Recessions have happened every time we have had oil shocks, so could it be happening again in 2022?! Berkshire Hathaway is buying Occidental Petroleum (OXY), so should you copy Warren Buffett into oil and gas companies too?
First off, I’d like to say my heart goes out to the Ukrainian people and if you are in a fortunate position, I encourage you to donate to a legit humanitarian relief organization to help.
In America, as bad as it is to be dealing with inflation of at least 7.5%, it’s made worse with skyrocketing gasoline prices just as more Americans are being asked to return to office. And now the price per oil barrel recently hit $130! Some say it may even reach $150-300 per barrel! But it’s come down to the $110-120 per barrel range at the time of my video’s publication. It could get worse the longer the Ukrainian Russian crisis goes on.
So we should be wary of what might happen with the stock market and rising prices in everyday goods and services we buy. And we should be on the look out for potential stock market buying opportunities as the Dow Jones recently hit correction territory while the Nasdaq is in a bear market.
When there is a lot of fear in the markets, that might be a time when stocks of our favorite companies could be going on sale.
Berkshire bought $5 billion of Occidental Petroleum stock as of early March 2022. In Q4 2021, Berkshire bought $1 billion more of Chevron (CVX), and now their Chevron stake is valued at least $6 billion in the markets. Buffett is no doubt collecting some of that sweet dividend money from Chevron as energy prices are rising.
The national average price of gasoline record set in July 2008 is $4.11 per gallon. With gas now at least $4 to $4.25 per gallon, it seems like it is exceeding the previous record, but if you adjust for inflation, we would need to have gas average at least $5.37 per gallon to be equal to the 2008 price. If you live in California you may have gas prices that have exceeded the previous record price.
You know what happened the last time we had peak oil prices? Let me explain.
There is a strong link between rapidly spiking oil prices and recessions happening not too long after. Every time oil prices rose quickly within a year, there have been 3 recessions in the US in the last 32 years. It happened in the recessions of 1990-1991, 2000 Dot Com Bubble, and 2007-2008 Housing Bubble Great Financial Crisis. I show how much oil and gas prices jumped during these recessions, and the repeating patterns are really compelling.
When oil prices have gone up at least 90%-100%, or double, then an analyst named Nicholas Colas says the US should expect a recession. A recession could happen at any moment in 2022 or 2023 at the rate of current oil prices.
I describe Berkshire’s Occidental investments, including how they still owned more than $10 billion of OXY preferred stock and warrants to buy common stock. They previously sold shares in OXY by Q2 2020 but bought back in Q1 2022 to the tune of at least 91 million shares.
So should you shamelessly clone Buffett into buying Occidental and/or Chevron? That depends on if the oil and gas industry is within your circle of competence. If you thoroughly understand these companies and the industry, perhaps there are still stock buying opportunities, or you might be late if Buffett and team are done buying what they wanted to buy. Who knows.
Since oil and gas aren’t within the scope of my knowledge, I am staying out of these stocks because I can’t predict where these companies’ cash flows will be or what the cycles are like.
I’m putting oil and gas into a “too hard” pile and I’d rather continue studying and buying companies’ stocks that I am capable of understanding and projecting their future cash flows.
If you’re interested in learning how to take control of your finances and start becoming an investor like Warren Buffett, check out my free PDF guide.
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