*Scotiabank Press Release*
Scotiabank’s Commodity Price Index increased by 1.7% month-over-month (m/m) in April and will likely advance further in May alongside a rebound in oil and stronger base metal prices. Nevertheless, the All Items Index remains 29.7% below a year earlier.
“A seasonal pick-up in industrial activity across the G7 and China and the recent pull-back in the U.S. dollar trade-weighted are giving commodity prices a boost in the second quarter,” said Patricia Mohr, Vice President, Economics and Commodity Market Specialist at Scotiabank. “West Texas Intermediate (WTI) oil prices — the bellwether for North America — rallied from a low of US$43.46 per barrel on March 17 to average US$54.63 in April and US$59.62 to date in May. We continue to expect WTI oil prices to climb to the US$65 mark by late 2015, and Brent to US$70.
“Signs point to an edging down in U.S. ‘light, tight’ oil production from the shales given a 56.9% year-over-year (yr/yr) plunge in U.S. oil-focused drilling activity. Equally important, U.S. petroleum demand has climbed by 3.9% yr/yr in the four weeks to May 15. U.S. refineries have been running at a high 91.7% operating rate in April and May — 2.2 percentage points above the 89.4% of a year ago, anticipating a strong spring driving season, underway this past Memorial Day weekend.
“Global oil industry investment will drop by 20% or more in 2015, as companies shelve projects and shore up balance sheets. However, in key Persian Gulf countries, national oil companies are maintaining strategic spending in a bid to step up market share vis-à-vis Russia and U.S. ‘light, tight’ oil producers, now dialing down drilling. Drilling activity has recently been at a 20-year high in Saudi Arabia, Kuwait and the UAE.”
Other highlights from the report include:
- U.S. shale producers have a large inventory of drilled, but uncompleted wells — the so-called ‘fracklog.’ What price will U.S. ‘light, tight’ oil producers complete these wells at? Answer: US$65.
- Spot iron ore prices delivered to northern China (the international benchmark) have lifted off bottom. Prices fell to a mere US$46.70 per tonne on April 2, but rallied back over US$60 in mid-May (now at US$57.60).
- Canada wins its case at the World Trade Organization over the discriminatory treatment of Canadian imports of cattle and hogs, under U.S. Country-of-Origin Labeling requirements.
Read the full Scotiabank Commodity Price Index online at: http://www.scotiabank.com/ca/en/0,,3112,00.html.
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