Less gloom for energy as prices test highs

Scotiabank’s Commodity Price Index improved by 4.5% month-over-month in April, as energy gains offset metals weakness.

Still, the energy market likely won’t enter a sustainable deficit until mid-2017, says Scotiabank Economics, which finds its Oil & Gas Index advanced by 12% month-over-month in April as rising crude prices continue to test fresh highs.

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The bank notes West Texas Intermediate (WTI) crude rose to $50/bbl intra-day over the past week, as prices responded to a series of unplanned disruptions, including the Fort McMurray wildfires.

However, Scotiabank Economics anticipates WTI will average $42/bbl in 2016. “Some of these disruptions can be chalked up to bad luck,” says Rory Johnston, Commodity Economist at Scotiabank. “These recent disruptions are not, in our view, a sign of an imminent rebalancing of supply and demand, but they do illustrate that the road to balance will be bumpy.”

Recent trends have also inspired some of Canada’s biggest banks to adopt more positive outlooks on oil and the risk of loan losses to the energy sector, reports The Globe and Mail. For example, TD’s CFO Riaz Ahmed told The Globe that even though oil companies are still weak, there’s been less gloom hanging over the sector. Read more.

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Meanwhile, Scotiabank finds the price of Canadian natural gas remains low as current inventory levels are more than 70% higher than the five-year average for this time of year. This is largely the result of a mild winter and the recent impact of the Albertan wildfires on regional demand.

Also in April, Scotiabank’s Metals & Minerals Index contracted by 0.3% month-over-month as some of the speculative fervor on Chinese commodity exchanges have began to dissipate. All major base metals lost ground relative to late-April and early-May highs, impacted by the easing price of iron ore, which has shed more than $20/t (almost 30%).

Other highlights include:

• copper will likely experience continued headwinds through the summer on the back of weaker demand prospects and a sluggish supply response;
• zinc continues to display the strongest fundamentals within the base metals group and prices remain more than 30% higher than mid-January levels; and
• record crude inventory levels and the impermanence of recent disruptions are blunting any material spike in prices.

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Staff

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