The S&P 500 has now lost more than -20 percent of its value since January 1. But despite recently increased volatility, the S&P 500 Energy Index still boasts a year-to-date total return north of 40 percent. The midstream stock-laden Alerian MLP Index is up around 26 percent. And the Philadelphia Stock Exchange Oil Service Sector Index is ahead by more than 22 percent.

That’s a staggering outperformance. And it comes in a year when the bond market continues to melt down in the face of a Federal Reserve all-out assault on inflation, with the benchmark 10-year Treasury note yield rising by 132 percent to over 3.5 percent.

Energy is a highly capital intensive industry. And even the strongest companies’ cost of debt has risen sharply this year, as low valuations have kept equity issuances to a minimum outside of dividend reinvestment plans. Model Portfolio member ExxonMobil (NYSE: XOM), for example, still yields nearly 4 percent and sells for less than 7.5 times its expected next 12 months earnings, as well as barely 10 times trailing 12 months free cash flow per share.

So far this month, Berkshire Hathaway (NYSE: BRK/B) has announced purchases of 27 million and 12 million shares of long-time EIA recommendation Occidental Petroleum (NYSE: OXY). As a result, the giant investment and insurance firm now owns 18.7 percent of the oil and gas producer—that’s nearly as much as the next two largest holders combined.

Why load up on a still highly leveraged commodity producer just as an inflation-focused Federal Reserve appears to be tipping the US economy into recession? We suspect it’s the same basic reason for all of Mr. Buffett’s investments since he became Berkshire’s Chairman and CEO way back in 1970: He sees truly massive free cash flows in Occidental’s future.