Energy Commodity Returns Outpace Nonenergy Commodity Returns

Energy commodity returns have outpaced nonenergy commodity returns in the past month, according to analysis from the US Energy Information Agency.

Since July 1, the energy component of the Goldman Sachs Commodity Index (GSCI) rose about 8.1 percent while the nonenergy component of the GSCI saw a slight 1.5 percent decrease, with return values for the energy and nonenergy components of the GSCI are indexed to a starting point of March 1, 2013, the agency said.

According to the EIA analysis, ” Market Prices and Uncertainty Report,” this divergence suggests that the recent increases in crude oil and petroleum product prices are most likely not due to changes in future global economic growth expectations.

Such a factor would tend to increase all commodity prices, but the crude oil and petroleum product price increases have not been shared by other commodities. Instead, these energy price changes can likely be attributed to factors specific to petroleum markets, including recent geopolitical developments such as reduced production in Libya, the agency said.

The S&P GSCI is seen as a leading measure of general price movements and inflation in the world economy. The index – representing market beta – is world-production weighted, and it is designed to be investable by including the most liquid commodity futures, according to the S&P Dow Jones Indices website.

Energy accounts for almost 70 percent of the index, with crude oil comprising nearly half, at 47 percent, EIA said.

In contrast to energy, other commodities have declined in price this year. Copper, gold, and corn, which together make up about 11 percent of the S&P GSCI, are down 11 percent, 22 percent, and 33 percent, respectively, since the beginning of the year, EIA said.

The declines can be attributed to factors such as slower-than-expected growth in emerging market countries as well as market-specific explanations such as improved weather that led to higher corn crop yields.