BP Investors Riding High On Elevated Oil Prices

by Jonathan Adams
BP Investors

Investors in BP have banked some strong gains on the back of the company’s strong Q3 earnings report, which saw share price soar 3.5% in morning trading. While those gains have softened as the day goes on, reported profits that are more than double those recorded over the same three months last year bode well for BP share price’s short to medium term outlook at least.

The soaring oil prices over the past year may not generally be good for our pockets with the price of petrol, plane tickets and manufactured goods all also rising as a result. However, for anyone investing online in the shares of oil companies such as BP and Shell, there is certainly a burnished silver lining. Profits are surging on oil prices up around the $80 level and share prices along with them.

Last year BP reported Q3 profits of $1.4 billion. This year they were $3.1 billion, notably ahead of analysts’ forecasts, despite the higher oil price over the period that saw average trade prices of $75 compared to $52 in 2017. Underlying profits, which exclude one-off costs, currency fluctuations and accountancy effects were $3.8 billion against predictions for $2.9 billion.

With the US-China trade war putting buyers of US-produced WTI, wary of China slapping levies on it, Brent crude and oil from other parts of the world, which makes up most of BP’s trading inventory have benefitted. OPEC production cuts, new U.S sanctions on Iran, the world’s fourth largest oil producer, and ongoing mismanagement of PDVSA, the state-controlled Venezuelan oil company (the country has the world’s largest proven oil reserves) are all currently combining to put upwards pressure on oil prices.

With OPEC and Russia quietly resisting U.S. pressure to ramp up production to compensate for its sanctions on Iran, there is also little prospect that prices will drop significantly any time soon. If anything, they are expected to rise again before the end of the year.

The resulting cash flowing into BP’s coffers is not only boosting its balance sheet in the short term but is helping the company build for the future. The company recently announced its biggest acquisition in more than 20 years – a $10.5 billion deal to buy U.S. shale oil operator BHP Shale. Asset sales planned to raise between $5 billion and $6 billion, and a potential new share offering, were to fund the acquisition. However, the recent boost to BP’s profits means that will now be unnecessary with the assets sale cash instead being diverted towards paying down the company’s debt.

As well as capital gains on BP’s rising share price, investors are also profiting from rising dividends. The company increased dividends to 10.25 cents a share, from 10, in the second quarter. It was the first increase in 4 years and while it has been held steady this time, investors might expect further rewards if Q4 results maintain the current trajectory of BP’s finances.

This article is for information purposes only.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.

Related News

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Know more