TORONTO (miningweekly.com) – The Bank of Nova Scotia’s ‘commodity price index’ rallied by 2.4% month-over-month in February, after falling in January to the lowest level since early 2007.

The third-largest Canadian bank said on Tuesday that its ‘oil and gas index’ rebounded in February, with Alberta light- and heavy-crude oil prices boosted by a temporary rally in West Texas Intermediate oil.

"The market is sceptical that the sharp drop in US oil-targeted drilling activity ( of 45.3% year-over-year as of March 27) will curb US output from the shales, which grew by a further 523 000 bbl/d during the first quarter of 2015," Scotiabank VP of economics and commodity market specialist Patricia Mohr advised.

She noted that increased rig productivity, with output from new wells up at least 20% year-on-year and faster drilling times, combined with a shift to more prolific areas and fewer vertical wells, had offset the drop in active rigs.

Mohr pointed out that despite market scepticism, the bank believed that US shale oil output was on the cusp of levelling out in the second quarter of 2015.

"However, a possible nuclear deal with Iran would complicate restoration of the oil market balance. In the absence of a nuclear deal with Iran, allowing a gradual lifting of Iranian oil exports, the global supply and demand balance for crude oil should move back into rough balance in the second half of 2015, boosting prices to $65 by year-end.

“Production gains will remain concentrated in the US and Canada, but will slow markedly. This scenario allows little room for an easing of oil sanctions and accompanying restrictions on companies doing business with Iran,” Mohr said.

Meanwhile, the bank’s ‘forest products index’ retreated by 2.1% month-over-month in February to a level 6.2% below a year earlier.

“On a more positive note, a strong pick-up in US building activity and wood products demand should be in the cards for this spring. The demand on North American sawmills will climb over 80% in 2015, a key trigger point for higher prices. Lumber prices should start to rally in April, averaging a lucrative $355 in 2015. OSB [Oriented Strand Board] prices will also perform well," the analyst added.

Other highlights from the index’s latest report included that Canada remained the top US oil supplier, accounting for 46% of US imports.

Scotiabank also found that miners in Canada and Latin America were currently benefiting from double-digit currency depreciation and low diesel costs, offsetting much of this year's weaker prices for both gold and base metals.