As we move into 2017 with what is beginning as a year of optimism, we are always happy to see some data that backs up our gut. According to a report released by the EIA on January 03, 2017, their analysis shows that energy outstripped other commodities for price growth in 2016.
The EIA used components of the S&P Goldman Sachs Commodity Index to compare a percent change since the first trading day of the year. (See full report http://www.eia.gov/todayinenergy/detail.php?id=29392). According to the report, the spot energy index in the S&P Goldman Sachs Commodity Index (GSCI) rose 48% since the start of 2016. In comparison, the spot FSCI for industrial metals rose 22%, for precious metals 8% and for agricultural products 5%. Below is a chart summarizing the movement:
West Texas Intermediate (WTI) and Brent, two major crude oil benchmarks, account for 69% of the weighting in the S&P GSCI energy index. As a result, the energy index tends to follow major price movements in the crude oil market. After two years of significant price declines, crude oil prices rose from the 13-year lows set in January and February 2016.
Petroleum-based products such as reformulated gasoline blendstock for oxygenate blending (RBOB), ultra-low sulfur diesel (ULSD), and gasoil comprise 26% of the S&P GSCI energy index. Growth in U.S. gasoline consumption and U.S. gasoline exports helped to lower gasoline inventories and provide price support in the last few months of 2016 while lower distillate production helped stabilize distallite inventories.
Natural gas accounts for the remaining 5% of the S&P GSCI energy index, and it experienced the largest percentage increase in price among energy commodities in 2016. Natural gas prices increased rapidly in the second half of 2016 because of record natural gas-fired electricity generation in the summer of 2016 and expectations that the 2016–17 winter would be significantly colder than the previous winter.
Again, these are good signs for the industry. The shift towards natural gas for electricity is systemic and will probably continue as more and more power plants lean towards clean burning natural gas. And overall, these signs boast well for a 2017 recovery.
By: Ty Chapman
Five Star Metals, Inc.
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