Scotiabank Commodity Price Index

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1 Rory Johnston May 7, 1 Disruptions and Sentiment Drive Crude Higher While Metals Take a Breather Oil prices received support from a host of unplanned supply outages, which rose to an estimated 3.3 Mbpd in May as wildfires around Fort McMurray and attacks on Nigerian infrastructure took their toll. Metals eased from recent highs after spikes in the price of iron ore proved short-lived. s advanced by.5% m/m in April as energy gains more than offset metals weakness (Chart 1). Crude oil continues to test fresh highs, breaching intraday levels of $5/bbl in recent sessions. Meanwhile, the broader metals group gave back some of the gains achieved alongside steep run-ups in iron ore prices on Chinese exchanges. A respectable showing among grains and oilseed rounded out a good month for the prices of major Canadian export commodities. Oil & Gas The Oil & Gas index rallied 13.7% m/m in April, with crude continuing its steady climb toward $5/bbl. The oil market oversupply narrative is yielding to bullish sentiment amidst a spate of unplanned supply disruptions, the origins of which range from the wildfires around Fort McMurray to militant attacks on Nigerian energy infrastructure (see Disruptive Thinking below). These outages have served to hasten, at least temporarily, the anticipated supply/demand rebalancing and prices have responded accordingly, with West Texas Intermediate (WTI) crude taking a few runs at $5/bbl over the past week. The latest weekly inventory figures from the Energy Information Administration further stoked WTI s upward trajectory, but the. Mbbl crude draw should be considered in the context of a seasonal trend to draw crude in May (see chart) as well as a surprising 1. Mbbl build the prior week. Despite some of these recent bullish data points, we do not expect the market to enter a sustainable deficit until mid-17 and see WTI averaging $/bbl in 1, though uncertain restart timelines coupled with the potential for further sudden supply losses have tipped price risks to the upside. Million Barrels The political landscape within OPEC continues to evolve and earlier this month it was announced that long-serving Saudi Oil Minister Ali al-naimi would be replaced by Aramco Chairman Khalid al-falih, who now heads the broader Ministry of Energy, Industry, and Mineral Resources. Al-Falih is known to be close with Deputy Crown Price Mohammed bin Salman a key supporter of the market forces strategy pursued by the Kingdom since the beginning of the oil rout in late 1-5-Yr Range - 5-Yr Av Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: EIA, Economics Chart 1: Oil Higher, Metals Slip Index Jan 1, 1 = 1 7 Jan-1 Feb-1 Mar-1 Apr-1 May-1 Note: WTI Oil, LME Copper/Zinc, Iron Ore (% Fe delivered to Qingdao). Source: Bloomberg, Economics. Chart : Weekly US Commercial Crude Build/(Draw) Trend ** All prices are listed in US dollars as of the end of May, 1. Iron Copper Oil Zinc Economics Scotia Plaza King Street West, 3rd Floor Toronto, Ontario Canada M5H 1H1 Tel: Fax: scotia.economics@scotiabank.com This report has been prepared by Economics as a resource for the clients of. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither nor its affiliates accepts any liability whatsoever for any loss arising from any use of this report or its contents. TM Trademark of The Bank of Nova Scotia. Used under license, where applicable. is available on scotiabank.com, Bloomberg at SCOT and Reuters at SM1C

