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Oil and Gas Propel Commodity Price Index to Fastest Monthly Growth Rate in More than Two Years, Say BMO Financial Group Economists  


Oil and gas prices continued to soar in February, driving the BMO Financial Group Commodity Price Index to its fastest monthly rate of growth since December 2000.  Overall, the composite index of nineteen commodities considered important to the Canadian economy surged 11.6 per cent in February to 139.3 (1993 = 100) from 124.8 in January.  BMO’s commodity index is now more than 40 per cent higher than it was a year ago.

“Although the global economic expansion has been struggling to gain a foothold, external forces and industry supply management have kept commodity prices on an upward track,” said Earl Sweet, Assistant Chief Economist, BMO Financial Group.  “While geopolitical developments are likely to significantly heighten price volatility during the next few months, more positive economic fundamentals during the second half of the year should support stronger gains in metals and forest products,” he said.

A good portion of the overall increase in commodity prices during the past year emanates from the energy sector.  “Geopolitics, a cold winter, and industry fundamentals have fuelled sharp gains in both crude oil and natural gas prices,” said Sweet.  Spurred by plunging inventories, the energy sub-index soared 21.7 per cent in February to a level 2.3 times higher than a year earlier.  The energy index is now at 259.3 (1993=100).

“While the outlook for oil prices is still dependant on ongoing developments in the Middle East, a fundamental shortage of natural gas will likely keep that commodity’s price at a high premium this year,” said Sweet.  The report forecasts that the price of natural gas in Alberta will jump to an average of US$4.30 per million British thermal units (mmbtu) in 2003, up substantially from the 2002 average of US$2.63 per mmbtu.  Crude oil prices are not expected to be sustained at current levels of close to US$37/barrel.  Nevertheless, BMO economists anticipate that the price of US benchmark West Texas Intermediate (WTI) will average US$27 in 2003, close to one dollar higher than the average for 2002.

The Metals & Minerals Index rose at a reasonably brisk pace of 2.7 per cent in February to a level almost 10 per cent higher than a year earlier.  This marked the sixth consecutive increase for metals.  Although global industrial production – a key driver – has been unimpressive, inventories of most metals have been falling as producers have restrained output.  Additionally, relatively fast economic growth in China and some other parts of Asia have been absorbing metal supplies.  The metals index is at 110.9 (1993=100) for the month.

“Of the base metals, gains have been particularly robust for nickel, reflecting strong demand for stainless steel, shortages of scrap, and low inventories relative to consumption,” said Sweet.  “Meanwhile, uncertainty related to geopolitics and the US dollar have continued to bolster gold prices, which rose 1.7 per cent in February to stand 21 per cent higher than a year earlier.”

An improvement in market conditions for lumber and oriented strandboard generated the biggest rise (up 4.3 per cent) in the Forest Products Index in almost two years.  The sub index now stands at 90.2 (1993=100).  “Recent price advances have recaptured only a fraction of the huge declines over the past two years,” said Sweet.  “While pricing in the sector generally remains poor, there are now clear signs that conditions should continue to improve in the short term.”

The commodity report noted that pulp and newsprint producers have already announced price increases for March.  While initial acceptance and short-term sustainability of those increases will likely be a challenge, a stronger North American economy later in 2003 is expected to support steadier prices in the latter part of the year.

Led by higher wheat prices, the Agricultural Index rose 2.3 per cent in February to 100.5 (1993=100), after four consecutive monthly declines.  Corn and soybeans also contributed to the increase, although their price gains were more modest.  “Prices should remain at fairly high levels throughout this year because global inventories are still very low relative to consumption,” said Sweet.”  Further out, prospects of a return to more normal output levels can be expected to cause prices to slip.

BMO Financial Group Commodity Price Index for February 2003


Feb. 2003 Level
(1993 = 100)

Per cent change
from month ago

Per cent change
from year ago

All Commodities 139.3  11.6  40.3 
Oil & Gas  259.3  21.7  126.6 
Metals & Minerals  110.9  2.7  9.9 
Forest Products  90.2  4.3  -3.5 
Agriculture  100.5  2.3  25.6 

The full BMO Financial Group February 2003 Commodity Price Index report is available on the BMO website at