Don't expect oil to reverse its bear market slump anytime soon, history shows

Key Points
  • Oil prices fell into bear market territory Tuesday, plunging below $43 a barrel at one point.
  • In the six months following similar bear market declines, U.S. crude was down another 5 percent on average, according to hedge fund analytics tool Kensho.
Oil workers make a pipe connection on a drilling rig near Encinal, Texas.
Eddie Seal | Bloomberg | Getty Images

U.S. oil fell into bear market territory on Tuesday, and the losses could continue in the coming months if historical trends hold.

CNBC ran a study to see how U.S. West Texas Intermediate crude performs after the commodity experiences a plunge of 20 percent or more from recent highs in a span of six months, using hedge fund analytics tool Kensho.

After Tuesday's decline, WTI is down 22 percent from its 52-week intraday high of $55.24 hit in January. Futures are on pace for a drop greater than 20 percent from their 2017 closing high as well.

In the last 10 years, oil experienced seven similar bear market declines in six months.

In the next six months after those bear market drops, WTI was down another 5 percent on average, according to Kensho. WTI traded positively just 43 percent of the time in those instances.

Energy stocks held up better during those six months after a bear market decline, but still underperformed the market.

In those seven instances, the Energy Select Sector exchange-traded fund, better known as the XLE, posted an average return of about 6.7 percent, the Kensho study showed. That compares with a 7.8 percent average return for the S&P 500 during the same six-month period after oil falls into a bear market.

Also of note is what works after an oil bear market: consumer stocks. The Consumer Discretionary SPDR (XLY) is up more than 12 percent, on average, in the six months after an oil bear market as cheaper gas prices spark more spending.

Oil traders are awaiting data that confirm efforts by OPEC and other oil exporters to shrink global crude stockpiles and prop up prices are having an effect.

That evidence could start rolling in this summer as seasonal demand for fuel ramps up, but rising production in the Untied States, Libya and Nigeria is offsetting OPEC-led production cuts. The International Energy Agency warned last week that stockpile levels might not fall to OPEC's target until early next year.

Disclosure: CNBC's parent NBCUniversal is a minority investor in Kensho.