Data as of January 31, 2020 unless otherwise noted
Performance (total returns)
| Benchmarks | January 2020 | YTD |
| Alerian MLP Index (AMZX) | -5.61% | -5.61% |
| Alerian Midstream Energy Select Index (AMEIX) | -4.02% | -4.02% |
| ICE BofAML U.S. High Yield Energy Index (HY Energy) | -1.65% | -1.65% |
| S&P 500 Energy Index (S&P Energy) | -11.07% | -11.07% |
Performance data quoted represents past performance and is no guarantee of future results. An investment cannot be made directly in an index.
Energy starts 2020 on the wrong foot: After underperforming in 2019, the energy sector weakened to start the new year as impacts of the Wuhan coronavirus weighed on markets and energy prices. WTI crude declined -15.6%, its worst month since last May, and natural gas prices ended the month near a 3-year low. Large-cap energy was hit hardest, declining -11.1% on the month. High yield energy bonds declined -1.7% as the CCC and lower area of the market continued to underperform. Spreads on sub-investment grade energy bonds widened 65 bps on the month and currently sit 323 bps wider than the broader high yield market. Midstream equities outperformed large-cap energy equities but still declined broadly. MLPs continued their 2019 trend of underperforming midstream C-corps, as the AMZX and AMEIX returned -5.61% and -4.02%, respectively.1
Coronavirus is the latest oil market driver: Crude prices saw heightened volatility for much of 2019, and that trend has so far continued to start 2020. The Wuhan coronavirus, which has dented energy demand in China and beyond, is the latest in a list of market-movers that includes trade tensions and conflict in the Middle East. News of the virus began circulating in early January, just as crude prices reached a peak of $63.27/bbl. The virus rapidly spread through China during Lunar New Year, inducing restrictions during the massive travel holiday. Demand for oil in China, the world’s largest consumer of energy, is estimated to have fallen 20% in January, one of the single largest demand shocks since the financial crisis. Fears of contagion in other parts of the world have dented demand sentiment across the globe as well. Consequently, WTI prices fell to $51.65/bbl at the end of January. As we look at oil markets, risks persist on both the supply and demand fronts. Tensions in the Middle East, which escalated in September after Iran’s attack on Saudi oil facilities and earlier this year as the U.S. killed Iranian general Soleimani, remain a risk to global supply. Meanwhile, the ultimate impact of the coronavirus on demand is still unclear. As of this writing, OPEC and its partners were considering options for combating the rapid decline in crude prices.1
Key takeaways
- The energy sector started off 2020 with a volatile January.
- Crude prices fell 15.6%, their worst month since May 2019.
- The Wuhan coronavirus roiled commodity markets in January. Impacts on demand have already been significant.
