This week saw Warren Buffet place a multi-billion dollar bet on “higher for longer energy prices” which agrees with our thesis that the energy transition will take longer than many people comprehend. Apart from taking control of an LNG plant in Maryland, he’s also increased his stake in Occidental Petroleum (OXY US) to 25%, a classic contrarian play considering were supposed to be heading into a recession and crude oil has already tumbled 50% from its panic highs of 2022 – note this is the primary oil position Buffett owns as he follows what he preaches i.e. concentrated investments and then watch positions very carefully.
This move by Berkshire Hathaway to increase its exposure to fossil fuels wouldn’t make sense to many ESG players but we simply believe it’s a logical move against stretched optimism toward the current energy transition – we all support a greener world but the path as with most new industries is likely to be rocky at times. Similar to our view on commodities such as copper and uranium he’s focusing on longer-term supply issues for both LNG & Crude oil due to a lack of new investment as everybody focuses on energy transition, a good read-through for local names Santos (STO) and Woodside Energy (WDS) assuming both he & MM are correct.
- We have been looking for crude oil to form a low for many weeks, it may already be in!
Moving onto whether we believe MM should consider following Warren Buffett’s lead into OXY, not always our mantra but certainly worth considering. At this stage we hold no oil exposure in our International Portfolio having sold EXXON Mobil Corp (XOM US) in February about 5% higher than its overnight close. Berkshire Hathaway purchased OXY around $US57 suggesting the proverbial horse hasn’t bolted and in this case we like OXY around the $US60 area believing its Est. 13.3x valuation for FY23 isn’t overly challenging, especially if oil rallies from current levels.
- We are considering adding some energy exposure to this portfolio with Occidental Petroleum (OXY US) one that’s on the menu – watch our Hit List.
