Is the BP share price stuck at 486p?

After an impressive post-pandemic bull run, the BP share price has been more muted of late. Our writer’s trying to work out what might happen next.

| More on:

Image source: BP plc

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.

Since 15 March 2023, the average daily closing BP (LSE:BP.) share price has been 486p. By coincidence, that’s the same price at which the oil giant’s shares are currently changing hands.

Looking back five years, its stock’s down around 10%, although it’s fluctuated wildly during this period.

I’m wondering, what direction will it go next?

A history lesson

Given that the majority of its income is earned from the extraction and sale of oil, it appears reasonable to assume that there’s a strong relationship between the company’s share price and the cost of a barrel of Brent crude.

Indeed, this can be seen from the chart below, which compares the movement in these two variables over the past 20 years.

Chart by TradingView

To try and gauge the direction of the company’s share price, it’s therefore necessary to know what’s going to happen to the oil price. And that’s where things get very difficult.

That’s because oil prices are influenced by the production decisions of OPEC+ member countries, regional conflicts and global demand. None of these factors are easy to predict.

In fact, some studies have found that assuming future oil prices will remain the same as they are now, is equally as reliable as more sophisticated forecasts!

For what it’s worth, Barclays, JP Morgan and Fitch Ratings are predicting an average price per barrel in 2024 of $93, $83 and $75 respectively.

A crystal ball

Energy stocks can therefore be volatile. To compensate for this risk, investors look for a reliable and steady stream of dividend income. BP’s shares are currently yielding 4.7%. While this is above the FTSE 100 average of 3.9%, there are many quality stocks presently paying more.

Personally, I don’t feel the yield is high enough to justify the risky nature of the company’s shares. BP’s directors will point to their share buyback programme as evidence of the company’s generosity towards its shareholders. But I’d rather have the cash in my hand.

And I’d question whether the $23.2bn the company’s spent since 2019 buying its own shares has really had much of an impact.

For example, compared to 30 June 2022, there are around 12% fewer shares in circulation. Yet the share price is largely unchanged.

Chart by TradingView

Based on the number of shares in issue at 31 December 2019, instead of the share buybacks, they could have returned an additional 90p (at current exchange rates) for each share held.

Cash is king

One thing that appears certain to me is that when commodity prices are in its favour, the oil giant will remain — in the words of its former chief executive — “a cash machine“.

And as the chart below illustrates, it has the potential to generate lots of it.

Chart by TradingView

Due to fluctuating energy prices, conventional measures of profitability aren’t necessarily useful when assessing oil companies. An an example, in 2022, BP recorded a loss after tax of $1.4bn. Yet it generated over $23bn of free cash.

Unfortunately, without a crystal ball to accurately tell me the future price of Brent crude, I’m unable to say how much cash BP will generate, and when. And that means — I must admit — I’ve no idea what’s going to happen to its share price.

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.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. James Beard has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays Plc. 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

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

Investing freedom — but inside a pension

Strapped consumers might be cutting back on investing, but they’re still keeping up their pension contributions. The only problem? A…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

Forget gold! I’d rather buy these 3 FTSE high-yielders in a Stocks and Shares ISA

Gold looks like a risky investment to me as the price hits an all-time high. I'm ignoring the fuss to…

Read more »

Young female business analyst looking at a graph chart while working from home
Growth Shares

This 55p UK stock could rise more than 300%, according to a City broker

This UK stock has fallen from above 800p to below 60p. But analysts at Citi believe it’s capable of a…

Read more »

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

I think this FTSE 250 trust has all the right ingredients to lock in long-term profits

Today I'm examining the prospects of a private equity investment trust on the FTSE 250 that caught my attention recently…

Read more »

Young black man looking at phone while on the London Overground
Investing Articles

2 under-the-radar UK shares investors should consider snapping up

Two UK shares have caught the eye of our writer. She explains why investors should be taking a closer look…

Read more »

Investing Articles

Are these 2 ultra-high-yielding income stocks a good buy for me?

These two income stocks often split the debate amongst investors. So what does our writer think of them as potential…

Read more »

Senior woman potting plant in garden at home
Investing Articles

5% yield! This dividend stock could be great for my retirement

Our writer explains why this dividend stock appeals to her as she’s investing to build wealth to enjoy in the…

Read more »

A young Asian woman holding up her index finger
Investing Articles

I’d aim for a second income of £1,000 a month with this super-reliable dividend stock

I think a great way to build a second income stream is by investing in dividend stocks via a Stocks…

Read more »