What happened

Shares of oil giants Chevron (CVX 1.54%), Occidental Petroleum (OXY 0.89%), and Devon Energy (DVN 0.78%) rallied today, up 2.6%, 3.9%, and 4.2%, respectively, as of 1:17 p.m. ET.

Broad-based strength in oil and gas stocks likely reflect a reversal of yesterday's weak action, when the Wall Street Journal reported the OPEC+ cartel was contemplating production increases, due to the potential for Russian barrels going off the market in December. However, that rumor was refuted late yesterday and then again today, enabling these stocks to quickly regain what they'd lost.

So what

Yesterday, oil and gas stocks took a big hit, after the WSJ article suggested Saudi Arabia and other oil producers in OPEC could increase their output by a collective 500,000 barrels per day at the upcoming Dec. 4 meeting.

Of note, the EU will be banning Russian seaborne imports as of Dec. 5, and the G7 plans to institute a price cap on Russia oil on that date. Russia says it will refuse to sell oil to any country that obeys the price cap, so there is a chance those barrels go off the market or are at least disrupted for a time. However, uncertainty around what happens on Dec. 5 and at what price oil will be capped is high, even as that date looms closer.

The prospect of increased supply did not go over well yesterday. That was especially true as China reinstituted some of its harsher COVID-19 restrictions over the weekend, as cases have been rising with colder weather. Additionally, a parade of Federal Reserve officials appeared in the media last week, reiterating their hawkish stance for more interest rate increases, despite the Nov. 10 inflation report, which was softer than expected. That may have increased chances for some investors that the Fed would push the economy into recession in their fight against inflation, which would be bearish for prices.

However, at least the OPEC+ production concerns are dissipating today. Not only did Saudi Energy Minister Prince Abdulaziz bin Salman deny yesterday's rumor, but he also said a production cut was possible, over and above the October cut of 2 million barrels per day.

Unsurprisingly, that reversal is causing a quick rise in the price of oil, which is up 2.3% today to over $81 again, after falling to the mid-$70 range yesterday. These three oil-sensitive stocks are rising in sympathy, with Devon rising the most, as it is a pure-play explorer and producer, whereas Chevron and Occidental are a bit more diversified, with midstream and downstream businesses in addition to their production segments.

Now what

There wasn't much company-specific news today for any of these three stocks; however, both Chevron and Occidental may be seeing higher investor sentiment due to Warren Buffett conglomerate Berkshire Hathaway continuing to purchase both stocks last quarter, and in significant quantities. Buffett increased Berkshire's Chevron position by 2% in the third quarter, while increasing his Occidental shares by 22%, taking Berkshire's ownership to 20.7% of the entire company.

Berkshire's oil and gas stock buys have been huge this year, as Chevron now accounts for 8% of Berkshire's public equity portfolio, and Occidental now accounts for another 4%. If one views these two purchases as essentially the same bet on oil prices, the combined 12.1% position would actually be Berkshire's second-largest public holding, behind only Apple.

Clearly, Buffett likes the long-term picture for oil and gas stocks, or at least believes oil and gas names act as a hedge against future energy supply shocks. With the global supply of oil very much in question due to the precarious state of Russia's supply, along with OPEC+ and U.S. shale players showing more production discipline, it is probably wise to have some exposure to the sector in case of future price shocks -- even if your allocation isn't quite as big as Berkshire's. In addition, most large oil companies pay out generous dividends these days, so you get paid along the way as well.