How Does the Oil Price Crash Impact Warren Buffett?

For the first time, WTI crude prices fell into the negative zone during trade on Monday. Warren Buffett invested in Occidental Petroleum last year.

Mohit Oberoi, CFA - Author

Apr. 21 2020, Published 9:59 a.m. ET

uploads///Warren Buffett Oil price crash
  • For the first time in history, WTI crude prices fell into the negative zone during trade on Monday. The fall in crude oil prices has impacted energy companies.
  • Warren Buffett, Berkshire Hathaway’s chairman, invested $10 billion in Occidental Petroleum last year through convertible preferred shares.
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Warren Buffett and the oil price crash

Berkshire Hathaway’s chairman, Warren Buffett, invested $10 billion in Occidental Petroleum last year through convertible preferred shares. The preference shares carried an 8% coupon. Berkshire Hathaway retained the option to convert the shares into ordinary shares later. Occidental Petroleum used the money to fund the acquisition of Anadarko Petroleum. Carl Icahn opposed the deal but it eventually went through. The Occidental Petroleum transaction looked promising for Warren Buffett. He has been struggling to find a suitable acquisition opportunity.

Berkshire Hathaway Class B shares

However, the world has turned upside down for energy companies like Occidental Petroleum (NYSE:OXY) in 2020. Occidental Petroleum has fallen 67% this year. The stock has underperformed the S&P 500 (NYSEARCA:SPY) by a wide margin. Warren Buffett also hasn’t beat the markets. Berkshire Hathaway Class B shares (NYSE:BRK.B) are underperforming the markets. Read Will 2020 Get Better for Warren Buffett and Berkshire Hathaway? to learn more. Berkshire Hathaway shares underperformed the markets last year as well.

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Occidental Petroleum

Amid the cash crunch, Occidental Petroleum has paid its dividends to Berkshire Hathaway in the form of shares. However, the shares have been falling amid the sell-off in energy prices. WTI crude turned negative on Monday for the first time in history. Crude oil prices have fallen today as well. The fall in crude oil prices is leaving a big hole in investors’ pockets. The fall would also hurt major oil-exporting countries’ fiscal situations. However, Saudi Aramco is among the least impacted companies. Saudi Aramco has a comfortable operating and financial situation.

Warren Buffett’s portfolio

Apart from Occidental Petroleum, Berkshire Hathaway also holds Suncor Energy (NYSE:SU) in its portfolio. Suncor Energy stock has fallen 54% year-to-date. Energy isn’t the only sector that’s underperforming markets this year. Warren Buffett has a flair for banking stocks. Berkshire Hathaway holds substantial stakes in banks like Wells Fargo, Bank of America, and JPMorgan Chase. Banking has been among the worst-performing sectors this year. Earlier this year, Warren Buffett sounded positive about the banking sector. He might have underestimated the pandemic’s impact. Read Did Warren Buffett Underestimate COVID-19’s Impact? for more analysis.


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