply-demand dynamics are favorable for many commodities but also said that tumbling oil prices could continue to weigh on sentiment.

"Oil drives a lot of the momentum and flow of funds into these commodity indices," he said. "It dominates."

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Write to Amrith Ramkumar at amrith.ramkumar@wsj.com

 

Stocks mentioned in the article
ChangeLast1st jan.
DJ INDUSTRIAL -0.59% 26935.07 Delayed Quote.16.15%
LME COPPER CASH 0.23% 5758.5 End-of-day quote.-1.38%
LME LEAD CASH 1.22% 2079 End-of-day quote.5.27%
LONDON SUGAR 0.75% 323.7 End-of-day quote.-3.08%
NASDAQ 100 -0.99% 7823.553294 Delayed Quote.24.83%
NASDAQ COMP. -0.80% 8117.674437 Delayed Quote.23.32%
S&P 500 -0.49% 2992.07 Delayed Quote.19.36%
WTI -0.58% 58.45 Delayed Quote.27.93%
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