SOURCE: Scotiabank


December 18, 2014 08:00 ET

Oil Prices Will Snap Back by Mid-2015, Says Scotiabank's Patricia Mohr

TORONTO, ON--(Marketwired - December 18, 2014) - Scotiabank's Commodity Price Index dropped -4.8% month-over-month (m/m) in November (-6.1% year-over-year) and will end 2014 in a deflationary mode.

"Significant capacity expansion and the defence of market share by major oil and iron ore producers -- against a backdrop of lacklustre world economic growth -- account for the softness at the end of the year," said Patricia Mohr, Vice President of Economics and Commodity Market Specialist at Scotiabank. "The decision by Saudi Arabia not to reduce output to shore up international oil prices, but instead to allow prices to drop to levels curbing U.S. shale development appears to be having a negative impact on confidence in a wide variety of other commodity as well as equity markets.

 "While lower oil prices will boost U.S. and global consumer purchasing power and spending, when oil prices fall to abnormally low levels (broaching average production costs) the overall positive impact on GDP growth is not as clear, and may in fact be destabilizing in some oil-producing countries. The oil sector and related industries account for over 11% of U.S. business investment.

West Texas Intermediate (WTI) oil prices below US$60 are heavily over-sold, as prices have fallen below average mid-cycle breakeven costs across the United States and Canada. A sharp, fairly rapid reduction in drilling activity is already underway, which will help to bring supply back into balance with demand. While an extended period of lower oil prices (sub-US$80) is expected over the next several years, the year-over-year rebound in WTI prices by late 2015 will likely be double-digit."

Other highlights from the report include:

  • Zinc is a 'Top Pick' for investors in 2015. Prices strengthened in the second half of 2014, averaging US$1.03 per pound, with investors and commodity funds expecting zinc concentrates to move into a supply-side 'deficit' by 2016 due to significant mine depletion.
  • Nickel prices should also outperform in 2015. Prices will climb from this year's US$7.67 average to at least US$9.00 in 2015 (+17.3%) and US$11.50 per pound in 2016.
  • Oriented Strandboard (OSB) prices will likely outperform in 2015, with very high demand on North American mill capacity expected in the second half of the year. The mill restarts, which held back prices in 2014, are now over. U.S. housing starts will continue to improve. 

Read the full Scotiabank Commodity Price Index online at:,,3112,00.html.

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