The Berkshire Bet on Oil

August 31, 2020 08:04 AM
Berkshire Hathaway has acquired stakes in 3 Japanese trading firms
U.S. gas demand hits a post lockdown high
Peak oil update
The Energy Report



The Phil Flynn Energy Report 

Back After The Storm

Oil is coming back as global demand is rising and the U.S. energy industry bounces back from Hurricane Laura. Yet the Atlantic still looks scary with more storms brewing and Covid-19 concerns raising doubts that the demand growth can continue. A bet by Warren Buffet on Japan trading companies seems to be a big bet on commodities, meaning the Wizard of Wall Street sees value in this space.

In a press release published late on Sunday, Berkshire Hathaway revealed that it had acquired stakes in Itochu, Marubeni, Mitsubishi Corp., Mitsui, and Sumitomo of "slightly more" than 5%, signaling it may increase those holdings in the future. These holdings were acquired over a period of approximately 12 months through regular purchases on the Tokyo Stock Exchange according to Zero Hedge.

The Berkshire bet is also a bet on oil as there are signs that despite Covid-19 concerns, demand is still fighting back. China’s crude imports hit a record high of 12.98 million barrels per day (bpd) according to Joint Organisations Data Initiative. U.S. gas demand last week hit a post lockdown high. This comes as the EIA reported that, "Reflecting the impact of coronavirus on transportation patterns, U.S. refineries have cut back on motor gasoline and jet fuel products and upped distillate fuel oil output.”

According to the EIA, refiners responded to reduced demand for transportation fuels by decreasing overall refinery runs from April onwards. It notes that refinery runs were 22% lower in April 2020 compared with the full year 2019 average of 17.0 million bpd. In May, inputs to distillation units were similar, at 21% lower than the 2019 average. The EIA notes that these reductions “largely resembled the overall declines in demand for finished petroleum products in those months, as measured by product supplied.”

The EIA highlighted that these 3 products generally have the highest yield from refineries; refinery travel, U.S. refineries yields reflect the volumetric ratio of a finished product to refineries’ total inputs of crude oil, and net inputs of unfinished oils. According to the EIA, “In 2019, refinery yields for motor gasoline averaged 46%; distillate fuel oil, 30%; and jet fuel, 10%.” In April, refinery yields for motor gasoline fell to 41%, and jet fuel yields fell to 5%, and the EIA highlights that these values were, at the time, the lowest ever recorded in its monthly data series for refinery yields. However, in April, U.S. distillate fuel oil yields increased to 38%, their highest value on record. The EIA noted that: “In the U.S. Gulf Coast region, distillate fuel oil yields surpassed those of gasoline for the first time, reaching 40% for distillate and 39% for gasoline. “In May, as travel increased, motor gasoline demand increased, but jet fuel demand continued to fall.”

Reuters reported that, "… concerns about rising supplies and sluggish global economic recovery, hedge funds and money managers cut bullish wagers on U.S. crude to the lowest level in nearly 4 months, data showed on Friday. Higher oil and gas prices are also encouraging U.S. producers to resume drilling as the country’s oil and gas rig count rose by 3 to 254 in August, according to data from energy services firm Baker Hughes. 

Peak oil update! Reuters reports that Saudi Aramco has discovered 2 new oil and gas fields in the northern regions, the kingdom's energy minister said on Sunday, state news agency SPA reported. The energy minister Prince Abdulaziz bin Salman Al-Saud said the new Abraq al-Toloul oil field, which lies to the south east of the northern city of Arar, flows with a daily rate of 3,189 barrels bpd of Arab light crude oil, along with 3.5 million cubic feet of natural gas. Hadabat al Hajara gas field in al-Jof region has a daily production rate of 16 million cubic feet of natural gas, along with 1944 bpd of oil condensate, according to the minister. Aramco will carry on with its efforts to estimate the total amount of oil and gas in the 2 fields and is drilling more wells to determine their areas and capacities, he added.” So I guess we’ll have to wait a bit longer for the world to run out of oil.

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About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.