Oil prices have fallen sharply from their recent highs, but there is still room to buy oil stocks, according to Bill Smead, chief investment officer at Smead Capital Management.
Indeed, energy prices are likely to remain high or even rise further, he told CNBC’s “Street Signs Asia” on Thursday.
He described the fall in crude prices as “the first significant correction” in a bull market that started in the spring of 2020 after prices fell.
“You have this huge move, you go from $20 a barrel to $120 and then you go back down – and now people are saying, ‘Oh yeah, that’s over, that’s going to cure inflation here,'” Smead said. .
We like oil stocks here. You can buy them here, Warren Buffett buys it here.
Bill Smead
Chief Investment Officer, Smead Capital Management
But several factors suggest prices will rise, he said.
The United States needs to replace 180 million barrels of strategic reserves that have been withdrawn to meet demand, and supply remains tight, he said.
“What happens when China’s economy opens up completely… get past their quarantines and just get out,” he asked, suggesting demand will pick up.
Covid outbreaks in China have spurred lockdowns this year and sent energy consumption plummeting in the world’s most populous country.
Demand is expected to rebound as more movement restrictions are eased.
“We like oil stocks here. You can buy it here, Warren Buffett buys it here,” Smead said.
Brent crude futures and US West Texas Intermediate futures both climbed to levels above $120 a barrel this year, but are now at $96.88 and $90.88 a barrel, respectively. .
Yet both benchmarks are up more than 40% from a year ago.
— CNBC’s Thomas Franck and Yun Li contributed to this report.
