With oil near its all-time high, is the BP share price set to soar?

The BP share price is still down around 30% from its pre-pandemic price. With the price of oil soaring, can the BP share price also climb?

| More on:

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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Due to the tragic conflict between Russia and Ukraine, the price of oil has been soaring recently. In fact, it has recently hit around $120 per barrel, not too far from its all-time high of $147.50, which was reached in 2008. Despite this, the BP share price has still sunk 12% over the past month, mainly due to the forced disposal of its stake in Rosneft, the Russian integrated energy company. This is going to mean a $25bn hit for the company, due to unfavourable foreign exchange rates and impairment charges. But with the price of oil so high, will it be able to offset these losses, and can the BP share price now soar?

Recent events

The main news for the company revolves around the upcoming disposal of BP’s 19.75% stake in Rosneft. This disposal was due to the current conflict, and the pressure placed on the oil major by the UK government. However, as previously stated, BP is set to make huge losses on this disposal, as the current Rosneft valuation is far lower than before. Due to a current unwillingness to buy Russian assets, it will also be incredibly hard to dispose of and this may push the price down further. This is what has strained the BP share price over the past couple of weeks.

The decision to pull out of Russia also wipes out around half of BP’s oil and gas reserves, a third of its production and almost $1bn in annual dividends. Especially due to the current high price of oil (and the consequent lost profits for BP), alongside Rosneft’s incredibly low current valuation, this is clearly an unfortunate time to sell the business.

But I still feel it’s the right decision, both from a moral standpoint and for the long-term future of BP. Indeed, Rosneft’s strategy was to continue pumping oil for as long as the demand continued. In contrast, BP has started to pivot away from oil, upping its investment in renewable energy. While the oil price is currently extremely high, I don’t believe this is entirely sustainable. Therefore, for the long-term future of BP, this divestiture may be in the best interests of the group, even if it causes short-term pain.

Is the BP share price too low?

The BP share price is still nearly 30% lower than it was pre-pandemic, even though in 2019, underlying profits totalled $10bn, whereas in 2021, they totalled $12.8bn. This demonstrates that the BP share price may be severely undervalued, and based on profits alone, should be able to return to pre-pandemic prices. This is especially true considering that current high oil prices should boost profitability further.

Due to ambitious renewable energy targets, I also prefer BP to many other oil stocks, which seem far too dependent on just oil. This gives the company a long-term future in my view. But I’m still leaving BP on the sidelines. In the short-term, I worry that the Rosneft disposition may lead to further downside, and in the long-term, I prefer many pure renewable energy stocks.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

Investing Articles

Here’s how much I’d have if I’d bought 1,000 shares in this FTSE 100 defence stock 5 years ago

I could have made a pretty penny investing in this leading FTSE 100 defence stock. Now I’m looking at a…

Read more »

Investing Articles

1 potential millionaire-maker UK stock I’d like to buy for the long haul

For long-term investors, here’s 1 UK stock to consider buying right now with the potential to help power a growth…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

These cheap UK shares look way too good to ignore right now

With the UK stock market reaching new highs recently, this Fool plans to grab these two remaining cheap shares before…

Read more »

Young Woman Drives Car With Dog in Back Seat
Investing Articles

This unloved UK stock could rise 120%, according to a City broker

Some City analysts reckon a once-popular UK stock can recover from its massive recent decline and go on to more…

Read more »

Investing Articles

These FTSE dividend shares all offer 6%+ yields!

Paul Summers highlights three FTSE dividend shares that offer big yields. But is the passive income stream sufficient to offset…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Is Legal & General Group one of the FTSE 100’s greatest value shares?

Legal & General shares boast low P/E ratios and massive dividend yields. Could they be one of the London stock…

Read more »

Front view photo of a woman using digital tablet in London
Investing Articles

I’m looking for the best FTSE 100 value stocks to buy now. Have I found them?

Barclays, NatWest, and Imperial Brands shares are recovering strongly. But these FTSE 100 stocks still trade on rock-bottom earnings multiples.

Read more »

Businesswoman analyses profitability of working company with digital virtual screen
Investing Articles

Where on earth will Nio stock be in 1 year?

Nio stock has demonstrated extraordinary volatility over the past 12 months, but where will it be in a year's time?…

Read more »