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 equities. That's because energy prices are probably going to continue high or perhaps 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 fell was referred to by the decline in oil prices as "the first substantial correction" in that market.
People are now saying things like, "Oh yes, that's all over, that's going to cure the inflation right there," according to Smead, "you have this enormous swing, you go from $20 a barrel to $120 and then you draw back."
However, he claimed that a number of reasons point to a rise in pricing.
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.
He implied that demand would increase once more by asking, "What happens when China's economy goes fully open...get through their quarantines and just get out."
Covid flare-ups in China have prompted lockdowns this year and led to a decrease in energy use in the most populated nation on earth.
When additional movement limitations 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 oil 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. Still, compared to a year ago, both benchmarks are up by more than 40%.
Comments
Post a Comment