Should I buy fallen BP shares?

BP shares are down 15% over the past week. But maybe the dip represents a good opportunity to buy the hydrocarbons giant.

| 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.

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.

Image source: Getty Images

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.

sdf

BP (LSE:BP) shares had been going from strength to strength this year. However, the oil and gas giant’s share price plummeted last week, along with the rest of the index. BP shares are down 15% over the past five days.

The fall

The FTSE 100 and other global markets fell last week on the back of negative economic data. US inflation, in particular, came in higher than expected. There were also negative economic forecasts for the UK and Germany. And this was compounded by sporadic Covid-19-related lockdowns in China.

Benchmark crude prices fell on the back of this information. Brent crude is currently trading for $111 a barrel, down from over $120.

Credit Suisse also raised Shell to “outperform” but initiated coverage of BP at “neutral“. The bank said BP’s near-term plan to grow its Customers & Mobility theme may leave it exposed to scaling back its targets.

Prospects

But BP and its peers have been making record profits as oil prices soared. New research from the International Energy Agency (IEA) suggests global oil demand will reach new highs in 2023. This is certainly good news for oil and gas giants.

In its monthly report, the watchdog said demand was likely to rise by 2.2m barrels per day, or 2.2% year-on-year, to 101.6m bpd in 2023. Total demand would exceed pre-pandemic levels.

The IEA also said supply would struggle to keep up with demand, suggesting oil prices will continue to rise. However, such forecasting is based on assumptions that may not be sustained.

Chinese lockdowns remain a threat to oil demand. China’s Covid-zero policy has sparked sporadic lockdowns in Beijing, Shanghai and now Shenzhen. This hurts economic activity and, specifically, demand for hydrocarbons.

Profitability

BP’s profitability is dependent on oil prices and, at the current price, BP is making a lot of money. It also has a relatively low break-even point too. In 2020, the firm said it was working to reduce its break-even price to $35 a barrel by 2021.

However, I’d expect the break-even point to be slightly higher right now. With oil prices soaring, BP will want all its assets on-line and to ensure that every barrel is extracted from its wells. So recovery costs might be elevated as a result.

Would I buy BP shares?

Would I buy BP stock? This is a difficult one as there has been plenty of commodity volatility in recent years. I have also stayed clear of oil and gas companies in recent months, expecting there to be a fall.

But at today’s price, I’d actually be willing to buy this stock. Although I’m still concerned about the windfall tax in the UK and the impact of Chinese lockdowns on the oil price, the IEA forecast is pretty positive for BP and its peers.


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.

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

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

With a 30% increase since the start of the year, does the Barclays share price still offer good value?

In light of an impressive Barclays share price rally, our writer considers the attractiveness of the bank’s stock relative to…

Read more »

British coins and bank notes scattered on a surface
Investing Articles

How much passive income could we earn from UK shares with just £10 per day?

Even with modest amounts of money to invest, we can still consider investing in the UK stock market to generate…

Read more »

Night Takeoff Of The American Space Shuttle
Investing Articles

3 booming growth shares in the Scottish Mortgage portfolio

Our writer highlights a diverse trio of red-hot shares from the portfolio of Scottish Mortgage Investment Trust. Are any worth…

Read more »

Businessman using pen drawing line for increasing arrow from 2024 to 2025
Investing Articles

2 growth stocks absolutely smashing the FTSE 100

If you think the wider FTSE 100 is having a good year (and it is), check out the gains holders…

Read more »

UK financial background: share prices and stock graph overlaid on an image of the Union Jack
Investing Articles

FTSE 100: next stop 10,000?

As the FTSE 100 briefly hits 9,000 points, investors are already looking forward to when the next 1,000-point level might…

Read more »

Investing Articles

Is Burberry ‘back’ as a solid update drives its shares to 17-month highs?

Burberry shares have risen by more than 60% since May's forecast-beating financials. Can the FTSE 250 luxury giant keep rising?

Read more »

Two gay men are walking through a Victorian shopping arcade
Investing Articles

The Burberry share price continues to rise despite falling sales!

Our writer looks at how the Burberry share price responded to the company’s first-quarter trading update, which was released earlier…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

What a crazy day for the share price of this FTSE 250 retailer!

Our writer’s taken time to digest the latest results of the FTSE 250’s Frasers Group. And he likes what he…

Read more »