TORONTO - Strong oil prices offset drops in other commodities tracked by Scotiabank's (TSX:BNS) monthly commodity index and led to a strong turnaround in May.
But it's a surge that Scotiabank economist Patricia Mohr treats cautiously, since early data suggest the upswing isn't certain to continue into next month.
"May was actually a lot stronger because of stronger oil prices for Western Canada but there have been some negative developments that impact on metals in particular in late June," Mohr said in an interview Monday.
"It was really oil-led and because many of the other commodity sectors actually dropped in May."
The overall index climbed 2.3 per cent month-over-month, as Western Canadian Select heavy oil prices jumped to US$80.90 in May, up from US$69 per barrel in April and the highest in 15 months.
The overall commodity index has inched up this year and is now 1.9 per cent above where it was in May 2012 but still remains below where it was two years ago.
West Texas Intermediate, a North American benchmark for lighter crude, only crept up to US$94.80 per barrel from US$92 per barrel over the same period, but the WCS discount off WTI narrowed substantially by almost US$10 to US$13.90.
Scotiabank credits the higher WCS price in part to a narrowing of the discount on WTI oil against the world benchmark of Brent crude, while WTI prices were also helped by additional pipeline capacity from Oklahoma to Texas, where international oil prices prevail.
WCS heavy oil prices are expected to retreat again to about US$74.85 in June — with the discount widening to US$20.39 — but will remain higher than the US$62.37 average of the first quarter, the bank predicts.
Canadian natural gas export prices to the United States also rose in May over the US$4 mark for the first time since August 2011.
The bank also said China's potash imports jumped by almost 19 per cent from January to April, while Brazilian imports have surged 53 per cent year over year as buyers took advantage of lower potash prices and high grain prices.
Other commodities didn't fare as well, a trend that could continue as global commodity prices come under renewed pressure from last week's comments by Federal Reserve chairman Ben Bernanke, who indicated that a stronger U.S. economy may lead the Fed to withdraw some economic stimulus my mid-2014.
Bernanke's comments have driven up the yield on 10-year U.S. Treasuries, resulting in a stronger U.S. dollar. Since sales of many commodities are denominated in U.S. currency, the stronger American dollar could depress the global price for such things as oil, gas, potash, and copper.
For May, the metal and mineral index lost further ground, down 2.4 per cent month-over-month as most base metal prices eased, as did gold, iron ore and uranium. Those losses offset slight gains in potash and cobalt.
The forest products index also fell 5.9 per cent in May, although the sub-index remains 5.4 per cent above a year earlier. The U.S. housing starts rebounded to 914,000 units in May, after dropping to 856,000 in April, but that increase in May was less than expected, and likely related to unusually wet spring weather in the U.S. Midwest.
The agricultural sub-index edged down 0.3 per cent in May due to a seasonal easing in Atlantic Coast lobster prices, with grain and livestock prices all stronger and above a year earlier.
Mohr said it was too early to say what kind of impact the flooding in Alberta this past week may have on future indices.
"I don't think it's going to impact on production of crude oil very much, mainly because it's just around the rivers, but there is some possibility that there might be crop damage," Mohr said.
"It would have to be quite extensive to have any impact on actual price, though, because grains are really dominated by trading on the Chicago Board of Trade now and that's unlikely to be impacted unless it's really wide-spread."