Investing

Fed Dot Plot, Buffett Bets Oil Prices Will Fall, More Economic News

Paul Ausick

Published: December 14, 2023 8:25 am

The Federal Reserve’s FOMC held the federal funds rate steady, as expected, on Wednesday. The committee also did one thing that was unexpected. Unemployment and retail sales data are due out Thursday. And Warren Buffett buys more oil.

FOMC dot plots

At its last meeting of 2023, the Federal Open Market Committee once again left the federal funds rate unchanged. That was expected. What was not expected was a Fed pivot toward easy money. At least, easier money.

In its Summary of Economic Projections, released after the FOMC meeting ended, the Fed dot plot was the big news. Fed chair Jerome Powell reversed his earlier stance, warning of keeping the tight money policy for too long.

In answer to a question at the press conference, Powell said, “We’re aware of the risk that we would hang on too long. We’re very focused on not making that mistake.” Powell also noted that there is “little basis for thinking that the economy is in recession right now.”

The impact of these remarks was instant. Bond yields fell and equity prices jumped. The Dow Jones industrials, the S&P 500 and the Nasdaq all added 1.4% by the closing bell.

Unemployment, retail sales

This week’s final two market-moving economic reports are due out before Thursday’s opening bell. The report on new claims for unemployment benefits is expected to show 222,000 new claims were filed last week, up from 220,000 in the prior week. Continuing claims fell to 1.86 million for the week ending November 25. The four-week average for continuing claims increased slowly in November, from 1.823 million to 1.872 million. This is soft-landing territory.

The Census Bureau will also report on November retail sales Thursday morning. Analysts are looking for a month-over-month decline of 0.1%, equal to the decline in October. Excluding automobile sales, retail sales will be flat according to the consensus estimate.

National average gasoline pump prices fell by about $0.15 a gallon in November and have dropped by another $0.07 per gallon in the first two weeks of December. In October, falling gasoline prices declined by 0.3% month over month. The November decline should be greater.

Buffett now owns 27% of Oxy

In a federal filing on Wednesday, Warren Buffett revealed that Berkshire Hathaway Inc. (NYSE: BRK-B) acquired 10.5 million more shares of Occidental Petroleum Corp. (NYSE: OXY). Berkshire acquired the shares on Monday, Tuesday, and Wednesday of this week. Because Berkshire was already a 10% owner of Oxy, Buffett had two days to report the purchases. (Here are seven Warren Buffett dividend stocks every total return investor should own.)

Berkshire now owns 27.2% of Oxy, and it bought its last batch of shares at prices that were near Oxy’s 52-week low. On Monday, Oxy announced that it would acquire Permian Basin oil and gas producer CrownRock for $10.8 billion in cash and stock and assume CrownRock’s $1.2 billion of existing debt. The transaction is expected to close in the first quarter of 2024.

Oxy said that CrownRock has 1,250 drilling locations ready for development at a break-even price below $60 a barrel. The acquisition also adds 750 drilling locations where the break-even cost of production is less than $40 a barrel. Oxy and Buffett are betting that oil prices will fall over the next several years.

S&P Global forecast in 2021 that U.S. shale production and Middle East production would account for about half of all production in 2040. Middle Eastern production averages about $22 a barrel, while U.S. Permian Basin production averages about $46 a barrel.