The last time that Wildcat picked over year-to-date commodity rankings, it made for ugly reading, with gas the worst-performing major commodity in the United States. However, there are a couple of clues that the worm may have turned.
Here’s a more panoramic view. Spot returns on gas on the S&P GSCI, an index calculated on a world production-weighted basis, are up by 29.2% since the beginning of the year. That’s better than almost every commodity apart from wheat and soybeans.
There are also signs that short-term bullishness has started leaking through to longer-dated contracts. Total year-to-date returns from gas, which factor in futures contracts along with spot markets, are down by 10.1%. However, total returns are up by 7.1% since the beginning of the month.
What’s behind the bounce? Occam’s razor suggests that improving economic data from the US has lent support to commodity prices as traders bet on stronger demand. China, the world’s second largest economy and biggest energy consumer, also appears to have emerged unscathed after a rocky spell for its economy, with data suggesting that the worst is behind it.
A good case could be made for oil-gas price divorce. The healthy spot returns are at odds with those from crude oil and the entire energy index, which have fallen by 4.4% this year. Spot returns from crude oil are down by 12.3%, and total returns have slipped by 15.5%.
This decoupling is not surprising. There was little correlation between North American oil, the commodities complex and other asset classes such as currencies, equities and bonds at the time of the Chicago Mercantile snapshot in March – and the S&P GSCI’s energy sub-index is heavy in terms of dollar weighting.
However, the scale and isolation of US gas market sentiment is enough to put it at magnetic opposites to the commodities complex – a testament to the powers of production. CN/JT