SOURCE: Scotiabank

Scotiabank

October 16, 2014 08:00 ET

Commodity Prices Lose Ground in September: Scotiabank

TORONTO, ON--(Marketwired - October 16, 2014) - Scotiabank's Commodity Price Index retreated further in September, declining 2.1% month-over-month (m/m), but stayed above the late 2013 low.

"All sub-indices declined, pressured by downward revisions in world economic growth, seasonal declines in grain and livestock prices and headwinds for dollar-denominated commodity prices from broad based U.S. dollar strength," said Patricia Mohr, Vice President of Economics and Commodity Market Specialist at Scotiabank. "The rapid development of U.S. light, tight oil, in only a slowly growing world economy, contributed to softer international oil prices.

"The Oil and Gas Index edged down by 0.4% m/m to a level 9.5% below a year earlier," added Ms. Mohr. "Lower light, sweet crude oil prices in Edmonton just offset a slight gain in Western Canadian Select (WCS) heavy oil, strong propane prices and firmer Canadian natural gas export prices."

Other highlights from the report include:

  • The recent plunge in West Texas Intermediate (WTI) and Brent oil prices reflects weak petroleum demand in an environment of more-than-ample supplies. Equally important, traders are concerned that Saudi Arabia may not cut output to shore up prices, but instead defend its market share by allowing prices to drop to levels curbing U.S. oil development. In the absence of a significant OPEC production cut, WTI oil prices are likely to average about US$85 per barrel in 2015 and Brent US$87. WTI prices should find a bottom soon at the US$80 mark, with a seasonal improvement in demand getting underway in the fourth quarter.
  • The relative strength of Canadian heavy oil prices mirrors the configuration of many U.S. refineries, requiring heavy crude. While U.S. light, tight oil from North Dakota's Bakken and the Permian and Eagle Ford Basins in Texas has backed out imports of light, sweet crude from Nigeria and North Africa, U.S. imports of heavier crudes continue to climb.
  • Saudi Arabia accounts for 40% of OPEC supplies and is the world's lowest-cost major producer. OPEC will meet on November 27 to consider its supply policy and may yet cut production, though we believe that a large reduction of about one million barrels of oil per day (mb/d) is needed to steady prices.

Read the full Scotiabank Commodity Price Index online at: http://www.scotiabank.com/ca/en/0,,3112,00.html.

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