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*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.

Scotiabank provides clients with in-depth research into the factors shaping the outlook for Canada and the global economy, including macroeconomic developments, currency and capital market trends, commodity and industry performance, as well as monetary, fiscal and public policy issues.

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