Commodities

Scotiabank's Commodity Price Index snaps back in May

After edging down in April, amid a sharp mid-month correction in gold prices, Scotiabank's Commodity Price Index rebounded sharply in May, climbing 2.3 per cent month-over-month.

"Scotiabank's Commodity Price Index has inched up this year and is now 1.9 per cent above a year earlier," says Patricia Mohr, Scotiabank's vice president of economics and commodity market specialist. "The decline in commodity prices from the April 2011 near-term peak - just prior to the negative economic fallout from excessive euro zone sovereign debt - has narrowed to -14.2 per cent from -19.9 per cent in late 2012." 
 
However global commodity prices – as well as bond and equity markets – have come under renewed pressure from Ben Bernanke. The Federal Reserve Chairman has indicated that a stronger US economy may lead the Fed to withdraw some of its bond purchase programme by late 2013, possibly ending quantitative easing by my mid-2014. A backup in longer-dated interest rates in recent weeks has triggered a stronger US dollar, creating headwinds for many dollar-denominated commodity prices. A shortage of liquidity in China's banking system also unnerved commodity markets last week.   
 
China's potash imports jumped by almost 19 per cent from January to April 2013 to 2.67 million metric tonnes (mt) compared with 2.25 mt a year earlier.  Brazilian imports have surged to 2.2 mt so far this year - up 53 per cent year over year - with buyers taking advantage of lower potash prices and incented by still high grain prices.
 
Western Canadian Select heavy oil prices (WCS) climbed from USD69 per barrel in April to USD80.90 in May, the highest level in 15 months. West Texas Intermediate oil prices (WTI) only inched up from USD92 to USD94.80 per barrel, but the WCS discount off WTI narrowed substantially by almost USD10 to USD13.90.
 
Expansion of the Enbridge and Enterprise Partners LP Seaway Pipeline, from Cushing to Texas, from 150,000 barrels per day (b/d) earlier this year to its current operating rate of 321,000 b/d, has allowed more crude oil to flow from Cushing, Oklahoma to refineries in the western PADD III region, where international oil prices prevail. This has contributed to a partial de-bottlenecking of the Cushing oil hub, pulling WTI oil prices up closer to the Brent international benchmark.

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