By Paul Vieira

OTTAWA -- Canada recorded a second consecutive monthly trade surplus in December, as higher crude-oil prices offset across-the-board weakness in other export categories and a rebound in imports.

Nonenergy exports declined in December by the most in nine months, and energy emerged as Canada's top export for the first time since June, 2015, overtaking the auto sector.

The underlying results -- which also suggested a drop in export volumes -- are likely to lend credence to Bank of Canada concerns about the ability of Canadian exporters to compete given the Canadian dollar remains elevated versus non-U.S. currencies. Bank of Canada Gov. Stephen Poloz said last week this posed an "important headwind" to Canadian economic growth, as Canadian producers find themselves at a disadvantage versus other trading nations such as Mexico.

Canada posted a merchandise trade surplus with the rest of the world of 923 million Canadian dollars ($705 million), Statistics Canada said Tuesday. That is significantly higher than market expectations for a C$200 million trade surplus, according to Royal Bank of Canada.

November's data were also revised to showed a wider trade surplus in the month of C$1.01 billion versus the earlier estimate of C$526 million. Exports rose more than estimated while imports declined in the month.

In December, exports rose 0.8% on a nominal, or dollar, basis to a record C$46.44 billion, despite declines recorded by seven of the 11 components tracked by the data agency. Imports climbed at a faster 1% pace to C$45.52 billion.

On a volume basis, however, exports in December fell 1.4%, on lower sales of metalores and motor vehicles and parts. Import volumes increased 0.4%.

"This is about an illusory trade report as headlines get," said Derek Holt, head of capital-markets economics at Bank of Nova Scotia, citing how energy-price gains are largely responsible for the bigger-than-anticipated trade surplus. "The Bank of Canada would see little reason to be encouraged by this report and would probably view it as a return to the serial disappointments of the past."

The data agency said exports of energy products surged 15.9% to C$8.52 billion, or the highest level since November 2014, which saw the early stages of the commodity-price swoon. Sales abroad of crude oil and crude bitumen were the main contributors to the advance due to higher prices. The U.S. benchmark price for crude oil traded in December between the $51 and $55 range, compared with the mid- to high-$40 range in the previous month.

Overall, Statistics Canada said, energy prices rose 16.5% while energy-export volumes fell 0.6%.

Excluding energy products, Canadian exports fell 2.1%. Market watchers are eyeing nonenergy sales abroad to get a better sense on the performance of the underlying Canadian economy.

Prior to the report, analysts said a solid 0.4% advance in Canadian output in November provided evidence the economy was beginning to shake off some setbacks from earlier this year, and a likelihood fourth-quarter expansion could beat the Bank of Canada's expectation of 1.5% annualized growth.

But skittishness over U.S. trade policy under President Donald Trump -- who has called the North American Free-Trade Agreement a "catastrophe" -- will lead to a rise in economic uncertainty, Mr. Poloz told an audience in Edmonton, Alberta last week. That, in turn, could prompt firms to revisit investment plans, he added.

"Canada has the cloud of protectionism hanging over it," TD Bank economist Leslie Preston said.

On a regional basis, exports to the U.S., which buys roughly three-quarters of Canadian-made goods sold abroad, edged upward 0.2%, while imports from U.S. climbed 1.3%. In December, Canada ran a trade surplus in merchandise goods with the U.S. of C$4.42 billion. Mr. Trump has made erasing U.S. trade deficits a focus of his strategy to reboot the American economy, although most analysts point out U.S.-Canada trade is largely in balance once services are incorporated.

Write to Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

February 07, 2017 09:41 ET (14:41 GMT)

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