Whither Commodity Prices?
I recently noted that, although the price of oil has fallen by half from its summer peak, it still approximately equals last yearâ€™s average. Last year was thought to be a time of very high oil prices.
Beyond observing that most commodity prices are way down from their recent peaks, it is difficult to generalize because different commodities have followed different trajectories. The Bank of Canadaâ€™s Commodity Price Index, consisting of 23 resources that Canada exports, provides an interesting aggregation. Oil accounts for only one-fifth of the index, so it constitutes a broad-based measure of energy, food, metals and forest products.
Not surprisingly, the monthly index peaked at 308.76 in June and fell to 206.78 in October, a one-third decline. However, the October figure almost exactly equals the most recent annualÂ index of 208.75. So, Canadaâ€™s resource sector has been dragged all the way back to the darks days of . . . 2007!
Of course, in 2007, resource companies were investing on the expectation of even higher commodity prices down the road. Now, they are fearful of future price decreases. However, it is worth putting recent price swings in perspective.