Bill Smead, chief investment officer of Smead Capital Management, argues that despite the recent decline in oil prices, investors should still consider purchasing oil companies. He made this prediction on Thursday's episode of CNBC's "Street Signs Asia," citing the high cost of energy as the primary reason.
After prices collapsed in the spring of 2020, a bull market began, and this decline in crude prices has been called as "the first substantial correction."
To paraphrase what Smead said: "You have this enormous move, you go from $20 a barrel to $120 and then you pull back — and now people are going, 'Oh yes, that's all over, that's going to fix the inflation right there.
But he added that there are a number of indicators suggesting prices will rise.
Strategic stocks were depleted by 180 million barrels to fulfill demand, and the situation is still tight, he said.
What happens when China's economy really opens up, when they finally get beyond their quarantines and "go out," he said, implying a subsequent increase in demand.
This year, covid outbreaks in China have led to lockdowns, resulting in lower energy use in the world's most populated country.
When more limits on motion are lifted, demand is likely to recover.
The oil stocks are appealing to us. You can get them here; Warren Buffett has already made a purchase," Smead remarked.
Futures for Brent crude and U.S. West Texas Intermediate have both risen beyond $120 per barrel this year, but are now trading at $96.88 and $90.88 per barrel, respectively. Nonetheless, both indicators are 40% higher than they were a year ago.
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