2 indicating a likely continuation of current policy. Across the Gulf, Iranian production has increased to pre-sanction levels, faster than expected and implying that fields were not as damaged as many feared following years of sanctions-related underutilization (Chart 3). Producers in the US, however, saw crude output decline to.77 Mbpd, a loss of more than.9 Mbpd since the April 15 high. Closer to home, the Canada s National Energy Board tentatively approved (with 157 conditions) the 59 kbpd Trans Mountain pipeline expansion that would help alleviate long-running transportation infrastructure deficit concerns, pending the outcome of two further reviews (one provincial, one federal). May 7, 1 Chart 3: Iranian Production Reaches Pre-Sanction Levels Faster than Many Anticipated UN Sanctions Lifted While crude is rising amidst a flurry of recent bullish news, the price of Canadian natural gas is languishing. High inventory levels following a very mild winter (Chart ) have some concerned that storage may fill up before we re through the shoulder season, though we believe the risk of this is low. At over 55 billion cubic feet, current inventory levels are more than 7% higher than the five-year average for this time of year. Regional demand took another hit when the Albertan wildfires forced the temporary suspension of oil sands production, a major consumer of local gas. These shorter-term influences are exacerbating longer-term difficulties related to increased competition from US tight gas producers. On a positive note, Environment Canada is anticipating a hotter-than-usual Canadian summer, which should provide some support as those looking to beat the heat ratchet up their A/C units. Disruptive Thinking Considering the Barrels Lost Unplanned supply outages are estimated to have averaged 3.3 Mbpd in May and have provided near-term support to the market. Record crude inventory levels and the transience of these disruptions are blunting any material spike in prices, but sentiment has certainly shifted over the past two months and the price of WTI has rallied almost 5% since the beginning of April. While these disruptions are nothing new unplanned outages have averaged.75 Mbpd since the oil price rout began, according to the EIA (Chart 5) their magnitude and abruptness deserves some attention. Some of these disruptions can be chalked up to bad luck. For instance, wildfires are a fairly common occurrence in Alberta; the disruptive impact of this latest blaze was due to its unfortunate proximity to Fort McMurray and the heart of the Canadian oil industry, temporarily shuttering more than a million barrels per day of Canadian crude production. A variety of industrial accidents, like when a drilling platform inadvertently damaged a pipeline in Nigeria, have further impacted global supply. However, some of these disruptions, such as the militant attacks in Nigeria, are not entirely unrelated to the slower, Mbpd Mbpd. '9 '1 '11 ' '13 '1 '15 '1 Source: Energy Intelligence, Economics Chart : Mild Winter Bad for Natural Gas Demand Warmer Winter Colder Winter - Heating degree day deviation -1 from 5-Year average '9 '1 '11 ' '13 '1 '15 '1 Source: NOAA, Economics Source: EIA, WSJ, Energy Aspects, Economics. Very Mild Winter Chart 5: Large Unplanned Outages In May, But Disruptions Are Nothing New.5 Non-OPEC ex Can Iran Libya Nigeria Other OPEC Iraq Canada Preliminary May Estimates

3 May 7, 1 more organic contractions witnessed in the US shale patch both are impacted by the price of crude. Constraining the flow of capital to relatively short-cycle US shale producers has a deterministic effect: fewer dollars means fewer operating rigs, which leads to a plateau and eventual production decline. However, the effect of low crude prices on developing, oil-dependent nations is more probabilistic: all else equal, fiscal belt-tightening and program spending reductions will exacerbate any underlying civic discontent, increasing the likelihood of domestic supply disruptions. The fact that many of these governments took out loans backed by oil production is making a bad situation worse, as more and more production needs to be diverted to debtservice now that the value of crude has fallen. Recent disruptions are not, in our view, a sign of an imminent rebalancing of supply and demand but they do illustrate that the road to balance will be bumpy, as gradual reductions in non- OPEC supply are punctuated by any number of sudden, temporary losses. Metals & Minerals April 1 The Metals & Minerals index contracted by.3% m/m in April as some of the speculative fervor on Chinese commodity exchanges, detailed in last month s report, began to dissipate. Iron ore (% Fe delivered to Qingdao), the primary driver of the recent bull run in metals, has eased significantly from its late-april peak, shedding more than $/t (almost 3%) by late-may. The base metal complex has followed suit, with all major metals losing ground relative to late-april/ early-may highs. Copper will likely experience continued headwinds through the summer on the back of weaker demand prospects and a sluggish supply response. More than 75 kt of annualized supply was idled in 15 in response to low prices, according to Wood Mackenzie, but producers are looking far more resilient in 1 and curtailments this year are unlikely to exceed 15 kt. Import demand in China slipped in April from March after frenzied buying bid up copper prices but also pushed up inventory levels on the Shanghai Futures Exchange (Chart ). Growth Trends (per cent change) (Compound Annual Growth Rates) Weights One One Three One Five Month Month Months Year Years All Industrials Oil & Gas Metal & Minerals Forest Products Agriculture Index: January 7 = Apr Mar Feb Jan Apr All Industrials Oil & Gas Metal & Minerals Forest Products Agriculture Re-designed Index: Net export weights in 1, data re-estimated back through 7, January 7=1. As of March, 15, the London Gold Fix, was replaced by the LBMA Gold Price. The Bank of Nova Scotia - Scotia Mocatta is one of seven initial participants in the LBMA Gold Price auction. Chart : SHFE Inventory Buying Bid Up Copper Price While zinc also lost ground over the past month, it continues to display the strongest fundamentals within the base metals group and prices remain % higher than mid-january levels at $13/t ($.5/lb). An ongoing concentrates supply deficit has eaten into refined metal inventories, which are down % since late February on the LME (an almost seven-year low) and 9% since early April on the Shanghai Futures Exchange. In the face of mine depletion and production cuts, prices are expected to grind upward until idled mine capacity can be enticed back onto the market $'/t LME Copper Price, LHS LME Copper Inventory, RHS. '15 '1 Source: Bloomberg, SHFE, Economics kt

