Looking Back: Energy Commodities’ Reaction to Major Crises
Analyzing crude oil’s performance
During the subprime crisis in 2008, just three months before the Lehman Brothers bankruptcy filing, US crude oil (UWTI) (USO) (OIIL) (USL) (DWTI) active futures were trading at $134.9 per barrel. The implied volatility was 45.8%. In the next six months, crude oil fell to $44.5 per barrel. The implied volatility rose to 158.8% as prices fell 53.5% between September 15 and December 15, 2008. Usually, a spike in implied volatility indicates the market’s expectation of large movement in underlying prices. An economic crisis can be accompanied by lower demand for fuels.
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After the Fukushima crisis, crude oil rose 25.4% between March 11 and June 11, 2011. Crude oil is a “risk asset.” It rises during economic booms and global energy supply uncertainties. After the crisis, Japan’s use of fossil fuel–based thermal power replaced its loss of nuclear energy–fueled power supply. Thermal power uses natural gas and petroleum products for power generation.
US crude oil prices fell 11.2% three months after the Brexit vote on June 23, 2016. The United Kingdom leaving the European Union could lead to slower economic growth in the region. Crude oil is a growth-driven asset. Slower economic growth has a negative impact on its prices.
How natural gas reacted?
During the Fukushima nuclear crisis, between March 11 and June 11, 2011, natural gas prices rose 26.6%, Japan’s liquefied natural gas demand to fuel its power plants rose after the crisis. Apart from energy security uncertainties in Japan, the warmer summer in the US was also an important driver for natural gas prices during this time period.
After the Brexit vote, Henry Hub natural gas futures rose 9.5%. In this case, the rise in natural gas prices was due to higher temperatures compared to the mean in the US for that time of year and excess inventories coming back into balance.
Crude oil and natural gas–related sentiments also impact energy ETFs such as the Direxion Daily Energy Bear 3X ETF (ERY), the First Trust Energy AlphaDEX ETF (FXN), the United States Brent Oil ETF (BNO), the Energy Select Sector SPDR ETF (XLE), and the United States Oil ETF (USO)