- Warren Buffett foresaw an epic oil collapse way before anyone else.
- The Oracle of Omaha has positioned early in the oil industry.
- Buffett is long-term bullish on oil.
Oil suffered a historic meltdown on Monday, as prices plummeted into negative territory for the first time. The economic fallout from the novel coronavirus has devastated the energy sector. The situation is so bad that President Trump has promised to offer assistance to America’s oil industry.
But not if Warren Buffett can offer a lifeline first. The legendary value investor not only predicted this crash, but he has the capital to make a headline-grabbing acquisition.
Buffett Predicted ‘Free Oil’ Four Years Ago
Buffett first predicted $0 a barrel oil way back in 2016. In a CNBC interview, Buffett said:
If oil were free, it would be good for us
At the time, Buffett said the U.S. oil industry had a market capitalization of about $2 trillion, assuming the industry produced 10 million barrels selling for roughly $100 each. Buffett described what would happen should oil drop to zero:
Now all of a sudden you take it down to where you’re not making money, and the $2 trillion of capital value disappears very quickly. The bank loans against it get sour very quickly. [Oil producers] quit buying from the service companies very quickly… All of those things contract very quickly.
It would seem that the Oracle of Omaha has been preparing for an epic collapse in the U.S. oil industry. It’s no wonder he bought positions early.
Buffett Dipped His Toes in Oil Early
Towards the end of 2019, Buffett bought significant stakes in two oil companies. His first oil bet was Occidental Petroleum (NYSE: OXY). The Oracle bought 11.4 million shares of OXY after pledging $10 billion in April 2019 to help the energy company acquire Anadarko.
In the fourth quarter of the same year, Buffett bought over 4.2 million shares of Suncor Energy (NYSE: SU). Suncor is considered a safe bet. The company can drill more oil if…