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Warren Buffett strikes again! Buy nearly 10 billion oil shares again, what signal?

On March 9, March 10 and March 11, the company took another position in Occidental Petroleum, spending about $1.534 billion (nearly 10 billion yuan).

Information shows that Occidental Petroleum Corporation was established in 1920, headquartered in Los Angeles, California, the United States, mainly to extract oil and natural gas. Occidental has operations in the United States, the Middle East, North Africa and South America, and is the fourth largest oil and gas company in the United States.

From March 2 to March 4, Warren Buffett spent $3.122 billion to increase his position in Occidental Petroleum, and from March 2 to March 11, Warren Buffett has spent a total of $4.656 billion to increase his position in Occidental Petroleum, equivalent to RMB 29.518 billion.

In addition, Buffett also holds 83.86 million shares of Occidental Petroleum Corporation through warrants at an exercise price of $59.624 per share. If Occidental Petroleum shares continue to rise, Warren Buffett’s stake in the company is likely to continue to rise.

Occidental Petroleum’s latest share price was $57.95, up 86.57% since the beginning of the year.

According to a disclosure report filed by Buffett’s Berkshire Hathaway with the SEC on Feb. 14, Buffett’s holdings include two energy companies, Occidental Petroleum and Chevron, as of the end of 2021. For the latter company, Buffett has already added to its position in 4Q 2021. Considering that Buffett is sitting on a huge amount of cash, Buffett is also strong enough to further increase his bullish holdings.

However, the “stock god” energy investment is not always successful.

In fact, it is Occidental itself, the god of stocks also has a time to look away. 2020 May 3, at the annual shareholders meeting, Buffett was asked about the investment in Occidental is to answer: “If you are a shareholder of Occidental or any oil production company, you and I have made a mistake in terms of the direction of oil prices. ”

Buffett explained that “at the price of oil at the time (the investment) was attractive, but obviously not at $20 a barrel and even less at minus $37 a barrel.”

The data show that Buffett liquidated his position in Occidental Petroleum in the 2nd quarter of 2020.
This time Warren Buffett, the stock god, is fishing Occidental back out.

Can crude oil still be chased higher?

The stock gods are adding to their positions, and investors are dumbfounded. After the surge, can crude oil still be chased higher?

After the epidemic, the global economic recovery has lifted demand for crude oil and geopolitics has suppressed supply. With demand surging and supply tightening, some analysts have given optimistic expectations, and some say there is room for a significant rise in crude oil prices.

For example, CITIC Securities’ Huang Wentao and others analyzed the impact pattern of previous “geopolitical-crude oil” shocks and concluded that it is difficult for oil prices to fall significantly and continue to face upward pressure before the conflict is substantially resolved, which increases the near-term inflation risk globally, especially in the United States. If the geopolitical situation is not reconciled in the next 1-3 months, the probability of shifting to the “ongoing conflict – oil price upside” model is on the upside.

He believes that the current crude oil prices are easy to move up but difficult to move down, and are overall supported by both the geopolitical conflict and the supply-demand gap; ii) if this conflict is effectively reconciled by April-May, crude oil prices could still fall back to the lower range of $60-90/bbl; iii) if this conflict is partially reconciled around May, for example, with only a slowdown in military operations, crude oil prices could potentially move up to $160-190/bbl at the annual level. (iv) if the conflict is still raging after May, crude oil prices could push up to record levels of $190-230/bbl on an annual basis.
John Woods, Credit Suisse’s chief investment officer for Asia Pacific, expects oil and gas prices to rise sharply in the coming weeks as the market anticipates risks to supply and demand. In the medium term, higher energy costs could lead to inflation, while rising U.S. interest rates (although the pace of tightening may be slightly lower than initially expected) could put more pressure on most Asian central banks to raise rates, which should add up to moderate growth prospects, especially for those countries with weaker current account positions. Expectations of higher rates tend to support bank performance, meaning that investors seeking to protect and hedge their portfolios should maintain their financial stocks in Asia rather than sell.

However, institutional sources believe there is another layer of complexity to the issue: many countries/regions are adjusting the pace of implementation on “warming”-related issues. In the short term, “warming” considerations may need to give way to security of supply of crude oil. It is worth noting what impact this will have on crude oil markets.

Goldman Sachs, for example, said in a March 8 research report that recent geopolitical events could prompt a turning point in European energy policy.

Security of supply is expected to be the first priority for Europe’s energy policy. The next priority is about consumer protection, price limits and regulation related to power generation.

One might ask what about the topic of warming, which is of greatest concern to Europe. Goldman Sachs believes that in the long run, this topic will remain a key issue, but in the next 12-24 months, the priority of this topic will decline.

Commodity ETFs Still Sucking Strongly

For now money is voting with its feet and is still pouring into commodity ETFs.

For example, PDBC 2022, the largest U.S. commodity ETF outside of gold ETFs, has absorbed net inflows of $2.447 billion since March 12. PDBC is underpinned by commodity futures contracts. It is issued by capital management giant Kingmaker Investments.

XOP, the S&P Oil & Gas Extraction ETF, absorbed net inflows of $663 million for the week of March 4 to March 10. Its latest size is $5.73 billion and the underlying is stocks of U.S. oil and gas extraction companies.

GLD, the world’s largest gold ETF, also absorbed strong gold inflows from March 4 to March 10, absorbing net inflows of $715 million during the period.

Credit Suisse’s Zoltan Pozsar warns against commodity crisis

Zoltan Pozsar, head of global short-term interest rate strategy at Credit Suisse, wrote in a widely cited report released Monday that a commodity crisis could be brewing.

By comparing the current crisis in the making to the 1997, 1998, 2008 and 2020 crises, Zoltan argues that we can conclude from their similarities that each crisis occurred when money and collateral markets intersected. At present, the conditions for a crisis seem to be in place.

In the current case, for example, commodities can be collateralized, specifically Russian commodities are like subprime collateral, while non-Russian counterparts are like prime collateral. Russian energy commodities have become “subprime” due to the fragmentation of the market, and the corresponding margin size would be unnerving. This is the same as the subprime crisis at the time of Lehman, with the same huge global market, the same huge leverage and liquidity participation, and the same number of traders.

If Zoltan Pozsar’s analysis makes sense, then it is clearly a “dangerous game” to enter the commodities market at this time.

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