For several weeks, oil prices slumped in the $70s, giving energy investors little relief. More recently, WTI crude prices rallied above $80. Markets now speculate that strong oil demand will exceed supply. In addition, the OPEC+ pledged to continue limiting oil output, shrinking oil output.
Market participants might have decided it was time to end the several weeks of underperformance in oil markets. In the third quarter, energy supplies will tighten in the upcoming third quarter. Summer fuel demand is typically stronger, lowering inventory levels for oil.
U.S. President Biden pledged that if needed, the government would draw down oil reserves to prevent prices from rising. Still, investors may start accumulating energy firms like Exxon (XOM), ConocoPhillips (COP), and Occidental Petroleum (OXY).
Berkshire’s (BRK-b) Warren Buffett bought OXY shares for nine straight days. He now holds a nearly 29% position. Buffett, through Berkshire, holds over 255 million shares at an average price of around $60.00. In addition, he holds a $10 billion stake in the preferred stock. This gives Berkshire a healthy stream of dividend income. The energy position also hedges the portfolio against inflationary risks.
As energy prices rise, it contributes to inflation, and the Federal Reserve may raise interest rates. The value of the big OXY stock position would rise in that scenario.
