Oil prices have fallen sharply from their recent peaks, but there’s still a case for buying oil stocks, according to Bill Smead, chief investment officer at Smead Capital Management.
That’s because energy prices are likely to stay high or even increase further, he told CNBC’s “Street Signs Asia” on Thursday.
He described the slide in crude prices as “the first significant correction” in a bull market that started in the spring of 2020 after prices crashed.
“You have this huge move, you go from $20 a barrel to $120 and then you pull back — and now people are going, ‘Oh yeah, that’s all over, that’s going to cure the inflation right there,'” Smead said.
But several factors suggest that prices are going to increase, he said.
The U.S. has to replace 180 million barrels of strategic reserves that were drawn down to meet demand, and supply remains tight, he pointed out.
“What happens when China’s economy gets open in full … get past their quarantines and just get out,” he asked, suggesting that demand will come back up again.
Covid flare-ups in China have spurred lockdowns this year, and caused consumption of energy to drop in the world’s most populous country.
Demand will likely to spring back when more movement restrictions are eased.
“We like the oil stocks here. You can buy ’em here, Warren Buffett is buying it here,” Smead said.
Brent crude futures and U.S. West Texas Intermediate futures both soared to levels above $120 per barrel this year, but are now at $96.88 and $90.88 per barrel, respectively.
Still, both benchmarks are more than 40% up from a year ago.
— CNBC’s Thomas Franck and Yun Li contributed to this report.