Oil drags commodities down with it
33-month low: report
nationalpost.com
The Canadian Press
TORONTO - Falling world oil markets have dragged commodity prices to a 33-month low, says the Bank of Montreal in a report released yesterday.
The bank said its commodity price index has dropped to its lowest level since February, 1999. The October index dropped 4.7% to 98.4, marking the eighth time in the past 10 months the index has dropped. The bank uses 1993 as a reference point of 100 for the index.
In October, all major commodity groups, except agricultural products, fell as the global economy worsened in the wake of the Sept. 11 terrorist attacks on the United States. The index reflects the growing weakness in Canada's resources economy, where oil and gas, forestry and mining and metals industries are major employers across the country. It also helps explain the recent historic lows of the Canadian dollar, a currency whose strength is tied to the price of commodities and global demand for Canadian resources.
In its report, Bank of Montreal said its monthly commodity index has dropped 26.4% in the last year, with the oil and gas index leading the fall with a year-to-year decline of 45.6%. Crude oil prices have dropped to about US$22 in October from a high of close to US$35 a barrel last October. In the first two weeks of November, the benchmark West Texas Intermediate crude had dropped to US$17.50 as further production cuts by OPEC were put into doubt by the refusal of non-OPEC oil producer Russia to make major cuts of its own.
"The increased uncertainty about near-term global economic conditions has continued to undermine commodity prices," said Earl Sweet, the bank's associate chief economist. "We now believe that this year's price levels will finish below 1993 levels." The bank's economists reported the oil and gas index was hurt by a 16.4% drop in the price of crude oil in October, more than offsetting a 23% rise in the price of natural gas. Weak global demand has increased world oil stockpiles and continues to squeeze energy markets. "Unless OPEC and other major oil exporters further restrain production, inventories will continue to rise over winter and oil prices will remain under downward pressure through to the summer of 2002," Mr. Sweet said.
Among other commodity groups:
- The metals and minerals index fell 2.8% in October and has dropped 14.3% since October, 2000. However, the bank said it expects prices to rebound by next spring because of slim inventories and an economic rebound.
- The North American recession has softened demand for lumber and pulp and paper and has continued to cut into forest product prices. The forestry index has dropped 14.3% from its level of a year earlier and is now lower than it has been since mid-1993.
- The agricultural index gained 3.2% for the month, taking it to an improved 4.8% for the year. The increase was related to a substantial reduction in world wheat inventories over the past several years to historically low levels. Improved markets for major grains and oilseeds are expected to lead to higher prices over the next two years, the bank said. |
