Although oil prices have dropped significantly from their recent peaks, Bill Smead, chief investment officer at Smead Capital Management, believes there is still a case to be made for purchasing oil stocks.
That’s because energy prices are probably going to stay high or even go up more, he said on Thursday’s “Street Signs Asia” on CNBC.
The bull market that began in the spring of 2020 after prices crashed was referred to by the decline in crude prices as “the first significant correction” in that market.
People are now saying things like, “Oh yeah, that’s all over, that’s going to cure the inflation right there,” according to Smead, “you have this huge move, you go from $20 a barrel to $120 and then you pull back.”
However, he claimed that a number of factors point to a rise in prices.
He noted that supply is still limited and that the United States must replenish the 180 million barrels of strategic reserves that were depleted to meet demand.
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What transpires when China’s economy is fully liberalized… get past their quarantines and just leave?” he posed, implying that the demand would rise once more.
Lockdowns and a decrease in energy consumption have been brought on by COvid flare-ups in China this year. China is the country with the largest population.
When additional movement restrictions are relaxed, demand is likely to increase.
“Here, the oil stocks are good. You can purchase them here; Warren Buffett is doing so, according to Smead.
Both Brent crude futures and U.S. West Texas Intermediate futures have dropped this year from highs of over $120 per barrel to current prices of $96.88 and $90.88 per barrel, respectively. Nevertheless, compared to a year ago, both benchmarks are up by more than 40%.
