Crude oil has been extremely volatile in recent weeks, and at the end of April, West Texas Intermediate crude oil (CL=F) for May delivery tumbled to -$37 per barrel and sent investors into a frenzy.
During the question and answer session, one shareholder asked Buffett about the investment he made in Occidental Petroleum (OXY) a year ago.
“If you’re an Occidental shareholder or any shareholder in any oil producing company, you join me in having made a mistake in where oil prices went,” Buffett said.
“[The investment] was attractive at oil prices that then prevailed. It doesn’t work obviously at $20 a barrel, certainly doesn’t work at -$37 a barrel. It doesn’t work at these oil prices. That is why oil production is going to go down in the next few years because it does not pay to drill. This situation is you don’t know where you’re going to store the incremental barrel of oil, oil demand is down dramatically. For a while the Russians and Saudi Arabians were trying to outdo each other in how much they could to produce. When you got too much in storage it doesn’t work its way out of that fast.”
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