Tags: Manfreda | Buffett | resource | sector

Oilprice.com's Manfreda: 'Buffett's Success in Resource Sector a Mixed Bag'

By    |   Friday, 03 April 2015 08:40 AM

Investment legend Warren Buffett drew a lot of attention in the fourth quarter, when his Berkshire Hathaway dumped shares of Exxon Mobil, ConocoPhillips and National Oilwell Varco.

But, "based on past history, Buffett's success in the resource sector has been a mixed bag," writes John Manfreda of Oilprice.com.

He scored big on Petro China, selling in 2007 for a profit of $3.5 billion. But he lost several billion on his investment in ConocoPhillips, which began in 2008.

"In order for Buffett to buy a stock, the company has to pass this set of criteria: high margins with a low amount of debt (it doesn't take a genius to run them); strong franchises and freedom to price, with predictable earnings," Manfreda explains.

"This set of criteria sounds great when investing in a consumer goods business, but when investing in the resource sector, it's almost impossible to achieve. The energy industry has higher capital spending requirements than other industries."

The S&P 500 Energy stock Index has returned a negative 11.4 percent during the past year, compared to positive 11.5 percent for the overall S&P 500.

U.S. oil prices have plunged 55 percent since late June, trading at $48.32 a barrel Thursday afternoon. Sluggish demand and bountiful supply have sparked the move.

And to put demand and supply back into balance, the United States and other non-OPEC nations, rather than OPEC itself, must cut their oil output, Michele Della Vigna, head of European energy research at Goldman Sachs, tells CNBC.

Oil prices hit a six-year low last month.

"I think the market has realized that where we need to find the adjustment is onshore U.S. and that's where the market is focused," Della Vigna notes.

"The adjustment is starting to happen there. Clearly an OPEC cut would help getting to the equilibrium faster, but at the end of the day, it is non-OPEC that needs to sort out the oversupply that it has created."

After hitting at least a 33-year high, U.S. crude production slipped 0.4 percent last week to 9.39 barrels a day.
 

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Investment legend Warren Buffett drew a lot of attention in the fourth quarter, when his Berkshire Hathaway dumped shares of Exxon Mobil, ConocoPhillips and National Oilwell Varco.
Manfreda, Buffett, resource, sector
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2015-40-03
Friday, 03 April 2015 08:40 AM
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