After strengthening in early 2013, Scotiabank’s Commodity Price Index inched down again by 0.9% m/m in February.
Commodity prices generally moved higher in the opening weeks of February, but eased back after China’s Lunar New Year holiday, alongside mixed economic indicators from China and another bout of ‘risk aversion’ related to financial developments in Cyprus.
The All Items Index remains 17.2% below the April 2011 near-term peak, just prior to the advent of concern over excessive Eurozone sovereign debt and the negative fallout on global trade.
After rebounding in January, the Oil & Gas Index led the decline (-3.0% m/m). While international oil prices strengthened, with Brent averaging US$116 per barrel and WTI oil US$95, the discount on Western Canadian Select heavy oil (WCS) widened from an already high US$32.84 per barrel to an enormous US$36.94 off WTI, pulling WCS prices lower from US$62 to US$58.38 in February.
The discount on the Edmonton par price for ‘light’ conventional oil also increased to US$8. However, discounts on both heavy and light oil have recently narrowed, as U.S. refineries returned from seasonal maintenance (on WCS to a still high US$26.23 in March and US$23.07 in April). ‘Light, sweet synthetic crude’ from Syncrude Canada and Suncor Energy is usually priced at a premium to WTI.
The ‘opportunity cost’ to the Canadian economy of these wide price discounts off WTI around the turn of the year was enormous, caused largely by inadequate pipeline export capacity at a time of record Canadian oil production and an over-reliance on one key export market — U.S. Midwest refineries. Canada’s oil output rose to an all-time high of 4.1 mb/d in December alongside record synthetic crude oil production at 1 mb/d, stepped up ‘light, tight’ oil from Alberta’s Cardium & Viking formations and the return from maintenance of offshore Newfoundland production.
Gold prices (London PM Fix) also lost ground, slipping from US$1,671 per ounce in January to US$1,628 in February and currently stand at US$1,603. Gold has been consolidating around the US$1,600 mark — checked by shifting investor interest to U.S. equities (particularly stocks in the Dow Jones Industrial Average, up 10.8% YTD) and recognition that the Fed does not need to further step-up its quantitative easing to kick start the U.S. economy. However, ongoing Eurozone financial strains and central bank buying continue to underpin prices.
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