Commodities are expected to broadly benefit from rising prices in 2017, reveals a Scotiabank report.
The Scotiabank commodity price index gained 6.2% month-over-month in December as a large gain in oil and gas complemented monthly gains in all other sub-indices.
Prices for North American benchmark WTI have been moderately upgraded to average $58 per barrel in 2017 and $61 in 2018.
Three key trends that will shape the oil market this year are OPEC member compliance, the strength and pace of the U.S. shale patch’s rebound and the persistence of global demand on growth.
“We anticipate OPEC compliance of roughly 75%, with the strongest and clearest cuts coming from Saudi Arabia and its [Gulf Co-operation Council] allies, as well as a successful six-month extension of the supply deal through the second half of the year,” says Rory Johnston, commodity economist at Scotiabank, in the report.
Base metals are expected to gain from stronger global growth and rising manufacturing activity. Copper saw the most significant outlook adjustment ($2.40 per pound from $2.20), with stronger-than-anticipated Chinese demand facing weaker supply growth. Zinc remains the metal with the strongest fundamentals, with a mild price upgrade due to limited concentrated stock supply.
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. 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 report here.