Warren Buffett, the CEO of Berkshire Hathaway(NYSE:BRK-A)(NYSE:BRK-B), is known for his long-term investment strategy, making it challenging to decipher the rationale behind the company’s stock purchases. Despite some stocks underperforming or not meeting immediate expectations, Buffett has consistently focused on energy assets, particularly oil and gas, even as experts advise caution regarding oil prices.
Berkshire’s Energy Investments
Berkshire Hathaway has diversified investments across various sectors, but Buffett’s interest in energy has been prominent. In 2020, the company invested $10 billion in Dominion Energy’s natural gas assets, acquiring significant infrastructure, including pipelines and storage facilities. Last October, Berkshire took full ownership of Berkshire Hathaway Energy, underscoring its commitment to the sector.
Berkshire has also made significant investments in U.S. oil and gas companies. It first acquired a stake in Occidental Petroleum in 2019 by providing $10 billion in financing, receiving preferred shares in return. As of now, Berkshire holds nearly 27% of Occidental’s shares, which constitutes 4.3% of its portfolio. Additionally, Berkshire owns nearly 7% of Chevron, marking it as one of its top five equity holdings.
With Greg Abel set to succeed Buffett as CEO, it seems likely that Berkshire will continue to invest in energy and utility sectors.
What Drives Buffett’s Choices?
Despite Occidental and Chevron’s underperformance since 2020, Buffett’s interest in oil and gas remains strong. Oil prices have faced challenges due to shifting attention toward alternative energy and growing concerns about climate change. Moreover, the U.S. has ramped up oil production, recently hitting record levels.
The U.S. Energy Information Administration (EIA) forecasts Brent crude prices to average about $66 per barrel this year, with a decline to $59 per barrel by 2026. Given these projections, Buffett’s focus on energy assets could be linked to geopolitical tensions in the Middle East, particularly amid the ongoing Israel-Gaza conflict. Recent escalations have caused oil prices to spike.
Oil and gas are considered finite resources, and the EIA’s 2023 report indicates that current global supplies can meet liquid fuel demands through 2050. However, growth in U.S. production may slow, leading Buffett and his team to see value in U.S. energy assets as potential hedges against future supply constraints.
For investors, taking cues from Buffett by increasing exposure to U.S. oil and energy assets might be wise, especially in light of potential price surges from geopolitical unrest.
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