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What Explains The Sudden Drop In Oil Prices?

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Andy Tully

Andy Tully

Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com

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Buffet Dumps Exxon Amid Price Slump

Investment guru Warren Buffett got rid of his entire $3.7 billion holding in Exxon Mobil Corp. in the fourth quarter of 2014, evidently influenced by the slump in crude oil prices.

The “Oracle of Omaha” has had outstanding success as an investor, turning his Berkshire Hathaway into the world’s fourth-largest company, but the operation has “not really had the hot hand in energy,” Fadel Gheit, an analyst for Oppenheimer & Co. in New York, told Bloomberg. “The whole energy sector obviously is now traded in completely different circumstances.”

Those circumstances can be distilled to a drop in crude oil prices by about half in the past eight months, eating deeply into the profits of oil companies big and small. Even Exxon, the largest US oil company, was not immune, posting a drop in profits during the fourth quarter and saying it was looking for ways to rein in spending. Related: Exxon Unveils The Bad News On All Fronts

Berkshire had held 41.1 million shares in Exxon, worth an average of $90.86 per share in 2013, according to the oil company’s latest annual report. Buffett’s company was one of Exxon’s largest shareholders until it dumped the stock during the fourth quarter. Exxon stock sold for nearly $3 more during that period, so it’s possible that Buffett even made a profit on the sale.

This and other sales of assets, as well as various acquisitions, were not made public until a regulatory filing on Feb. 17, which is required of investors who manage more than $100 million.

During the same period, Berkshire also decided to invest in Suncor Energy Inc. of Canada, which produces crude oil from tar sands, and the multinational Phillips 66, based in Houston.

Exxon wasn’t the only energy company to feel Buffet’s ax. Berkshire also cut its stake in National Oilwell Varco (NOV) by 18 percent, down from 6.4 million shares to 5.26 million. In the last half of 2014, stock in NOV dropped more than 30 percent. NOV is an oil- and gasfield equipment and services provider. It and similar companies are suffering the most from the plunge in the price of crude. Related: Oil Prices Most Volatile Since 2009

Berkshire’s mixed buying and selling of shares in energy companies demonstrates that Buffet’s company isn’t monolithic in its approach to oil and related industries, according to Jeff Matthews, a shareholder in Berkshire who has written books about the company.

One salient point, Matthews said, is that Buffet, 84, despite his experience and acumen, doesn’t dictate buy and sell orders to his subordinates. “There was clearly no edict that says, ‘Oil is terrible, let’s get out,’ ” Matthews told Bloomberg. “Someone has a different opinion about it.”

But energy seemed to be the investors’ whipping boy during the fourth quarter. Besides Buffet’s dump of Exxon, Soros Fund Management did the same. And John Paulson, president of the hedge fund John Pasulson & Co., sold off all his stock in Athalon Energy and cut back the number of shares in Oasis Petroleum Inc.

Other investors who reduced their holdings in energy companies include Greenlight Capital Inc. and Jana Partners LLC.

By Andy Tully of Oilprice.com

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