WN: Oil spread sends commodity price index to fourth straight decline
OTTAWA — A measure of Canadian commodity prices dropped for the fourth straight month in March, led by declines in the prices of oil and gas, Scotia Economics reported Thursday.
The Scotiabank commodity price index slipped 2.9% in March from February, and is 5.2% below the reading for March 2011 — the first time the index has shown a year-over-year decline since October 2009, the report said.
While the agriculture sub-index gained 5.7% and the forest products sector rose 2.1% last month, that wasn’t enough to offset the 9.1% decline in the more heavily weighted oil and gas sector. The metals and minerals sector also showed a slight decline in March, down 1.1%.
“Oil and gas now has a huge impact on commodity price performance and the Canadian economy, accounting for 39% of Canada’s net exports of all commodities and resource-based manufactured goods from Canada in 2010,” said Scotia Economics commodities expert Patricia Mohr in the monthly report, noting that the growing impact of oil prices was reflected in a recent re-weighting and re-design of the index.
West Texas Intermediate and Brent crude prices continued to rise in March, Mohr says, but prices for Edmonton light sweet and Western Canadian Select heavy oil continued to sit at a generous discount to the international benchmarks — reflecting an “over reliance on one key export market, the U.S. Midwest.” That problem could be addressed in the future with pipeline projects linking Cushing, Okla., to refining centres on the U.S. Gulf Coast.
Still, Mohr cautions, demand is also a factor in the price of oil, and Canada’s reliance on the U.S. as an export market continues to present a “commercial risk.”
“While high prices and a still-slow economy have likely curbed demand this year, rising vehicle fuel efficiency standards and ‘light-weighting,’ a shift from naphtha and gas oil to ‘ethane from shale’ by petrochemical producers and stepped-up use of natural gas in manufacturing will limit medium-term oil demand growth,” she says.
In the metals and minerals sector, higher copper and gold prices were offset by lower prices for other base metals.
Canola, barley and Atlantic lobster helped push the agriculture index forward, while stronger prices for lumber and oriented strand board were factors in the growth in the forestry products sector.
