Energy markets experiencing gradual recoveries while metals rallied together in the third quarter
TORONTO—The Scotiabank Commodity Price Index eked out a small gain of 0.7 percent m/m in September, with industrial commodity strength (+1.9 percent) outweighing losses in the agriculture index (-4.0 percent).
Energy markets are experiencing gradual, range-bound recoveries against volatile metals performance. While metals rallied together in the third quarter, prices are diverging again as individual fundamentals reassert control.
“These market-specific developments are occurring against a widely supportive backdrop, where an accelerating global economy is bolstering commodities demand and broad US dollar weakness is putting upward pressure on dollar-denominated contracts,” said Rory Johnston, commodity economist at Scotiabank. “We anticipate that most industrial commodities will continue to gain in year-over-year terms through the forecast horizon, though bulk commodities are expected to undergo a needed correction and precious metals prices are forecast to fall back on a higher rate environment.”
The oil market is rebalancing much as expected but prices have lagged the gradual recovery occurring in the physical market, with still-high commercial inventories providing ample cover for bearish sentiment and tilting speculative price movements to the downside. Sentiment headwinds will slow the recovery in crude prices, which are expected to average $50/bbl in 2017, $52/bbl in 2018, and $56/bbl in 2019.
However, continued strengthening in fundamentals will tilt medium-term risk to the upside and ultimately drive prices higher through end-decade, with supply deficits expected to reduce the overhang in OECD commercial inventories back to five-year average levels by mid-2019.
Base metals markets experienced a collective third quarter rally, though prices have since diverged and metal-specific fundamentals are expected to drive individual performance through the forecast horizon. In the world of precious metals, the price of gold remains elevated after briefly breaching $1,350/oz, its highest level of the year, on falling market expectations of interest rate hikes in the US, a weakening US dollar, and heightened geopolitical risk concerns related to mounting rhetorical volleys between Washington and Pyongyang.
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