Scotiabank's Commodity Price Index fell 0.8% m/m as weakness in the oil & gas sub index overwhelmed minor gains in other core commodities. The oil market remains oversupplied by roughly one million bpd, global inventories remain at record levels, and producers appear to be slowly adapting to the new low-price reality through a combination of cost reductions and rising technical efficiencies.

OPEC (Organization of Oil Exports Countries) agreement announced on September 28^th

"Benchmark Brent crude prices bounced more than 6% intraday following reports of the deal, though the details will entirely determine the efficacy of any collective cut," said Rory Johnston, Commodity Economist at Scotiabank. "All else equal, this is a bullish development for the oil market. Perceptions of OPEC cohesion took a hit after similar talks in April failed and simply getting members to sign onto an in-principle agreement -- the cartel's first since 2008 -- should be viewed as an achievement.

"We're talking about the possibility of relatively small cuts with the potential that further additions from 'exempted' members overwhelm reductions made elsewhere in the cartel. That said, any reduction of OPEC's expected production path puts upward pressure on our current WTI price forecast, which at $45/$55/bbl in 2016/17 was beginning to feel a bit high given the mild deterioration of market fundamentals prior to the OPEC announcement. Any near-term upward price adjustment will also bolster the fortunes of non-OPEC producers and the U.S. shale patch may return to positive growth next year."

Canada's first LNG (Liquefied Natural Gas) project approved

Canadian natural gas producers would benefit from new avenues of market access after losing out to new domestic tight gas drilling in traditional markets south of the border. However, global LNG markets are likely to remain in a state of oversupply for at least the next half-decade as a wave of new supply comes online at the same time that demand projections are being revised downward.

Other highlights from the report include:

• Chinese canola import restrictions have been pushed back for the time being.
• The Metals & Minerals index gained 1.3% m/m in August on the back of continued zinc and nickel strength.
• Nickel prices are likely to at least temporarily hold recent gains given announcements of further mine suspensions in the Philippines.
• Zinc prices continue to show fundamental strength, though the pace of the rally appears to have temporarily slowed.

Read the full Scotiabank Commodity Price Index online at: http://www.scotiabank.com/ca/en/0,,3112,00.html.

Scotiabank provides clients with in-depth research into the factors shaping the outlook for Canada and the global economy, including macroeconomic developments, currency and capital market trends, commodity and industry performance, as well as monetary, fiscal and public policy issues.

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