4 Forest Products & Agriculture The Forest Products Index ticked up by 1.5% m/m as a strengthening US housing market bolsters the demand outlook for Canadian timber. The Agricultural Index rose by.% m/m on the back of strong price gains in canola (+% m/m), barley (+5%), and wheat (+.5%). Recent stock figures from Statistics Canada showed that canola and wheat inventories at the end of March were low relative to the same period last year, down 1% and %, respectively (Chart 7) May 7, 1 Chart 7: Canola & Wheat Stocks (Period ending March 31st) Million Tonnes Canola Wheat 5 '7 ' '9 '1 '11 ' '13 '1 '15 '1 Source: Statistics Canada, Economics. Industrial Commodity Price Outlook OIL & GAS F 17F May Avg F West Texas Intermediate (U.S. dollars per barrel) Crude Oil (U.S. dollars per barrel) Brent Blend Spot Natural Gas, (Cdn dollars per mcf) Average Alberta Plantgate (Mar) (U.S. dollars per mmbtu) Nymex Natural Gas M ETALS (U.S. dollars per pound) Uranium Zinc Aluminium Nickel Copper (U.S. dollars per ounce) Gold ,1 1, 1,1 1, 1,19 1,5 FOREST PRODUCTS Lumber, Western (U.S. dollars per mfbm) Spruce-Pine-Fir s (U.S. dollars per thousand sq. ft.) Oriented Strandboard (OSB) (U.S. dollars per tonne) Newsprint (Apr) Pulp, Northern Bleached Softwood Kraft , (Apr) Supercalendered A Paper (U.S. dollars per ton) (35 lb. offset) (Apr) Linerboard, lb (Apr) 1 LME Base metals *March, 1 London PM Fix and LBMA PM prices 3 U.S. Northcentral region Delivered to the Eastern U.S. +FOB mill price including export tax for shipments to the United States.

5 May 7, 1 1 All 1 Growth Trends (per cent, annual rate) Last Year -13. Last 5 Years -.9 Index: Jan. 7= All Items All Items All Items Inflation Adjusted All Items Inflation adjusted A trade-w eighted U.S. dollar-based index of principal Canadian exports.. Index deflated by U.S. Producer Price Index for Intermediate Goods. Shaded areas represent U.S. recession periods U.S. CPI* * Year-over-year per cent change Canadian Dollar vs. Commodity Prices Index: Jan. 7=1 US cents Canadian Dollar * 1 All 9 5 * May, 1: 7.75 U.S. cents. Western-Spruce-Pine-Fir Prices US$/mfbm Canadian Dollar Shaded areas represent U.S. recession periods. 5 Oct Nov Dec Jan Feb Mar Apr May 5

6 May 7, Industrial 1 Growth Trends (per cent, annual rate) Last Year Last 5 Years Index: Jan. 7= Industrial Index A trade-w eighted U.S. dollar-based index of principal Canadian exports; index includes oil & gas, metals and minerals, and forest products. Shaded areas represent U.S. recession periods. 1 Growth Trends (per cent, annual rate) Last Year Last 5 Years Oil and Gas Price Index Index: Jan. 7=1 1 1 Oil and Gas Index Shaded areas represent U.S. recession periods.

