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Fallout from Hurricane Katrina and Hurricane Rita in the critical U.S. Gulf region rattled already-tight commodity markets in September, leading to yet another new monthly record for the BMO Financial Group Commodity Price Index.  The Index gained 6.4 per cent in the month, reaching 210.2 (1993 = 100).

“In particular, fears of major damage to U.S. oil and gas production infrastructure further pumped energy prices to sky-high levels,” said Earl Sweet, Assistant Chief Economist, BMO Financial Group.   

Sweet noted that both supply- and demand-side adjustments appear to have alleviated the worst of the market’s concerns, allowing oil prices to ease from their early-September peak.  “However, extensive rebuilding work is expected to have a longer lasting impact on wood product prices,” he said.

The Oil & Gas Index jumped sharply in September, sustaining a very steep increase that had seen the index rise almost 50 per cent since May.  The latest rise entirely reflected an outsized increase for natural gas, as the monthly price of oil was essentially unchanged in September.

“While both oil and natural gas facilities in the Gulf of Mexico were hit hard by hurricanes Katrina and Rita, the oil market has been stabilized by rising imports of crude and products and the release of some supplies from the strategic reserve,” noted Sweet.  “Additionally, there have been some indications that high oil prices have slowed consumption.  Imports so far play only a minor role in the continental natural gas market, where domestic supply-demand fundamentals are very tight.”

Mixed performances during the month left the Metals & Minerals Index flat in September.  A weak U.S. dollar and inflation worries supported gold, while copper, zinc and lead were buoyed by supply concerns due to industrial actions and continued low inventories.  Sweet stated that metal prices are expected to decline over the next year but low inventories should continue to support them at fairly high levels.  

The hurricanes reignited wood product prices in September, which had been a main force behind the Forest Products Index slide over the past seven months.  “With lumber and structural panels surging in September, the Index moved higher for the first time since February,” said Sweet.  Meanwhile, the pulp and paper side of the sector was mixed, with market pulp weakening and newsprint sustaining earlier gains.  Going forward, while wood product prices are now expected to be higher than in earlier forecasts, they are still expected to soften in the year ahead amid an anticipated slowing in housing construction in North America.

The Agricultural Index suffered a broad-based decline in September, with all commodities in the index retreating during the month.  “Further weakness is expected in the near term given improving crop prospects, though low stocks relative to use should provide a floor over the next year,” stated Sweet.

BMO Commodity Index for September 2005

The full BMO Financial Group Commodity Price Index report for September 2005 is available at www.bmo.com/economic.

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