Oil recovery fragile despite rising commodities index

Scotiabank reports its commodity price index gained 2.2% month-over-month in February, as industrial commodities continue to benefit from healthy demand on the back of a stronger global economic outlook.

The oil recovery remains on track but fragile, says Scotiabank in its commodity price index report.

“Bearish sentiment is likely to weigh on prices until our more bullish fundamental outlook is confirmed by U.S. inventory draws over the coming months,” says the report.

Read: From pipe dream to game on

The bank has downgraded its WTI price forecast to $53 per barrel in 2017, from $58 previously. For 2018, the price has been downgraded to $56 per barrel, down from $61 previously.

The bank says the downgrade is the result of a stronger U.S. shale outlook, Brazilian output gains temporarily supporting non-OPEC supply outside the U.S., and high U.S. inventories, which have taken longer than anticipated to draw.

Read: Expect oil industry losses until Q4: Conference Board of Canada

Further, the bank expects OPEC to extend its production cap through year-end, because of the combination of high OECD inventories, weak upstream investment outside the U.S. and recent oil price weakness.

Other report highlights:

• Copper forecasts have been upgraded to $2.50 per pound in 2017 and $2.65 per pound in 2018, as a combination of production loss, continued supply uncertainty and potential for stronger Chinese demand are all near-term bullish for prices.
• Aluminum prices are forecast to average $0.85 per pound in 2017 and 2018, as Chinese environmental policies could remove substantial amounts of supply from the market, flipping balances to a moderate deficit in 2017.
• Zinc continues to show the strongest fundamentals, with prices forecast to average $1.35 per pound in 2017 and $1.55 per pound in 2018.
• Nickel supply received potential shock as Philippines President Duterte raised the possibility of banning all domestic mining activity. Prices are now forecast to average $5.00 per pound in 2017 and $5.50 per pound in 2018.
• Gold prices are likely to average $1,200 per ounce in 2017 and $1,250 per ounce in 2018, given a mix of mildly bearish interest rate fundamentals and a balanced risk outlook.

Read the full report.

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Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.