7 May 7, 1 Western Canadian Oil Prices 1 1 U.S. dollars per bbl Crude Oil Prices U.S. dollars per barrel WTI Oil 1 Light Sweet Oil Prices at Edmonton WCS Heavy Oil at Hardisty WCS Heavy Oil at Hardisty 15 1 * Light Sweet Oil Prices at Edmonton * WCS May 1: US$3.37 to date. TMX/Shorcan Energy Brokers: WCS differentials to WTI Oil futures Shaded areas represent U.S. recession periods. * Edmonton Par light oil price estimate for March 11: US$xx.xx. 1 U.S. dollars per mcf Natural Gas Export Prices 1 Natural Gas Prices U.S. dollars per mcf NYMEX** 1 NEB Average Export* 15 1 * Average short and long-term contract price; estimate for latest month; U.S. dollars per mcf. ** Monthly average of daily NYMEX nearby futures prices

8 May 7, Metal and Mineral Price Index Growth Trends (per cent, annual rate) Last Year Last 5 Years Index: Jan. 7= Metal and Mineral Index U.S. dollars per tonne Iron Ore Prices % Fe, cfr Qingdao, China. Shaded areas represent U.S. recession periods U.S. cents per lb. Selected Industrial Metal Prices Aluminium 1 Copper 1 Zinc LME cash copper and aluminium.. U.S. producers' price zinc to August 199; LME price thereafter. Shaded areas represent U.S. recession periods Aluminium Prices Zinc Prices 15 Copper Prices

9 May 7, U.S. dollars per lb. Nickel Prices Nickel Prices Cobalt Prices U.S. dollars per lb LME cash settlement price since 19. Shaded areas represent U.S. recession periods., 1, per ounce Gold Prices (U.S. Dollar), 1, 1, 1, Gold Prices (U.S. Dollar) 1, 1, 1, 1, 1, 1, 1, 1, 15 1 * May, 1: 1,3.5 U.S. dollars. * 1, 1, Price on May, 1: 1,3.5 U.S. dollars. Silver Prices U.S. dollars per ounce * * May, 1: 1. U.S. dollars. 9

10 May 7, 1 Forest Product Price Index 1 Growth Trends (per cent, annual rate) Last Year Last 5 Years Index: Jan. 7= Forest Product Index Supercalendered Paper U.S. dollars per ton Shaded areas represent U.S. recession periods U.S. dollars per thousand sq. ft. OSB Prices Selected Forest Product Prices 1,1 1, 9 U.S. dollars per tonne Pulp 1 U.S. dollars per mfbm 1,1 1, Pulp Prices Newsprint 1 Lumber New sprint and pulp delivered to U.S.A.. Western S.P.F. x lumber. Shaded areas represent U.S. recession periods Newsprint Prices Lumber Prices

11 May 7, 1 Agricultural Price Index Growth Trends (per cent, annual rate) Last Year Last 5 Years Index: Jan. 7= Agricultural Index U.S. dollars per tonne Canola Prices Shaded areas represent U.S. recession periods Wheat Prices Selected Agricultural Prices 7 U.S. dollars per tonne 5 Wheat Hog Prices U.S. dollars per cwt Hogs Cattle Dark Northern Spring, No. 1 1% at Duluth, Minnesota; before April 11 Canadian Wheat Board asking export price #1 CWRS.. Cash cattle and hogs at Toronto; from January 1993 average of Ontario markets Cattle Prices

