VANCOUVER (miningweekly.com) – The Scotiabank Commodity Price Index gained 2.2% month-on-month in February as industrial commodities continue to benefit from healthy demand on the back of a stronger global economic outlook, while supply-side idiosyncrasies continue to provide opportunity for differentiation, the banking group said Wednesday.

The oil market recovery remains on track but fragile, as headlines about the Organisation of the Petroleum Exporting Countries (Opec) will continue to drive near-term market sentiment, especially ahead of the May 25 meeting to decide whether to maintain production cuts for another six months.

"We're now in the third month of Opec production cuts and compliance within the Opec-11 has been surprisingly strong. We believe that the combination of high Organisation for Economic Co-operation and Development inventories, still-weak upstream investment outside the US and recent oil price weakness will prompt Opec to extend their production cap through the end of the year,” stated Scotiabank commodity economist Rory Johnston.

Prices for North American benchmark West Texas Intermediate have been downgraded and are now forecast to average $53/bl in 2017 and $56/bl in 2018.

Scotiabank outlined four key trends that will shape the oil market for the remainder of 2017 as being Opec output discipline; the pace of the US shale response; non-Opec production declines outside the continental US and; the strength of consistently-underestimated global demand growth.

Non-Opec countries outside the US and Canada remain a larger but slower-moving factor in future supply. However, recent strength in Brazilian output has offset broader weakness in the rest of this ‘other’ category, Johnston explained. This production group will be essential to meet future supply needs and is nearly equal to Opec in size.

The latest Commodity Price Index report also found that US shale continues strong rebound after the market was flooded by supply and prices plunged in 2014, as US crude output is on track to reach growth of one-million barrels a day, year-over-year by December.

Scotiabank also upgraded its copper price forecasts to $2.50/lb in 2017 and $2.65/lb in 2018, as a combination of production loss, continued supply uncertainty and potential for stronger Chinese demand are all near-term bullish for prices.

The Canadian bank also expects aluminium prices to average $0.85/lb in 2017 and 2018 as Chinese "blue sky" policies could remove substantial amounts of supply off the market, flipping balances to moderate deficit in 2017.

Further, zinc continues to show the strongest fundamentals, with prices forecast to average $1.35/lb in 2017 and $1.55/lb in 2018.

Nickel supply also received a potential shock as Philippines President Rodrigo Duterte raised the possibility of banning all domestic mining activity. Prices are now forecast to average $5/lb in 2017 and $5.50/lb in 2018.

Meanwhile, gold prices are likely to average $1 200/oz in 2017 and $1 250/oz in 2018, given a mix of mildly bearish interest rate fundamentals and a balanced risk outlook, Scotiabank said.