Brent and West Texas Intermediate (WTI) are two globally recognised oil benchmarks. When market participants refer to the price of oil, they typically refer to one or the other or both. But despite having quite similar chemical properties, there are important distinguishing features between the two.
Never sell Shell? Blow for UK equity income funds as oil major cuts dividend for first time in over 70 years
The old stock market saying that investors should “never sell Shell” due to its income-paying reliability will now be consigned to the history books, following the firm’s announcement this morning that its dividend has been cut for the first time since the Second World War.
Prices for almost everything we buy and sell are dictated by supply and demand. Put simply, when supply exceeds demand, prices go down, and when demand exceeds supply, prices go up.
It is no different on the oil markets, but prices there are heavily influenced by an oil cartel called Opec (Organisation of the Petroleum Exporting Countries). As at April 2020, it had 13 member states, including Saudi Arabia, Kuwait, Venezuela, Iran and Nigeria.
The US oil price has fallen to its lowest level since 1999. West Texas Intermediate, the benchmark used for the US oil price, fell to less than $15 a barrel, the lowest it has been since 1999.
The FTSE 100 has slumped heavily on the opening bell, as equity markets reacted to the oil price plummeting by almost a third overnight.
This piece was written in December 2019.
If geopolitical developments had the effect on equity markets that’s so often feared, recent years might have been much more volatile. But while the investment implications of political and macroeconomic turbulence are frequently overestimated, their impact on commodity prices can be a different matter.
Long driven by the fundamentals of supply and demand, commodity markets are increasingly shaped by factors such as policy change, trade disputes, political tensions and the response to climate change concerns.
Investors by now should be no stranger to global political instability having an impact on their portfolio. Throughout the 2010s, investors have had to navigate the eurozone crisis, the Brexit vote and now the unfolding US/China trade war, which has seemingly spilled into a broader confrontation between the two economic superpowers.
With equities still on a bull run like no other, it would be reasonable to say that commodities might not be top of the buy list for private investors.
But if you are looking for a slug of diversification to add to your portfolio there are three commodities that might attract the interest of savvy investors.
The price of oil saw its biggest intraday jump following attacks on several key Saudi Arabian oil processing facilities.
Over the weekend, Saudi Arabia's pivotal Abqaiq processing facility and Khurais oil field were attacked. In response, oil prices initially spiked by 20% when markets opened. Since then, the price has receded slightly, but prices are still around 10% up from the market’s open.
Commodity prices across the spectrum are down at least 20% from their 52-week highs, but could rebound sharply in 2019, if concern over slowing economic growth and the trade war between the US and China lifts.