Commodity Trends

Fears Return over Europe's Energy Supply

December 17, 2024

Jimmy Jean, Vice-President, Chief Economist and Strategist
Marc-Antoine Dumont, Senior Economist • Florence Jean-Jacobs, Principal Economist

Highlights

There’s fresh uncertainty surrounding Europe’s energy supply after Ukraine announced it wouldn’t renew the agreement allowing Russia to send natural gas to Europe through Ukrainian pipelines. But the end of the agreement in December, if it happens External link., wouldn't be as disruptive as the outbreak of the war in Ukraine in 2022. That’s because Europe is now getting just 13% of its natural gas from Russia, down from 50% in 2021. Slovakia, Hungary and other countries that still rely on Russian gas could find themselves in a tougher spot, however. And this isn’t the only energy challenge facing Europe, as unseasonably cold temperatures prompted an early drawdown of natural gas inventories in November and an increase in natural gas and electricity prices. We'll be keeping a close eye on the situation, though Europe has largely secured its energy supply for the winter.
Abundant supply and weak demand continue to weigh on oil prices. After hitting nearly US$85 per barrel in July, West Texas Intermediate (WTI) was trading below US$70 at the time of writing. OPEC+ has again postponed its planned increase in production, this time from December to April. But this won’t prevent another market glut. As we discussed in a recent Economic Viewpoint External link., the severe mismatch between supply and demand we expect in 2025 raises the risk of an oil price correction. Because prices are so low, Donald Trump's return to the White House shouldn't trigger a spike in US crude production. We expect WTI to average US$70 per barrel in 2025.
Gold continues to rise, trading at US$2,690 per ounce at the time of writing. And while the price of gold may weaken slightly in the immediate term, we’ve upgraded our 2025 average forecast to US$2,725 per ounce. This bullish call is based on three main considerations. First, lower interest rates and price speculation will continue to drive investor demand. Second, central banks will continue to buy up gold. And third, geopolitical uncertainty along with worries over the greenback, new tariffs and the US federal deficit will send many investors flocking to this safe haven. Meanwhile base metal prices are expected to edge up in 2025 as interest rates come down and European industrial production gradually recovers. But there are a number of risks to this forecast, including protectionist measures by the new Trump administration, China's fragile economy and fears over Europe’s energy supply.
Unlike what we usually see in the fall when North American residential construction activity drops off, lumber prices jumped nearly 10% between late October and late November. Prices softened a bit this month but have been trending higher since late June. Lumber mill production is down, and repairs following hurricanes Helene and Milton may have also supported prices this fall. We expect renewed demand to boost lumber prices next spring or thereabouts. In the meantime, we could see price support from the fast-tracking of exports ahead of possible Trump tariffs. Pulp and paper prices remain stable (graph 5).
Agricultural commodities on the Chicago Mercantile Exchange hit a recent low in August and haven’t really bounced back (graph 6). December’s USDA report External link.dismissed fears of a further price slide, however. Soybean and corn yields will hinge on weather conditions in Brazil and Argentina. Barring any surprises, upside and downside risks are about balanced for corn, soybeans and wheat. A weak loonie is good for Canadian grain exporters, though the threat of US tariffs next year looms large. And in response to Canada’s 100% tariff on Chinese electric vehicles, China has threatened retaliatory duties on Canadian canola External link. and opened an anti-dumping investigation.
On top of these risks, there's ongoing uncertainty surrounding Canada’s supply chain efficiency given the string of labour disruptions this year, most recently at the Port of Montreal.

Scenario Adjustments

Energy: Oil prices revised downward.
Base metals: Copper price revised upward for 2025.
Precious metals: Prices revised upward.

Main Commodities

Commodity Prices

Contact our economists

By phone

Montreal area:
514-281-2336 This link will launch your default phone software.

Elsewhere in Canada:
1-866-866-7000 This link will launch your default phone software.

Online

Write us

NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively.

IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. Data on prices and margins is provided for information purposes and may be modified at any time based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. Unless otherwise indicated, the opinions and forecasts contained herein are those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group.