Author: Senior Brother, Editor: Xiaoshimei
As the king of commodity and economic barometer, the charm of crude oil cycle has been fully demonstrated in the past two years.
On April 20, 2020, WTI crude oil futures plummeted across the board, and the final settlement price of May delivery was -37.63 USD/barrel, which fell to a negative value for the first time since oil futures was traded on the New York Mercantile Exchange in 1983.
At that time, the global spread of the new crown epidemic had a huge impact on the economies of various countries, and crude oil demand plummeted, and investors were extremely pessimistic about its subsequent trend.
The sharp drop in oil prices has brought about a panic decline in oil companies' stock prices, including global oil giants such as ExxonMobil, Chevron , and Occupy Oil, which were all cut in half in just three months.
Not many people expected that in just two years, the highest price of crude oil has risen above 130 yuan, an increase of nearly 4 times, setting a new high in the past 10 years. ExxonMobil and Chevron, which had plummeted, rose more than 4 times, and Occupy Oil rose nearly 10 times. Saudi Aramco, the world's largest oil company, even surpassed , Apple and , and became the world's largest listed company with market value.
▲October Petroleum annual line chart, source: Tonghuashun iFinD
The plummeting and surge in oil prices and oil stocks, as well as the wealth effect and investment logic behind it, are worthy of our careful study.
[Blessing of the stock god]
"The stock market is almost impossible to find a target that excites us." In a letter to shareholders released in February this year, Buffett once admitted so frankly.
The calmness of the stock god is a deep understanding of the market.
At this time, U.S. stock has staged a super bull market for 13 years, with a historical top valuation. The total market value of US stocks exceeded US$50 trillion, more than twice that of US GDP, far exceeding the safety margin required by Buffett. In his opinion, the ratio of a country's total market value to GDP is 70%-80%, which is a relatively safe area. The bubble of US stocks with twice the GDP is already very serious.
Even if the most popular global technology giants in the US stock market have shown signs of bubbles, Buffett, who is not very interested in emerging technology industries, will not invest in technology stocks at this time.
However, the imbalance in supply and demand of crude oil and the rising crude oil prices have touched Buffett's sensitive nerves.
In the past two years, in order to cope with the new crown epidemic, countries around the world have implemented unprecedented monetary easing policies. The US interest rate has dropped by 0 again after 2008, and the interest rates of more than 60% of the world's economies are less than 1%. In addition, the bond purchase plans of various governments and direct payment of money to the people have greatly stimulated the recovery of economic growth and crude oil demand.
But in sharp contrast, it is not easy to increase the supply of .
In 2015, the " Paris Agreement " reached a consensus on responding to climate change, and energy transformation has become a wave of the global era. Governments have obviously suppressed fossil fuels, capital expenditures in the oil industry have been declining year by year, and the pressure on crude oil production capacity is getting greater and greater.
Chevron CEO Mike Wirth once lamented: "We have not built oil refineries in the United States since the 1970s. My personal opinion is that the United States will never build new refineries."
The conflict between Russia and Ukraine has made the problem of oil shortage more severe. Russia is the world's third largest oil producer and second largest oil exporter. Its daily oil export volume exceeds 5 million barrels, accounting for 10% of the total global export volume, and has a huge impact on crude oil prices.
Stocks, who are quite familiar with the traditional resource industry, realize that oil stocks are the best investment opportunity at the moment.
Berkshire established a position in Chevron in the third quarter of 2020, and increased its holdings by 120 million shares to 159 million shares in the first quarter of this year. 's holdings of had a market value of US$25.919 billion, becoming its fourth largest holding stock; at the same time, Berkshire increased its holdings of Occupy Petroleum in the first quarter by 5.89 million shares, and after the increase, the market value of its holdings was about US$13.2 billion, ranking the sixth largest holding stock.
At present, Berkshire's holdings in the oil industry have exceeded US$40 billion, accounting for 11% of the total holding market value.
As the sharp rise in oil prices, oil companies' performance and stock prices naturally performed well. Occupy Oil, which was still in the middle of losses last year, had a net profit of US$4.676 billion in the first quarter, a record high, and its stock price rose 144% this year; Chevron's net profit in the first quarter was US$6.259 billion, a year-on-year increase of 350%, and its stock price rose 57% this year.
It is precisely because of the heavy holdings in oil stocks that Buffett's investment myth can continue. With the three major U.S. stock indexes falling sharply, especially the plunge in technology giants, Berkshire still rose more than 4% this year, becoming the only company among the top 9 U.S. stock market value.
▲Berkshire annual line chart, source: Tonghuashun iFinD
【The charm of the cycle】
Crude oil is extremely widely used, and its price surge will bring about serious inflation. In March, the U.S. Consumer Price Index (CPI) rose 8.5% year-on-year, reaching a new high since December 1981.
