The stock gods increase their positions, the price soars, and the “oil crisis” is coming?

International Business News  –  Recently, two heavy news came out from the international energy market: Buffett continued to increase his positions in Western oil; global oil prices may reach $380 per barrel.

Since the beginning of this year, the continued rise in oil prices is attracting the attention of the global market. With the international oil price once standing at the $120 mark this year, and the high inflation environment that comes with it, many investors are worried. Will the “Fourth Oil Crisis” Come?

Adding positions – bullish on international oil prices

On July 3, Berkshire Hathaway, Buffett’s company, spent $582 million to buy 9.9 million shares of Occidental Petroleum, and its stake in Occidental Petroleum reached 17.4%, with a total market value of about $9.9 billion. So far, Berkshire Hathaway has become the largest shareholder of Occidental Petroleum.

What does Buffett think behind the increase in positions? Obviously, a direct factor for Buffett to continue to increase his positions in Western oil companies is to be bullish on international oil prices. JPMorgan Chase said earlier that international oil prices are expected to soar to $185 if Russian oil supplies continue to suffer from sanctions from Europe and the United States.

Xie Logistics, senior investment consultant of Jufeng Investment Consultants, said that this year, the geopolitical conflict between Russia and Ukraine combined with soaring inflation abroad has pushed up the price of international commodities, especially oil, as a weather vane in the capital market, Buffett’s investment direction has always attracted the attention of international capital. Adding oil positions several times will also cause capital to have a consistent bullish expectation on oil, which will further push oil prices up by capital.

“From Buffett’s past investments, it can be found that even in cyclical stocks, the stock god still insists on the consumption-like logic of stable growth. Its essence is to take a fancy to the stable and cyclical dividends possessed by western oil.” Senior Investment Consultant Jufeng Investment consultant Chen Yucheng analyzed that with the rapid rise in oil prices, Occidental Petroleum’s balance sheet has been repaired, and its cash reserves can provide financial support for its stable dividend policy.

Based on the current international situation, international oil prices are affected by factors such as the conflict between Russia and Ukraine, the increased sanctions imposed by the United States and Europe on Russia, the Fed raising interest rates, the global COVID-19 epidemic, the weak willingness of OPEC+ to increase production, and the uncertain prospects for global economic recovery. Therefore, the possibility of a “roller coaster” market situation in international oil prices cannot be ruled out. In this context, the stock price trend of Western oil companies is also full of uncertainty.

Early Warning – Crisis Can’t Be Ignored

Global oil prices have continued to rise, and international oil prices have risen by about 50% this year. In the past two months, oil prices have continued to be above $100 per barrel, and the price of Brent crude oil once approached $140 per barrel. On July 4, Brent crude oil rose by 2% on the day, and is now at $113.76 per barrel. OPEC had promised to increase production further in July and August, but the news did not make oil prices fall.

A few days ago, JPMorgan Chase issued a warning that if punitive measures in the United States and Europe provoke retaliatory production cuts by Russia, global oil prices may reach as high as $380 a barrel. It also said that Russian Deputy Prime Minister Novak had previously warned that if the G7 imposed a price limit on Russian oil, it would only further push up crude oil prices.

“The expectation that oil prices will break through to $380 per barrel is too pessimistic.” Xie Logistics said that although the world is now promoting carbon neutrality and developing clean energy, it will take a long period of time, and the low energy level of oil cannot be completely substitute, so the unrestricted upward movement of oil prices hurts the economies of the world.

On July 3, Japanese Prime Minister Fumio Kishida said in a campaign speech in the upper house of the Tokyo parliament: “The G7 has set a price ceiling for Russian oil at half the current price, and the G7 will also establish a mechanism to prevent the purchase of Russian oil at higher than set prices.”

Just imagine, Russian oil accounts for nearly 30% of Europe’s needs, which will be difficult to make up in the short term. Russia’s oil revenue has plummeted due to the embargo, and Europe may usher in an “oil shortage”, which in turn will cause oil prices to rise. If the oil price rises too much, will the oil crisis take advantage of it?

Xie Logistics believes that although oil prices will remain high in the future, countries have gradually introduced measures to control oil prices. After a period of time, it is believed that oil prices can be stabilized, and it is too early to mention the “fourth oil crisis”.

According to Xu Weihong, vice president of Yongxing Securities, the main reason for the high oil price is the conflict between Russia and Ukraine. As for when the oil price will stabilize depends on how long the war will last, so the market will not bet on the oil crisis. In the second half of the year, the market will be more concerned about stagflation, that is the risk of economic recession.

The market believes that judging from the performance of the bulk and stock markets, pricing recession has become the main theme. There is no oil crisis that does not lead to recession. The current oil crisis is superimposed on disturbances such as epidemics and supply chain disruptions. According to the current rate and slope of interest rate hikes, recession or recession will be an inevitable high probability event.

Back in 1973 and 1979, the first and second oil crises broke out respectively. Both oil crises caused huge economic recessions in Europe and the United States, and even began to approach the Great Depression. Compared with the previous two times, the impact of the third oil crisis is not so great. On the one hand, the war time is relatively short. On the other hand, the oil production level of other countries in the world is also increasing.

However, from the perspective of economic characteristics and cyclical background, the inflation caused by the deterioration of the oil outlook is indeed more similar to the two stagflation events in the 1970s, which deserve attention.