The Scotiabank Commodity Price Index gained 6.2% m/m in December as a large Oil & Gas gain complemented monthly gains in all other sub-indices. Commodities are expected to broadly benefit from rising prices in 2017 after many averaged cycle-lows last year.

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“Oil will remain top-of-mind as OPEC output reductions are monitored and the market finally gets a taste of how quickly the U.S. shale patch can put rigs and workers back to work,” said Rory Johnston, Commodity Economist at Scotiabank. “We anticipate OPEC compliance of roughly 75%, with the strongest and clearest cuts coming from Saudi Arabia and its GCC allies, as well as a successful six-month extension of the supply deal through the second half of the year.”

Prices for North American benchmark WTI have been moderately upgraded and are now forecast to average $58/bbl in 2017 and $61/bbl in 2018. Three key trends that will shape the oil market in 2017 are OPEC member compliance; the strength and pace of the U.S. shale patch’s rebound; and the persistence of global demand on growth.

Base metals are expected to gain from a more buoyant global economy and rising manufacturing activity. Copper saw the most significant outlook adjustment as stronger-than-anticipated Chinese demand runs up against weaker supply growth. Zinc remains the metal with the strongest supporting fundamentals, and the higher 2016 hand-off prompted a mild upgrade to price expectations.

The outlook for gold has deteriorated slightly on the back of a stronger macroeconomic outlook, rising inflation and interest rate expectations and a so-far muted market response to political uncertainty. Prices are now forecast to average $1,200/oz in 2017 and 2018, down from $1,300/oz prior. However, the market’s sanguine view of the risk environment is slanted bullish, and gold is likely to find some support as these views revert to balance.

Read the full Scotiabank Commodity Price Index online at: http://www.scotiabank.com/ca/en/0,,3112,00.html.

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