12 Technical Note Principal Canadian Exports January 7 = 1 May 7, 1 This Index has been designed to track the spot or transactions prices paid in U.S. dollars for key Canadian commodities and resource-based manufactured goods in export markets. The weight of each component is based upon its net export value in 1. Prior to January 7, the weight of each component was based on its export value in , except for crude oil & refined petroleum products, uncoated freesheet paper and linerboard, where net exports were used. Canada imports a significant quantity of these products, and use of their export value alone would have overstated the importance in Canada s trade performance. The following prices are included: OIL & GAS Crude Oil & Refined Petroleum Products (US$ per bbl) MSW light sweet crude oil at Edmonton (previously Edmonton Par crude) and Western Canadian Select heavy oil at Hardisty, Alberta; price differentials off WTI near-by futures from TMX/Shorcan Energy Brokers. Natural Gas (US$ per mcf) Average export price quoted by the National Energy Board. Natural Gas Liquids (NGLs Propane, Butane, Ethane & Pentanes- Plus) (US$ per bbl), Propane at Edmonton & Sarnia. METALS & MINERALS Copper & Products (US$ per lb) LME official cash settlement price for grade A copper. Zinc (US$ per lb) LME SHG cash settlement: prior to Sept 199, U.S. producers price for high-grade zinc delivered. Lead (US$ per lb) LME official cash settlement price; prior to Jan. 1991, U.S. producers price for common grade delivered. Aluminium & Products (US$ per lb) since 1979, LME official cash settlement price. Nickel (US$ per lb) since 19, LME official cash settlement price. Gold (US$ per oz) LBMA Gold Price PM as of March, 15. Potash (US$ per tonne) Standard potassium chloride, spot price, FOB Vancouver. Sulphur (US$ per tonne) Solid, spot price, FOB Vancouver. Metallurgical Coal (US$ per tonne) Contract price for premium-grade hard coking coal, FOB Vancouver. Iron Ore (US cents per dmtu) Spot price fines % Fe, CFR Qingdao, China; prior to Jan 11, term-contract price for concentrates % Fe from Labrador/ Quebec to Northern Europe (FOB Sept-Iles). Uranium (US$ per lb) Spot price for U3O. Molybdenum (US$ per lb) since March 199, MW dealer oxide. Cobalt (US$ per lb) MW dealer price. FOREST PRODUCTS Lumber & Wood Products, Western Spruce-Pine-Fir x No. & Btr (US$ per mfbm) FOB mill. Oriented Strandboard (US$ per thousand sq. ft.), U.S. North Central region, 7/1 inch. Pulp, Bleached Northern Softwood Kraft (US$ per tonne) Transactions price, delivery USA. Newsprint (US$ per tonne) Average transactions price,. gsm, delivery Eastern USA. Groundwood Specialty Papers (US$ per ton) Supercalendered-A paper, 35 lb., delivery USA. Linerboard (US$ per ton), delivery Eastern USA with zone discounts. AGRICULTURE Wheat & Flour (US$ per tonne), DNS No 1 1% protein Duluth, Minn; prior to April 11 No.1 CWRS, 13.5% protein at St. Lawrence. Barley (US$ per tonne), since Dec.199, No.1 at Lethbridge, Alberta. Canola & Oilseeds (US$ per tonne) No.1 Canada, in store Vancouver. Cattle & Beef (US$ per cwt) Steers over 1,51 pounds at Toronto; from Jan 1993, Ontario average. Hogs & Pork (US$ per cwt) 1 Index Hogs at Toronto; from Jan 1993, Ontario average. Fish & Seafood (US$ per lb) West Coast silver coho salmon; Atlantic lobster prices; prior to 19 cod fillets & blocks. Index Components Components And Weights Net Export Value In 1 (millions of dollars) Index Weight (per cent) OIL & GAS INDEX, Crude Oil & Refined Products 33,31.9 Natural Gas & LNG 11, NGLs 1, METAL & MINERAL INDEX 35, Copper 3,1.71 Zinc 1,55 1. Lead Aluminium,5 5.1 Nickel, 3. Gold,7.1 Coal,757. Iron Ore 3,3.7 Potas h 5,11. Sulphur Uranium 91.7 Cobalt.5 Molybdenum.1 FOREST PRODUCTS INDEX 17,1 1. Lumber & Wood Products,73.1 OSB.7 Pulp,1 5.5 Newsprint,73.3 Groundwood Spec. Papers 1, Linerboard 7.7 AGRICULTURAL INDEX 17, Wheat & Flour,93. Barley & Feedgrains 1,.93 Canola & Oilseeds 5,39.3 Cattle & Beef 1, 1.1 Hogs & Pork,37. Fish & Seafood,7.3 TOTAL INDEX 11,3 1.