The Motley Fool

Has the BP share price already reached its peak?

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

The BP (LSE: BP) share price has performed strongly recently, reaching 365p at the end of October. Over the past year, the shares have also risen 34%. This has mainly been due to rising oil prices, which have helped to boost profits. Nonetheless, it has fallen back over the past couple of weeks, and is currently priced at 326p, a 11% decrease from its recent highs. As such, has the BP share price already reached its peak, and this is the start of a major decline or is this a buying opportunity on the dip?

Recent trading update

On the face of it, the recent Q3 trading update looked pretty strong. Indeed, underlying profits were $3.3bn, a slight rise from the $2.8bn recorded the previous quarter. Last year, underlying profits were also only $86m, showing the company’s strong improvement.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

This strong improvement has also been met with strong shareholder returns, including a further $1.25bn share buyback announced. A quarterly dividend per share of 5.46 cents is also 4% higher than last year and equates to a yield of around 5%. This is very strong in comparison to many other FTSE 100 stocks.

Strong cash generation has equally enabled the company to reduce net debt, which now stands at under $32bn, 20% lower than last year.

As such, these Q3 results highlight that the company is performing well and many of the problems caused by the pandemic are over. This may suggest that the BP share price has more room to rise and may not have reached its peak.

Other factors 

Despite these strong results, there are some reasons for pessimism, and these may have caused the recent fallback. In fact, the excellent cash generation was only possible due to the soaring prices of oil. Unfortunately for BP, I don’t think that these high prices are here to stay too long.

This view is also shared by the US Energy Information Administration, which stated on Thursday that it believes that crude oil prices are set to decline due to supply being greater than demand. It has placed an average cost of $72 per barrel next year, far lower than its current price of $80. If this turns out to be correct, BP profits could be hit, both damaging the share price and shareholder returns.

I’m also pessimistic on the long-term future of oil prices, especially in the ever-increasing climate change conscious society. As things like electric vehicles start to increase in popularity, I feel that oil demand is likely to waver. This will have negative impacts on oil prices over the longer term.

As such, it will be vital for BP’s growing renewable energy division to help replace these profits. But while BP is doing better than other oil companies, I still feel like the company’s investment into renewable energy is not enough. Instead, BP seems to have prioritised large shareholder returns. For the long-term health of the company, I don’t believe this is wise.

Where’s next for the BP share price?

I think the BP share price may have reached its peak, and therefore, I’m not going to buy any shares. This is because oil prices look set to decline over the next few years, and I still believe the company’s renewable energy division is unequipped to replace these lost profits.

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

Stuart Blair 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.