Economy

Warren Buffett brings billions in oil stocks to life

US investor Warren Buffett.

Ankit Agrawal / Mint via Getty Images

In the course of the corona pandemic, the oil price also came under heavy pressure last year. Due to the economic standstill around the world, there was hardly any demand for oil, especially in spring 2020. The warehouses were full, which even resulted in the price falling into negative territory for a short time in April last year.

But the situation has fundamentally changed. The oil price is back at pre-crisis level because the tide has completely turned once. In Asia, the economy is already picking up again, which is increasing the demand for oil. “However, the logistics around the oil delivery were shut down during the crisis. Now it takes until all the wheels mesh again, which is why the demand cannot yet be fully met again, ”explains Comdirect market expert Andreas Lipkow in an interview with NewsABC.net.

There were also difficulties due to unusually cold winter weather in parts of the USA. As a result, oil production was severely affected, which had exacerbated the soaring prices. The frost hinders the extraction, transport and further processing of the oil.

Annual oil price chart (WTI) in US dollars

Annual oil price chart (WTI) in US dollars

NewsABC.net

The fact that Saudi Arabia also wants to voluntarily reduce its oil supply in February and March by one million barrels per day above the agreed level also ensures a crude oil shortage in the first quarter. This is what analysts at Commerzbank write in a recent study.

Strong demand that cannot be met and a future shortfall are therefore currently strong drivers of prices. In addition, there is the prospect that the economy in western countries will soon pick up again. The vaccinations will lead to further openings and with it the economies will grow again.

Warren Buffett invests billions in oil company

Despite the sharp rise in the price of raw materials, the shares of the oil companies have not yet benefited comparatively much. “Interest seems to be increasing at the moment and oil stocks are increasingly becoming the interest of investors,” says Comdirect market expert Lipkow.

Investment legend Warren Buffett is also generating such interest. The US billionaire has rebuilt his portfolio – as a statement from the US Securities and Exchange Commission shows – and bought, among other things, shares in the US oil company Chevron worth 4.1 billion US dollars.

When Warren Buffett gets into a sector so heavily, it makes private investors prick up too. Exactly when a major bank like Goldman Sachs even speaks of a new “super cycle”. At first glance, oil companies appear to have fallen out of time in an (economic) world that is increasingly geared towards sustainability.

With BP, one of the major oil companies recently proclaimed the end of the oil age. However, the implementation of fundamental changes in the energy market is likely to be in the distant future and oil will continue to be of great importance for the economic world.

After all, it is not just about mobility, in which more and more alternatives, for example in the form of e-cars, are being created. Industries such as pharmaceuticals or chemicals will continue to need oil for production in the years to come.

“Investors who want to invest money for five to ten years can now look at the oil sector,” advises Comdirect expert Lipkow. Oil companies often lure investors with comparatively high dividend payments. There are numerous large oil companies, including Royal Dutch Shell, BP, Chevron and ExxonMobil, and there are others in the second row. “If interest in an industry is only just emerging, as is now the case in the oil sector, it is often worthwhile to rely on the big companies,” says Lipkow.

If the interest of the masses in a sector on the stock exchange increases, the money of the first wave flows into these corporations. Only when a certain price increase has already taken place do investors look for alternatives in the second row, according to the market expert.

Risks of Investing in Oil Stocks

But there are also arguments against investing in oil stocks. On the one hand, the big trend on the financial market is towards what are known as ESG criteria. The abbreviation stands for Environmental, Social and Governance. They say that more money should be invested in sustainable business models – and therefore not in oil companies. “If this trend continues to grow, fund companies or other institutional investors will also invest less money in non-sustainable business models,” warns Andreas Lipkow from the Comdirect. “This means that the major investments that support or drive courses are missing,” he explains.

Another risk: The high oil price ensures that numerous US fracking companies can again produce profitably. If these companies increase the oil supply, prices will come under corresponding pressure. The supply could rise further in the second quarter if Saudi Arabia withdraws the voluntary production cut, write the Commerzbank analysts.

The higher the price of oil, the more profitably oil companies can operate. Therefore, the development of the crude oil price is important to them. However, Commerzbank is again more confident about the second half of the year. “The significantly higher demand is likely to push the oil market back into a supply deficit in the second half of the year,” they expect. Warren Buffett’s timing could – as it has often been the case in the past – be well chosen with an investment in oil stocks.

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