The Motley Fool

Is the BP share price about to explode?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Risk reward ratio / risk management concept
Image source: Getty Images

I’ve been watching the BP (LSE: BP) share price carefully over the past year. I think the company has quite a bit of potential. But, as an oil producer, its fortunes are linked to the price of the black gold.

This means if the price of oil falls substantially, the company will struggle to earn a profit. That’s precisely what happened last year when the price of oil crashed below cost in most regions. 

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story. In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Another problem with the company’s exposure to oil concerns the environment. Oil & gas producers have been singled out as some of the largest private polluters in the world. This will continue unless these operations change their business models. 

BP won’t change its business model overnight, which may put some investors off investing in the stock. Indeed, the group may also face substantial liabilities related to its polluting activities. These liabilities could threaten the company’s financial viability in a worst-case scenario

BP share price potential

A volatile oil price and climate change are the two most significant risks the company faces right now. However, at the time of writing, the price of oil is trading at its highest level in years. And BP is also making progress on its plans to rebuild the business for the future. 

As the company pushes forward with its plan to increase renewable energy output and cut its reliance on hydrocarbon production, I think the BP share price will appeal to a greater number of investors.

This could remove the cloud that’s been hanging over the business for some time. Not only will the shift towards renewable energy remove the threat of legal action against the enterprise, but it’ll also stabilise cash flows. Renewable energy production is nowhere near as volatile as the price of oil. 

BP is trying to establish 20GW of renewable energy projects by 2025 and 50GW by the end of the decade. At the same time, management is planning to slowly reduce the company’s production of fossil fuels to transform from an oil producer into a clean energy business.

Wind in its sails

Of course, only time will tell if the company makes good on these ambitions. But, right now, with group profits surging off the back of high oil prices, BP has the wind at its back.

What does all of the above mean for the BP share price? I think the stock could be on the verge of a multi-year rally. The combination of high oil prices and more investment in renewable energy may attract investors back to the enterprise. Certainly following its dark-day struggles following the Gulf of Mexico disaster. 

Management has also increased the appeal of the stock by hiking the group’s dividend. Alongside its first-half results, published at the beginning of August, the company increased its quarterly payout by 4% and announced an additional $1.4bn of share repurchases. Following this hike, the stock now yields 6.6%. 

Considering all of the above, I think the outlook for the BP share price is improving. As such, I’d buy a small position in the stock for my portfolio as a buy and hold investment. Although I’ll be keeping a close eye on the risks outlined above.

Our 5 Top Shares for the New “Green Industrial Revolution"

It was released in November 2020, and make no mistake:

It’s happening.

The UK Government’s 10-point plan for a new “Green Industrial Revolution.”

PriceWaterhouse Coopers believes this trend will cost £400billion…

…That’s just here in Britain over the next 10 years.

Worldwide, the Green Industrial Revolution could be worth TRILLIONS.

It’s why I’m urging all investors to read this special presentation carefully, and learn how you can uncover the 5 companies that we believe are poised to profit from this gargantuan trend ahead!

Access this special "Green Industrial Revolution" presentation now

Rupert Hargreaves has no position in any of the shares mentioned. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.