Buy energy stock as BRK.B buys OXY & Red Sea Houthi attacks ?
When trading resumed on Thu, 21 Dec 2023 — It was a “great” relief to find all 3 composite indexes in the green zone.
US stocks returned to their cheerful holiday form, climbed to rebound after the major indexes suffered their worst daily sell-off in months, the day before.
By the time clock chimed 4pm:
The Dow Jones Industrial Average (^DJI) rose +0.9%.
The S&P 500 (^GSPC) popped about +1%.
The teach-heavy Nasdaq Composite (^IXIC) gained > +1.2% after snapping its 9-day rally streaks.
Even the Russell 2000 (^RUT) rose > +1.6% after sinking on Wednesday.
US market’s Thursday catalysts
The 2 official reports & bond rates, that helped further the market along were:
Commerce Department's — US Q3 2023 Gross Domestic Product (GDP) final estimate.
US weekly jobless claims.
US Treasury 10 years interest rates.
On 29 Nov 2023, the 3rd estimates of US Q3 2023 GDP came in at 5.2%.
On Thu, 21 Dec 2023’s final reading of GDP for Q3 2023, showed that US economy grew 4.9% on annualized basis, below the consensus estimate for 5.2% growth.
Nevertheless, it still marked the strongest quarter of economic growth since Q4 2021.
The Labor Department’s report first-time jobless claims for the week ending 16 Dec 2023, rose to 205,000 from 203,000 the week before.
This is below market expectation of 214,000 claims filed.
As summed up by Oxford Economics lead US economist, Nancy Vanden Houten — "The claims data, along with other recent labour market statistics, are consistent with a job market that is cooling but not freezing."
Rounding off the catalysts that helped US market to recovery, was the 10-Year Treasury yield.
During the trading session, it has fallen as low as 3.83%; before resting at 3.89%; a shade “higher” than the 10-year Treasury yield that closed year 2022 at 3.88%.
Is energy stocks on the card again?
I might be mistaken, but my gut feeling is telling me that Energy stocks might be heading for a sprint in the near term.
Case in point:
Situation at the Red Sea.
Berkshire Hathaway further stake in Occidental Petroleum.
Pretty sure everyone would have come across the “disturbance” brought about by the Houthi.
The rebel group, based in Yemen, have launched several attacks on commercial vessels and energy infrastructure in the Red Sea throughout 2023.
These attacks, primarily using explosive drones and missiles, target Saudi Arabia and its coalition partners involved in the Yemeni Civil War.
The most recent significant attack occurred on 22 Dec 2023, targeting a Greek oil tanker near the Yemeni port of Hodeidah.
As a result of the constant attacks, it has impact on countries around the Red Sea:
(1) Disruption of maritime trade: The attacks have disrupted shipping routes, causing delays and increasing insurance costs for companies transporting goods through the Red Sea.
This can indirectly impact the economies of Red Sea countries, particularly those heavily reliant on trade.
Already freight giants like Maersk, MSC, Hapag-Lloyd, and CMA CGM have halted sailing through the Red Sea; avoiding having to deal with the Houthi.
Oil major — British Petroleum has also announced it would “temporarily pause” all transits through the Red Sea.
(2) Potential fuel price hikes: Disruptions in oil tanker movements could temporarily lead to higher fuel prices in some Red Sea countries due to increased shipping costs and potential supply chain bottlenecks.
Do you see Mr Buffet gradual build up of his position in $Occidental(OXY)$ a strategic manoeuvre?
$Berkshire Hathaway(BRK.B)$ already holds a significant stake in OXY, including preferred stock and warrants to purchase additional shares. Increasing its OXY stake could be a strategic move to gain more control over the company or benefit from future growth opportunities.
OXY's recent acquisition of $Anadarko Petroleum Corp(AEUA)$ expanded its asset base and production capacity, potentially making it a more attractive long-term investment for Berkshire Hathaway. Interestingly, the acquisition was to be funded “internally” by Occidental.
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