Bill Smead, chief investment officer at Smead Capital Management, said that despite the recent collapse in oil prices, shares of oil companies are still attractive to buy, as oil prices are expected to remain high.
On Wednesday, Brent and WTI oil prices fell to the lowest level since Russia's invasion of Ukraine on February 24. The move followed an unexpected rise in U.S. crude oil inventories last week. Gasoline inventories, a measure of demand, also unexpectedly rose as demand slowed, the Energy Information Administration said. Nevertheless, since the beginning of 2022, the prices of Brent and WTI oil have increased by more than 40%.
"The latest drop in oil prices is just a correction after a large-scale price increase since the spring of 2020. In general, there are several factors suggesting a further increase in the cost of oil," said Smid.
"In an environment where oil supply remains limited, the United States must replace 180 million barrels of strategic reserves that have been depleted to meet demand. In addition, the demand for oil will grow sharply after the removal of all coronavirus restrictions in China, which is the world's largest importer of oil," added Smid.