ConocoPhillips: Buffett’s Most Disastrous Macroeconomic Bet

The $7 billion investment represented roughly 3% to 4% of Berkshire Hathaway’s then-over-$200 billion asset base. While not a fatal position, it was still a substantial bet. Given that this was purely a market-trading position—not a controlling investment—the size reflected Buffett’s strong confidence in the direction of energy prices. But position size is only part of the issue. More critically, the entire investment was exposed to risk from a single macro variable: oil prices. When oil prices fluctuated, the entire position’s value swung violently. V. What research did he conduct? Buffett’s research focused primarily on supply-demand analysis of the energy market and valuation of ConocoPhillips’ assets. He studied global oil supply-demand balance sheets, demand growth trends in emerging markets, production decline rates at major oilfields, and the investment cycles for new exploration. He read extensively across industry reports, consulted with energy-sector experts, and analyzed ConocoPhillips’ reserve portfolio, production costs, and return on capital. Yet during this process, he made an error common to all investors: overemphasizing supply-side fundamentals while underestimating the vulnerability of demand under extreme conditions. More importantly, his research may have overlooked a key historical pattern: commodity prices are highly cyclical—rising sharply often precedes an equally sharp fall. Historically, forecasts predicting oil prices would remain permanently elevated near $140 had almost never held true. VI. The Unraveling: The Avalanche from $140 to $30 1. Oil’s Historic Collapse In July 2008, international crude oil prices peaked at a record $147 per barrel. Just months later, the global financial system began to collapse. In September 2008, Lehman Brothers filed for bankruptcy, triggering panic across global financial markets. Credit froze; recession loomed; global oil demand plummeted. Oil prices plunged from $147—by December 2008, they had crashed to $32, a nearly 80% drop. 2. The Stock’s Cliff Dive ConocoPhillips’ share price closely tracked oil prices. As oil collapsed, the company’s earnings outlook deteriorated sharply. Underground reserves valued as immensely valuable under a $140-oil assumption lost most of their worth at $30. The stock fell from a 2008 high near $95 to below $50 by year-end—nearly halved. Berkshire’s position value dropped from roughly $7 billion to under $4 billion. 3. Buffett’s Admission and Position Reduction By year-end 2008, Buffett made a painful yet rational decision: admit the mistake and reduce the position. In his 2008 letter to shareholders, he unusually acknowledged the error publicly: “I bought large amounts of ConocoPhillips stock near the peak of oil prices. I had no idea energy prices would fall so sharply in the second half of the year. This mistake cost Berkshire several billion dollars in 2008.” By early 2009, Berkshire had significantly reduced its ConocoPhillips holdings. He did not fully exit—some residual positions later recovered modestly as oil rebounded—but the core position had been sharply scaled back. Billions of dollars in losses were locked in. VII. Outcome and Cost

Global Oil Tanks Are Nearly Empty! Giants Sound the ‘Supply Cutoff’ Alarm

For ordinary U.S. consumers, this crisis has already hit their wallets directly—average gasoline prices per gallon have risen by about $1.40. Jay Singh, Head of U.S. Oil & Gas Research at Rystad Energy, stated: “The U.S. is insulated—but not isolated—from the global energy crisis sweeping the world.” With inventories continuously depleting and export capacity reaching its ceiling, how long this insulation can last has become the most urgent question confronting global energy markets. As inventories approach depletion, mounting upward pressure on prices is building—and this inflation could soon spill over further, pushing up prices for downstream goods across the board. 02 ｜Asia Rushes to Buy U.S. Crude, Yet Energy Giants Hesitate to Boost Output The ongoing blockade of the Strait of Hormuz has fundamentally reshaped the global crude oil trading landscape. A surge of tankers is now departing from Alaska and the U.S. Gulf Coast, laden with crude bound for Japan, Thailand, and Australia—making the United States the “last resort” for global energy consumers. This shift is most pronounced in Asia. Previously, Japan sourced roughly 90% of its crude from the Middle East and purchased virtually none from the U.S. Today, Japanese refiners alone have snapped up at least 8 million barrels of U.S. crude scheduled for delivery in August—just in recent days. Refineries in Singapore and South Korea are also ramping up purchases significantly; South Korea, historically the second-largest buyer of U.S. crude, continues to show robust demand. Yet despite these impressive export figures, industry insiders are growing anxious about how long this situation can persist. Traders point out that export infrastructure and shipping capacity along the U.S. Gulf Coast are nearing exhaustion. Theoretically, U.S. export capacity could reach 10 million barrels per day—but the sustainable long-term ceiling stands closer to 6 million bpd. Even under short-term maximum effort, exports barely approach 7 million bpd. This constraint stems largely from tight vessel availability and prohibitively high costs associated with ship-to-ship transfers (STS) at sea—severely limiting actual export volumes. Meanwhile, since the outbreak of the Iran war, domestic U.S. crude output has actually declined by roughly 100,000 barrels per day. Despite soaring oil prices, drillers have largely held back from increasing production. The primary reason is extreme uncertainty about market direction. A Dallas Fed survey revealed energy executives stating outright: “Current government policy is too unpredictable for us to make sound business plans.” 03 ｜Manufacturing Under Pressure: Soaring Costs, Slower Deliveries Although the energy crisis persists, U.S. manufacturing maintained expansionary momentum in April. Data shows the manufacturing activity index remained in positive territory. Yet pressures continue to mount. The Strait of Hormuz blockade has severely disrupted global supply chains—not only driving up prices for raw materials like oil, aluminum, and helium, but also raising logistics costs as gasoline and diesel prices surge. In April, while 13 manufacturing subsectors—including textiles and basic metals—reported growth, three sectors contracted. At the same time, lengthening delivery times and weakening employment indicators signal that supply-chain stress is spreading more broadly across the economy.

ConocoPhillips sees oil price floor rising to $70 a barrel, chairman says

6 days ago

ConocoPhillips Chairman Ryan Lance forecasts an oil price floor of $70 per barrel, noting resilient supply despite regional conflicts. He predicts US production could reach 14.5 million barrels daily, with global demand recovery expected by 2028 or 2029.

reuters

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ConocoPhillips sees oil price floor rising to $70 a barrel, chairman says

ConocoPhillips sees oil price floor rising to $70 a barrel, chairman says

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