Warren Buffett Dumps US$3.7 Billion Exxon Mobil Stake

warren-buffett

I found this article somewhat shocking and that it was worth sharing.  Mr. Buffett usually holds on to a stock for the long-term. His purchase of Exxon Mobil Corp. was in the fall of 2013 and he sold it all by Dec 2014 which adds up to a one year hold.  Should small investors follow his lead?

Berkshire Hathaway sells Exxon stake but buys more Suncor and IBM

By Pete Evans, CBC News “The world’s most famous investor sold almost $4 billion US in shares in America’s largest oil company late last year, but increased his stake in Canada’s Suncor by four million shares, making the Calgary-based oil giant his largest single energy holding. Warren Buffett’s Berkshire Hathaway Inc. revealed in regulatory filings Wednesday that the company sold off its roughly 41 million shares of Exxon Corp. in the fourth quarter of 2014, when oil prices were cratering. Buffett, whose strategy typically involves buying and holding stocks for years, if not decades, had only held the Exxon stake since the fall of 2013. Filings reveal he sold the entire stake to pocket some $3.9 billion some time during the fourth quarter of 2014.”

The one year chart below compares the two stocks with each other;

suncor

At first glance, Suncor’s share price is much more volatile than Exxon and seems to be correlated to the price of oil. Plus it has a big investment in the Canadian oil sands and many Americans have a negative perception towards oil sands production as dirty oil.

7 reasons why I am still a bear when it comes to investing in the oil patch

  1.  U.S. economic growth has averaged 2.3% a year since the recovery started in mid-2009. That’s about half the rate you might expect in a rebound from the deepest recession since the 1930s. Plus growth in China is slowing, growth is minimal in the euro zone and is negative in Japan. It’s clear that global oil demand is weak and might even decline.
  2. Russia and Venezuela find themselves in a conundrum. They desperately need the revenue from oil exports to service foreign debts and fund imports. Yet, the lower the price, the more oil they need to produce and export to earn the same number of dollars.
  3. Saudis have seen their past cutbacks result in market-share losses because other OPEC members end up cheating on their quotas. However, OPEC’s current refusal to cut production is due to the booming US shale oil which has been a major contributor to their market-share losses.
  4. Investors are too excited about the rig count decline and are misinterpreting what it actually means. Producers are getting rid of the least-productive rigs, and the best performing ones will probably keep working for a while.
  5. Energy companies have been reducing their capex spending but the cut backs are in areas that have expensive exploration costs.
  6. Spot prices are currently lower than futures prices, any oil price rally will prompt producers to hedge (i.e., sell in the futures market). This will delay any potential cuts to US production.
  7. Oil storage is still increasing and is weeks away from being full.  This oil is going to hit the market later this year and could depress the future price of oil.

Are you ready to follow Mr. Buffett into the oil patch? You could just buy Berkshire Hathaway  (BRK.B).

Be aware that due to the holiday on Monday, oil inventory numbers will come out on Thursday Feb 19th at 10:30 eastern standard time. Experts are predicting a build up of 3 million barrels.

The API Oil inventory build up came in at 14.3 million barrels!

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