What’s next for the BP share price?

With forward guidance disappointing, many investors will be wondering what’s next for the BP share price. Gordon Best takes a closer look.

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Image source: BP plc

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BP’s (LSE:BP.) share price took a significant hit on Tuesday. Dropping 4% in early afternoon London trading, the energy giant warned of weaker-than-expected profits for the second quarter. This development has left investors questioning the company’s near-term prospects and wondering: what’s next for the BP share price?

What happened?

The latest guidance paints a fairly challenging picture. It expects “significantly lower realised refining margins” to impact its Q2 earnings by $500m to $700m. This mirrors a broader industry trend, with ExxonMobil also recently warning of lower refining margins hurting its profits.

Adding to the pressure, the company anticipates a “weak” performance from its oil trading business, contrasting with the strong results seen in Q1. The gas trading division is expected to deliver “average” results, providing little offset to these challenges.

The market’s reaction has been swift, with analysts at Jefferies projecting quarterly earnings to be about 20% lower than previously expected. RBC Capital Markets has cut net income forecasts for Q2 from $3.3bn to $2.7bn.

This profit warning comes at a crucial time for CEO Murray Auchincloss, who faces the challenge of delivering on his promise to be “laser-focused on returns to shareholders.”

However, it’s not all doom and gloom. Recent strategic moves suggest management is actively adapting to changing market conditions. The firm announced plans to take an impairment of up to $2bn in Q2, primarily related to scaling back operations at its Gelsenkirchen refinery in Germany. This decision, aimed at reducing crude oil processing capacity by about a third from 2025, is a clear response to a weaker demand outlook.

Now what?

Looking ahead, investors will be keenly watching a Q2 results announcement on 30 July for signs of how the company plans to navigate these challenges. Some key questions remain: can it maintain its dividend payments, a crucial attraction for many investors? Will cost-cutting measures be enough to offset the impact of lower refining margins and weaker trading performance?

The energy sector as a whole is facing challenges, with rival Shell also recently warning of potential impairments. This suggests that these challenges are not unique, but rather symptomatic of broader industry trends.

For many long-term investors, the current volatility might represent a buying opportunity, especially given the company’s ongoing efforts to position itself for the energy transition. However, short-term volatility seems likely as the market digests these latest developments.

As the firm continues to balance its traditional oil and gas business with its ambitions to become a net-zero company by 2050, the path forward for its share price remains uncertain. Management’s ability to adapt to changing market conditions, deliver on cost-saving promises, and maintain shareholder returns will be crucial in determining its stock performance in the coming months.

So while the immediate outlook appears challenging, the long-term strategy and its response to these challenges will ultimately shape investor sentiment. As always in the volatile world of energy stocks, only time will tell. But one thing is certain: all eyes will be on the BP share price come 30 July, as the market seeks clarity on what’s next for this energy giant. I’ll be keeping it on my watchlist for now.

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.

Gordon Best 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.

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