Oil Pains Are Here to Stay

The Democratic nominee will be Sen. Obama. Sen. Clinton needed to go 2-for-2 yesterday to have any hope. Also, Clinton's campaign is seriously short of money, and the question among party insiders will be the timing of her withdrawal. She won't withdraw, but she should do so for party unity, and to allow the campaign against Sen. McCain to begin. Resentment toward the Clintons will grow, and that makes McCain a "winner" last night.

Goldman Sachs predicted we will see $150-$200 oil within the next two years. $150 oil would translate to $4.50 gas, if not more. Readers know I have been a long-term bull on the price of oil, and I remain so. I had been hoping that the end of interest rate cuts by the Fed and the potential of cuts by the European Central Bank would rally the dollar, and I continue to think that will be the case. A stronger dollar, I thought, would allow commodity prices to correct, as most are priced in dollars. I continue to think that will happen, with the possible exception of oil. The supply-demand situation is such that oil seems likely to decouple from other commodities and the dollar.

There was an article in The Wall Street Journal regarding Ghawar, the giant Saudi oil field, and whether it's in decline. If you have to argue about it, it's in decline. The field accounts for more than 50% of Saudi production. The Saudis are employing three times the number of drilling rigs now compared to just a few years ago, and production is not increasing. Non-OPEC production continues to disappoint, and my guess that oil could correct to below $100 seems to be but a wistful dream.

There are reports that Indonesia, a longtime OPEC member, will drop out of the organization as early next year, as they will soon be a net importer of oil. Production from aging wells is in decline, and investment has lagged. The environment in Indonesia is not likely to attract investment capital anytime soon.

There are some things we could all do to ease the pain. I hesitate to say this, but I got these ideas from the worst-named magazine in America: Modern Maturity. It's the mouthpiece for the AARP, formerly the American Association of Retired Persons. I am not retired (obviously), will never retire (Charlie and Jamey are not happy about that), and vow to never show the slightest hint of maturity. I will plagiarize from anywhere, though. So, 73% of us that drive to work do so alone. Carpooling is inconvenient but economical. If we accelerated slowly -- and I don't know exactly how slowly -- we would save $250 a year at today's gas prices. Worth considering.

The Week magazine reports that a Japanese high school baseball team walked off the field when they fell behind by 66 runs in the second inning. It's probably amazing they got three outs to exit the first, and they clearly weren't coached by Sen. Clinton. She'll never quit.

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Vincent Farrell Jr. is a principal of Scotsman Capital Management. Prior to joining Scotsman in April 2005, Farrell was chairman of Victory Capital Management of Cleveland and chairman of Victory SBSF Capital Management in New York. He was a founding partner of Spears Benzak Salomon & Farrell, which was acquired by KeyCorp in 1995. Vince held a variety of positions in his 23 years at SBSF, including chief investment officer, and he served as the portfolio manager on a number of the firm's largest client relationships. He is a regular guest on CNBC as well as other national print and broadcast media.

Prior to joining SBSF, Vince spent nine years at Smith Barney as a vice president, sales.

Vince graduated from Princeton University in 1969 and received his MBA from the Iona College Graduate School of Business in 1972.