VANCOUVER - Watch for the baseline price of a barrel of crude oil to creep towards $90 in 2008 as major oil producing nations get a "taste" for rich returns in a tight global trading market, Scotiabank commodity analyst Patricia Mohr said Friday.

That's positive news for a major energy-producing nation such as Canada, but here in British Columbia, a continued downturn in the fortunes of the forest industry will counterbalance the positive effects, she said.

Overall, Mohr is reporting another record month in November on the commodity index she maintains for Scotiabank, led by several commodities including sulphur, wheat and potash moving through the Port of Vancouver.

Her all-commodity index jumped 4.5 per cent in November and now sits 141.4 per cent above its cyclical low in October 2001.

"People have been calling for commodity prices to hit a peak for many years now.

"It was a surprise to see a record high in November, beating the previous peak back in May of this year."

It is, she writes, "the second most powerful expansion in the post-[Second World War] era" and she expects prices for many commodities to show comparable strength in 2008.

"If you think back late last year there was an expectation that the U.S. economy would slow because of a cyclical correction in housing and also because motor vehicle sales and housing were not going to be performing very well in the first half of this year - which of course happened.

"The housing correction has probably been worse than expected but one of the surprising developments for many observers occurred in the second quarter of this year when China's GDP actually accelerated rather than slowing down - it moved up to 11.9 per cent.

"That set off another upward rally in base metal prices."

Oil hit an intraday trading record of $99.20 in New York on Nov. 21 and Mohr expects it will reach an unprecedented $100 US a barrel for at least a period of time in 2008.

Records available from the New York Mercantile Exchange (NYMEX) reflect that view - all monthly futures prices for a barrel of crude are perched above $90 US through October 2008 as of Friday's trading close on the NYMEX.

"My view is that in the first quarter of 2008 the actual supply-demand balance will remain very tight because OPEC at its Dec. 5 meeting in Abu Dhabi decided not to lift production . . . in the first quarter for a number of reasons. One is a drop in the value of the U.S. dollar, particularly vis a vis the euro which is giving them less value for their oil in other currencies.

"The second thing is that because the traders all assumed they were going to increase production they sold short or liquidated long positions and the price moved down to $88 - but I think OPEC is getting a taste for $90 crude oil."

One negative aspect of the index, for both this year and 2008, is the Canadian forest sector which is struggling as a result of a sharp decline in housing starts by its major customer, the United States. That's a situation that does not bode well for the British Columbia economy in the coming months.

"U.S. homebuilders have all turned very cautious. Because of the subprime mortgage meltdown, you've got tighter lending conditions for new homeowners, or existing homeowners - even for those who are prime borrowers," Mohr said.

"We don't think it's going to improve at all next year and in fact the average in terms of housing starts will be lower next year than this year.

"This year it is going to be about 1.35 million units. Next year we are calling for a little under 1.1 million, which is very grim."

ssimpson@png.canwest.com