In order to control the rapid rise in oil prices and consumer goods prices, Feder finally took action.
On March 17 this year, the Federal Reserve raised the benchmark interest rate by 25 percentage points to cope with the increasingly severe inflation. This is the first time the Federal Reserve has raised interest rates since 2018, and also marks the official end of the ultra-loose monetary policy implemented since the pandemic.
According to the Federal Reserve's plan, interest rate hikes may be 7 times this year, and the end of the interest rate of this round of interest rate hikes may be around 2%.
After the interest rate hike is a large-scale balance sheet reduction . In the past two years, the U.S. government has increased its debt by about 5 trillion yuan, and the total Fed's assets have expanded from 4.2 trillion yuan to nearly 9 trillion yuan. The balance sheet reduction, which started in June this year, is expected to reduce the total Fed assets to $5.9 trillion by 2025.
The last time the Federal Reserve large-scale quantitative easing was during the financial crisis in 2008, and it was not tightened again after seven years. The rapid change in monetary policy this time shows the US government's determination to deal with inflation, and also means a gradual shift in economic cycles and commodity demand.
It is worth mentioning that the US Congress will hold a midterm election in November this year, when calming oil prices and inflation are likely to become the dominant issue. In order to win the support of voters, Biden must make a difference.
Among the world's important crude oil exporters, Russia and the United States have completely frozen relations, and Saudi and Iran may become important bargaining chips for the Biden administration.
Saudi Arabia is the world's largest oil exporter, accounting for as much as 12% of the global oil market. Biden will personally visit Saudi Arabia next month to persuade the other party to increase crude oil exports.
Iran is still unilaterally sanctioned by the US, but it has been working hard to promote crude oil exports since 2021. In December 2021, Iran's crude oil exports surged to more than 1 million barrels per day, a record high in the past three years.
On May 14, Iran said it was preparing to double the scale of oil exports based on international market demand, and Iran's crude oil exports may return to the scale of 2.5 million barrels per day before the implementation of sanctions. The Biden administration is likely to adopt a tacit attitude towards Iran's efforts to expand oil exports and is happy to see it happen.
All signs show that although crude oil prices may continue to rise momentum in the short term, , with the cycle of US currency cycle, political cycle and economic cycle, the global crude oil prices led by the United States may be ushering in an important turning point.
【Transformation of the times】
In the medium and long term, the huge changes in the global energy structure have also faced great resistance to the continued upward trend of oil prices.
At present, the area with the largest oil consumption in the world is fuel vehicles, whose daily demand for oil exceeds 20 million barrels, accounting for more than 20% of oil consumption.
However, the rise of new energy vehicles has caused disruptive changes in the industry, the largest heavy-weight industry in crude oil.
In the first quarter of 2010, the global number of electric vehicles sales was only 395, accounting for 0.002% of the total automobile sales, and its development was questioned by all walks of life.
12 years later, in the first quarter of 2022, global new energy vehicle sales exceeded 2 million, an increase of 80% year-on-year while global automobile sales fell by 7%, accounting for more than 10% of the total automobile sales.
According to the planning of various countries and the current development trend, the global penetration rate of new energy vehicles will be close to 50% in 2030. In the more rapidly developing Chinese market, this data may even exceed 70%.
The huge prospects of electric vehicles compared to fuel vehicles are also fully reflected in the capital market. Although the current sales and profits are far behind those of fuel vehicles, the market value of the global electric vehicle leader Tesla is equivalent to twice the total market value of the four companies, including the global fuel vehicle leader Toyota , GM, Ford, and Honda . The market value of the domestic electric vehicle leader BYD has just exceeded 100 billion, which shows how great investors are to expect for the future development of electric vehicles.
In addition to new energy vehicles, various clean energy sources such as photovoltaic , wind power, etc. have also achieved tremendous development around the world in recent years, forming a huge alternative to crude oil. . Against the backdrop of a sharp drop in demand, the current oil price is likely to be at a historic high.
Buffett is familiar with the macro cycle and is also very optimistic about clean energy. Therefore, his investment in oil stocks should be a phased strategy and will not hold heavy positions for a long time like Coca-Cola or Apple.
In fact, as early as 2019, Berkshire invested $10 billion to assist Occupyria to acquire Anadarko Petroleum, but chose to clear the position in 2020, and the short holding period is very rare.
After obtaining huge profits, when will Buffett sell crude oil stocks? When Berkshire announces its financial report in the next few quarters, the answer will surface.
Disclaimer
This article involves content about listed companies, and is a personal analysis and judgment made by the author based on the information disclosed by listed companies in accordance with their legal obligations (including but not limited to temporary announcements, periodic reports and official interactive platforms, etc.); the information or opinions in the article do not constitute any investment or other business advice, and Market Value Observation shall not bear any responsibility for any actions arising from the adoption of this article.
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