Oil costs have fallen sharply from their current peaks, however there’s nonetheless a case for getting oil shares, in keeping with Bill Smead, chief funding officer at Smead Capital Management.
That’s as a result of vitality costs are more likely to keep excessive and even improve additional, he informed CNBC’s “Street Signs Asia” on Thursday.
He described the slide in crude costs as “the first significant correction” in a bull market that began within the spring of 2020 after costs crashed.
“You have this huge move, you go from $20 a barrel to $120 and then you pull back — and now people are going, ‘Oh yeah, that’s all over, that’s going to cure the inflation right there,'” Smead mentioned.
But a number of components counsel that costs are going to extend, he mentioned.
The U.S. has to switch 180 million barrels of strategic reserves that had been drawn down to satisfy demand, and provide stays tight, he identified.
“What happens when China’s economy gets open in full … get past their quarantines and just get out,” he requested, suggesting that demand will come again up once more.
Covid flare-ups in China have spurred lockdowns this yr, and brought on consumption of vitality to drop on the earth’s most populous nation.
Demand will more likely to spring again when extra motion restrictions are eased.
“We like the oil stocks here. You can buy ’em here, Warren Buffett is buying it here,” Smead mentioned.
Brent crude futures and U.S. West Texas Intermediate futures each soared to ranges above $120 per barrel this yr, however at the moment are at $96.88 and $90.88 per barrel, respectively.
Still, each benchmarks are greater than 40% up from a yr in the past.
— CNBC’s Thomas Franck and Yun Li contributed to this report.