Berkshire Hathaway (NYSE: BRK.A) disclosed an 18.7% stake in Occidental Petroleum (NYSE: OXY) on Thursday after purchasing additional 12 million shares in the oil and gas company.
Buffett Continues His Buying Spree
Warren Buffet’s conglomerate made the purchases on Tuesday and Wednesday for a total of $698 million, according to its filing with the U.S. Securities and Exchange Commission (SEC). The move comes just a week after Berkshire purchased 9.9 million shares in Occidental.
The conglomerate has been gradually increasing its stake in Occidental over the past few months, making it the largest shareholder of the oil company with a stake worth around $10.8 billion.
Furthermore, Berkshire also holds $10 billion of OXY’s preferred shares and has warrants to purchase another 83.9 million common shares for $5 billion at $59.62 per share, compared to the stock’s current price of $61.47.
Shares of OXY are up nearly 100% since the start of the year, boosted by Berkshire’s support and growth in the broader oil market following the invasion of Ukraine.
The series of purchases by Berkshire gave rise to rumors that the conglomerate could ultimately acquire the oil company. If its stake rises to 20%, Berkshire could make an accounting change that would allow it to record its proportionate portion of Occidental’s earnings with its own results.
The Omaha, Nebraska-based company employed the equity method of accounting for its 26.6% stake in the food company Kraft Heinz.
In addition to Occidental, Berkshire owns numerous other businesses including GEICO, Duracell, BNSF Railway, and Dairy Queen. It also has substantial stakes in companies like Apple, Bank of America, American Express, and Chevron, among others.
Shares of Berkshire Hathaway are down nearly 8% since the start of the year.
What If Recession?
Oil prices saw a decline earlier this week with the West Texas Intermediate (WTI) crude dropping below the $100 mark as investors become increasingly concerned about a potential recession that could weigh on demand for petroleum products.
The consulting firm Ritterbusch and Associates said the decline was due to “tightness in global oil balances increasingly being countered by strong likelihood of recession that has begun to curtail oil demand.”
″The oil market appears to be homing in on some recent weakening in apparent demand for gasoline and diesel,” it said in a note to clients.
The drop in Brent and WTI prices marks the end of six consecutive months for the benchmark contracts as recession fears affect the demand outlook.
Citi analysts said Tuesday that Brent could dip to as low as $65 by the end of 2022 in the economy falls into a recession where increased unemployment and household and corporate bankruptcies “would chase a falling cost curve as costs deflate and margins turn negative to drive supply curtailments,” the bank wrote.
Citi has been one of the few on Wall Street that was bearish on oil prices, as opposed to other banks like Goldman Sachs which has expected oil to surge to $140 or more.
Crude prices have been on a sharp rise since Ukraine has been invaded by Russia, one of the key global commodity suppliers.
In March, WTI rose to a high of $130.50 per barrel, while Brent surged to $140, marking their highest price levels in 14 years. Oil prices started rising even before Russia invaded Ukraine, driven by tighter supply and recovering demand.
Summary
Warren Buffet’s Berkshire Hathaway has continued to increase its stake in Occidental Petroleum despite the big correction in oil prices on growing recession fears.
