Scotiabank’s Commodity Price Index, which measures price trends in Canada’s major exports, rose by a solid 1.8% in September and posted the first year-over-year gain since May 2001.

A surge in the Oil and Gas Index — with stronger prices for light crude oil, natural gas and propane — another jump in the Agricultural Index and a slight gain in metals and minerals more than offset a further decline in the Forest Products Index. The All Items Index has climbed 4.2% above a year ago.

“The gain in industrial and agricultural commodity prices in September has been achieved in the face of strong headwinds — notably, the loss of U.S. economic momentum in the late summer and early fall and a softening of economic conditions in Continental Europe — especially Germany,” says Patricia Mohr, VP and commodities specialist at Scotia Economics.

“The geopolitical risk premium in oil prices, related to a possible U.S.-led military strike in Iraq, expanded in September and natural gas prices have been buoyed by strong competing petroleum product prices and hurricane-related production outages in the Gulf of Mexico. In addition, wheat prices have soared by 62% from the low in May 2002 through October, with further drought-related downgrades to North American crop estimates.”

West Texas Intermediate crude oil prices rose from US$28.20 per barrel in August to US$29.67 in September — well over US$25.93 in September 2001. Prices climbed over US$30 in late September and reached as high as US$30.83 on October 1st as concerns grew over a potential U.S. military strike against Iraq. However, prices have eased back to US$27 in late October as diplomatic negotiations to resolve the issue have taken precedence.

“The United States formally introduced a draft resolution to the U.N. Security Council on October 25th, outlining the terms for Iraqi compliance with U.N. weapons inspections. The timetable in the proposed resolution suggests that any military action might take place later than previously anticipated,” says Mohr.