BP shares are falling! Should I buy on the dip?

BP shares have taken quite a hit over the past few days, wiping out most of May’s gains. So, is now the time to buy?

| 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.

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.

Image source: Getty Images

BP (LSE:BP) shares slumped on Monday morning, compounding losses from the end of last week. The hydrocarbons giant has seen its share price soar this year, so maybe the current dip is a good opportunity to buy?

Why has the share price fallen?

BP shares, along with other oil and gas heavyweights, dropped 3% on Monday morning as the Brent crude spot price fell for the third consecutive session.

Brent crude — the leading global price benchmark for Atlantic basin crude oils — fell to $120 a barrel, down from $124 just a few days ago.

Oil fell for a number of reasons, including US inflation news as well as British and German GDP forecasts. But, perhaps most apparent is China’s move to introduce new restrictions to slow the spread of Covid-19. Lockdowns in hubs like Shanghai and Beijing will see demand for oil fall.

BP’s prospects

BP’s profitability depends on oil prices. High prices mean higher margins. At $120 a barrel, BP’s revenue is soaring.

In fact, in 2020, BP said it was working to reduce its breakeven price to $35 a barrel by 2021. A number of oil and gas producers embarked on programmes to reduce their per-barrel costs following the 2016 oil price crash and the pandemic.

So, at the current price, BP is hugely profitable despite shedding its Russian ventures earlier this year.

Analysts are expecting the oil price to fall but remain above $100 this year. However, it’s not easy to guess the oil price a few months from now.

Widespread lockdowns in China could tip demand below supply. Likewise, if we see Saudi Arabia, or another nation, increase production, this could push prices down.


BP has a price-to-earnings ratio of around 6.5. That’s certainly not expensive. In fact, its forward P/E ratio is 4.5, taking into account the firm’s impressive profit expectations for the year ahead.

But while it looks cheap, it’s important to remember that cyclical industries like oil and gas often trade with lower multiples. This is because they’re more exposed to downturns in the market.

Will I buy BP stock?

I’ve actually stayed clear of oil and gas companies in recent months. It’s not been the best decision so far, but in the medium term, I don’t anticipate hydrocarbon firms will be thriving.

With negative economic outlooks in the UK, EU, and concerning signs in the US, I think there will be some downward pressure on the oil price soon. I’m also concerned about China’s lockdowns and the impact this will have on demand.

There’s also the windfall tax introduced by the UK government on energy firms. The tax will see a 25% levy on UK oil and gas profits, on top of the 40% rate already paid.

So, right now, I’m not buying.

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 considered so you should consider taking independent financial advice.

James Fox 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

A pastel colored growing graph with rising rocket.
Investing Articles

3 top shares for the ongoing stock market recovery

Although messy, I think the stock market recovery is beginning and that's why I'm now buying shares such as these.

Read more »

Mature people enjoying time together during road trip
Investing Articles

5 UK shares I bought for income of 9.5% a year

We recently bought these five cheap UK shares for their generous dividend yields. These cash payouts range from nearly 7%…

Read more »

Bearded man writing on notepad in front of computer
Investing Articles

Is there still time to buy Scottish Mortgage shares?

The Scottish Mortgage share price has risen strongly in recent weeks. Should I pile into the FTSE 100 momentum stock…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

Why I’d start buying shares with £250 today not £20,000 in future!

Is it worth waiting to start buying shares until one has more money to invest? Our writer doesn't think so…

Read more »

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

I’ve bought Diageo shares to boost my long-term passive income!

I plan to hold on to my Diageo shares well into retirement. Here's why I think it's a top stock…

Read more »

New virtual money concept, Gold Bitcoins
Investing Articles

Down 61%, are Argo Blockchain shares worth buying?

Argo Blockchain shares have tumbled in value. As a shareholder, Christopher Ruane considers what might come next for the business…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 UK dividend stocks with yields over 10%

These dividend stocks are the highest yielders on the UK market, says Roland Head. But how safe are these generous…

Read more »

Couple relaxing on a beach in front of a sunset
Investing Articles

I’d start buying shares for passive income with this pair

Our writer is looking to earn passive income via investing, and here are two leading stocks he might buy.

Read more »