Warren Buffett's $1 billion bet on oil

The story behind oil's plunge
The story behind oil's plunge

Oil prices have plunged this year, but Warren Buffett isn't scared. He's bet nearly a $1 billion on the sector since the start of the year.

That's how much Phillips 66 stock Berkshire Hathaway (BRKB) has bought since Jan. 3, according to company filings, the most recent of which was made Wednesday.

Berkshire already owned 61.5 million shares of the oil refining giant, and has recently spent $964 million to buy an additional 12 million shares of the company. Buffett's firm now owns 14% of Phillips 66 shares, making it Bershire's sixth largest holding.

As an oil refining company, Phillips 66 (PSX) is in the one aspect of the oil industry that can benefit from falling oil prices.

The drop in prices means that Phillips can buy the crude it refines more cheaply. And it profits from the fact that the price of gas hasn't fallen as much as the price of oil has. Phillips' refining profits actually rose last year to $2.6 billion from $1.6 billion in 2014.

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"People don't notice it because the price at the pump has come down so much, but gasoline prices are quite high relative to crude," said Tom Kloza, chief oil analyst for the Oil Price Information Service.

Buffett is famously a value investor, often buying stocks in a down market. But he's not a big oil investor currently. Phillips 66 is the only oil company in his top 50 holdings, according to share tracker LionShare.

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Buffett has owned a stake in the company since he bought ConocoPhillips (COP) shares back in 2006. Phillips 66 shares was spun-off from that company in 2012, giving Berkshire its first 27 million shares.

Since then, Berkshire has shed shares of ConocoPhillips, but it's been consistently adding shares of Phillips 66.

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