US Markets

Goldman's commodities trading business is reportedly off to the worst start in a decade

Lloyd Blankfein, CEO and Chairman of Goldman Sachs.
Adam Jeffery | CNBC

Goldman Sachs is reportedly reviewing its longtime commitment to commodities trading following another decline in the first half of the year.

An anonymous source told Bloomberg that Goldman Sachs suffered its worst start to the year in commodities in over a decade, down from peak annual performance of $3.4 billion in 2009.

In initiating the review, Chief Executive Officer Lloyd Blankfein diverged from the bank's convention of enduring declines in profitability until the market's cyclical forces recovered losses.

The Bloomberg report noted that other major investment banks, including Morgan Stanley and JPMorgan Chase, have reduced or ended commodities trading after tougher regulation and falling revenue ruined the robust profits of the early 2000s.

According to estimates from data analytics company Coalition, commodities-trading revenue for the banking industry fell to $800 million in 2016.

Last week, Goldman issued a mea culpa of sorts, detailing how it misread the crude oil market. Having originally set its forecast for U.S. crude to average $55 per barrel over the next three months, the bank cut the estimate to $47.50.

U.S. West Texas Intermediate crude futures are trading around $46.82 on Monday.

Among other factors, Goldman admitted failing to appreciate how quickly U.S. shale oil production would ramp up in response to crude price hikes and how quickly investors would flock to the trade.

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