By Jodie Gunzberg, head of commodities indices at S&P Dow Jones Indices.

The S&P GSCI Energy Total Return Index has lost 18.8% through the first half of 2017.

Commodities just had their worst start in seven years.  The S&P GSCI Total Return Index lost 10.2% year-to-date (YTD) ending 30 June 2017, logging its worst first half performance since the first six months of 2010 when it lost 11.2%.

However, it’s not the bloodbath it may seem to be.  Half, or 12 of the 24 commodities in the index, and three of five sectors were positive YTD through June 2017.  The best and worst single performers came from the same sector, agriculture.  Wheat was the winner, gaining 18.3%, while sugar was the biggest loser, down 29.9%, contributing to an overall sector return of -2.2%.  Although in the first half of 2017, the needle fell just short for agriculture, livestock gained 12.5%, industrial metals were up 8.1% and precious metals were solidly positive 6.9%.

On the other hand, the driver of the poor index performance thus far in 2017 stems from the relatively heavy weight in the energy sector.  The S&P GSCI Energy Total Return Index lost 18.8% YTD through June 2017, its worst start in a year since 1998 – almost two decades.

Source: S&P DJI.

Each single commodity inside the energy sector didn’t just lose in the first half of 2017, but lost double digits.  This is only the second time all six energy commodities lost in the first half of a year (2010 was the first time.  Also, in 1990, 1991 and 1997, before Brent crude and gasoil were included in the index, all the singles were negative in H1.)  Moreover, in the first half of 2017, two of the six energy singles lost more than 20%, the mark that typically denotes a bear market.  This is the fourth time since 1984, two or more energy singles were down over 20% in the first half of a year, with other occurrences in 1990, 1997 and 1998.

The negative returns in H1 2017 of the commodities in the energy sector are worth noting individually —  Brent crude -17.4%, (WTI) crude oil -18.8%, gasoil -15.8%, heating oil -16.5%, natural gas -26.4% and unleaded gasoline – 22.3% — since without them, commodities were positive in the first half.  The S&P GSCI Non Energy Total Return Index gained 4.1% in the first half of 2017, outperforming the S&P GSCI Energy Total Return by 22.9%, the most in a first half in 27 years or since 1990.

Source: S&P DJI.

In two recent notes, the reasons for this split in performance were discussed.  The term structure is important since it reflects the storage costs that determine returns from rolling.  Negative roll returns measure the costs from excess inventory that have plagued energy investors beginning in Nov 2014.  One potentially positive sign is that unleaded gasoline, the most backwardated commodity of all, gained a roll return of 43 basis points in June that has ended its long contango streak from Dec 2016. Another possibly optimistic sign in June from energy is that for the first month since Nov 2016, the roll yield loss was less for WTI than for Brent. (WTI) crude oil lost 50 basis points in June versus the roll yield loss of 72 basis points in the month for Brent crude.  This shift in roll return may reflect declining US inventory cost relative to the international market, pointing in the right direction toward the probable key factor in the oil re-balance.