I have been a long-term bull on the price of oil. At Scotsman, we have been overweight the energy stocks for some time. I still think we are going to see higher prices for years to come. Growing "economic nationalism" argues in favor of that.
Another sign of this nationalistic surge is the recent action of Russia toward BP (BP - commentary - Cramer's Take), the new name for British Petroleum. BP has a 50/50 joint venture with TNK in Russia. TNK is controlled by three Russian oligarchs, and Putin, and it is Putin, is in the process of mugging the joint venture. Visas for key people are impossible to get, a tax inquiry has been launched, an audit of some producing fields is underway, and a couple of employees have been arrested for industrial espionage. BP gets 25% of its production from this venture. We don't own BP, and are not inclined to buy it until this sorts itself out.
Having given one argument for tighter control of oil production to maximize price for one's own country, I do think the price of crude is due for a pullback. Oil was about $60 this time last year, it averaged $72 for all of 2007, and it is now bouncing between $106-$110. I don't accept that a recession is inevitable, but we will have a doozy of a slowdown at the minimum. Except for geopolitical headlines, I think oil will trade down over the next few months.
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.
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