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What’s next for the BP share price?

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A plant pipetrack at BP's Hull Petrochemicals site
Image: BP

It is a big day for BP (LSE: BP) tomorrow, when the company releases its second-quarter results. These could be the very numbers that give a bump up to the BP share price, which fell below 300p last month.

There are four reasons I think this is possible.

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#1. Shell’s results were good

BP’s FTSE 100 peer Royal Dutch Shell reported a robust set of results last week. This continues the trend from the quarter before, and bodes well for BP’s results as well. This is because of the underlying reasons for it. Oil prices have stayed firm through the year and travel demand is coming back as well as restrictions has lifted. It helps that last year’s base was weak, so in percentage terms, the increases look massive for companies across sectors this earnings season. 

#2. Weak share price despite healthy financials

Despite a bounce back last quarter and strong expected results, BP’s share price is quite weak. In mid-June it was at a one-year high, but has dropped 12% since. 

Further, compared to the level at which it started in 2020, before pandemic fears took over the stock markets and even before US-Iran stresses started early on in the year, the BP share price is down almost 40%. 

Based on the fact that the situation has now stabilised significantly and that the company is back in good health, I see little reason for its share price to stay at the present levels. 

#3. BP’s Dividends can rise

One of BP’s big allures for investors has been its high dividend yield. Even now it is at 5.2%, which is decent. But, I think it can get better from here. If BP’s profits continue to pile up, I reckon it may increase its dividends to pre-pandemic levels as well. This should attract more investors to the stock.

#4. Renewables focus

As the world moves away from fossil fuels, oil biggies like BP need to move towards providing alternative sources of energy to survive. So far, it has made rapid strides in the direction. Recently, it closed a deal with 7X Energy to develop solar power projects in 12 US states. Its first solar project has also started operating in Spain

Besides this, BP is developing wind power projects as well, which can also be a positive as green energy becomes mainstream. 

What I’d do now

Of course, it remains to be seen whether BP can pull off the transition into a renewable energy company. That is something we will only know over time. In the short term too, there are risks like the return of the pandemic. While vaccines have made some difference to its intensity, the variants are still a source of threat. And travel is most vulnerable if restrictions return. 

At the same time, I think there is a lot going for the BP share price too. In fact, on balance, the positives outweigh the negatives. It is a buy for me.

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Manika Premsingh owns shares of BP and Royal Dutch Shell B. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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