It’s fair to say that 2023 hasn’t been a great year for the BP (LSE:BP) share price. The stock has fallen by 1.75% while fellow FTSE 100 oil major Shell has seen its shares gain around 10%.
Some of the challenges the company has faced look set to ease in 2024 though, even though issues do continue. So while there are never any guarantees, here are three reasons to be optimistic about the stock for next year.
Oil prices
The first concerns oil prices. The BP share price has tracked the performance of Brent Crude pretty closely over the last 12 months.
Like most things, the price of oil is a function of the balance between supply and demand. And there’s reason to be bullish in 2024 from both sides.
In terms of demand, inventory levels are toward the lower end of their five-year range. This means there’s scope for future demand to bring stores back up.
There are also issues on the supply side. The ongoing conflicts in both the Middle East and Ukraine limit supply and create uncertainty.
Investors should note that OPEC+ production targets expire at the end of 2024 and the effect of these might be significant. But there are certainly reasons to be positive at the moment.
Energy transition
One reason BP shares have performed worse than Shell has been its involvement in the building of offshore wind farms. The company has had to scrap projects due to rising costs, leading to impairment charges.
There have been two main reasons for this. The first is inflation, which has increased the price of materials, and the second is rising interest rates, which have made financing more expensive.
Both of these have stabilised recently though. And if this remains the case into 2024, then there’s a decent chance the company can get its wind projects back on track.
The Bank of England has been clear in warning investors about over optimism in this area, so investors should be careful. But any improvement in this area ought to help the BP share price going forward.
Economic outlook
The last reason for being optimistic about BP shares is the global economic outlook. The International Monetary Fund (IMF) is forecasting global GDP to continue to grow in 2024.
This is good for firms like BP. Economic activity needs to be powered by energy and – in the short term at least – that means oil.
A global recession would have been a bad thing for oil companies and I still wouldn’t rule out that possibility. But the IMF’s forecast is much more positive.
A 3% increase in global GDP is less than the 3.5% achieved in 2022. But it’s much better than it could have been so I think this is a reason the BP share price could go higher from here.
A stock to consider buying?
All in all, I think 2024 could be a good year for the BP share price. And the stock is one I’ll be keeping a close eye on when the new year comes around.
It’s worth noting though that a lot of what benefits BP is good for oil companies in general. So I’ll be looking to weigh up BP’s prospects against other companies in the sector.
