BP (LSE: BP.) shares rallied at the beginning of the week after news of an unexpected cut in oil production.
OPEC countries announced they were reducing output by around 1m barrels of oil a day. Inevitably, this led to concerns that supply won’t be able to keep up with demand.
The BP share price in 2023
Taking a step back, BP shares have had a turbulent ride since the beginning of 2023.
After a relatively stable performance in January, early February saw the oil supermajor’s shares rocket from 478p to 560p in the space of just a week.
The 17% rise across five days of trading reflected the group’s announcement of record profits for 2022.
After staying mostly steady for the rest of February, the shares plummeted from 558p back down to 479p by mid-March.
The drop came on the back of reduced climate change goals and incidents abroad.
Since then, BP shares have been on the rise again. As I write, they trade at around 534p.
How much would my hypothetical investment be worth today?
At the beginning of 2021, the BP share price was hovering around 298p.
This means that if I’d invested £10,000 in BP shares in the midst of the pandemic two years ago, my initial investment would now be worth £17,900.
That’s a whopping 79% return with a total gain of £7,900.
The long-term perspective
While that’s an exciting statistic, and testament to BP’s solid performance in recent years, I refuse to get bogged down with past short-term share price fluctuations.
After all, my investment strategy is to accumulate wealth by buying and holding quality shares for the long run.
The reality is that I’m more concerned about what the BP share price could look like in 10, 20, or 30 years time.
Inevitably, that depends to a large extent on whether I think BP can continue to deliver solid financial results.
Is now a good time to buy BP shares?
BP’s profits more than doubled last year to a staggering $27.7bn, reflecting the best result in the company’s history.
Yet in spite of the company’s bumper 2022 performance causing rapid share price growth, BP shares still look surprisingly cheap to me.
The company’s price-to-earnings (P/E) ratio is estimated to stand at around 4.5. Meanwhile, fellow competitor Shell‘s P/E ratio is currently around the 7.1 mark.
What’s more, I’m a big fan of BP’s massive cash flows, which have not only enabled substantial shareholder returns, but have also given the group space to pay down debt to levels not seen in nearly a decade.
My final verdict
That said, all it would take would be a plunging oil price for BP’s bright outlook to look a little more dim.
Sustained growth in dividends and buybacks are wholly dependent on oil prices remaining elevated, which certainly isn’t guaranteed.
Nevertheless, I’m confident that BP’s plans to increase exposure to renewable and lower carbon energy sources will continue working towards offsetting this risk in the long run.
As a result, if I had some cash to spare, I’d buy BP shares for my portfolio today with the aim of holding them for the long term.
