The BP (LSE: BP.) share price has had a rocky ride in the past five years. That’s not surprising after a pandemic crash, war and conflict, global inflation, and volatile oil prices. But other than that…
BP shares have lost 20% of their value in the past 12 months. That’s pushed the forecast dividend yield up to 6.2%. I like the sound of that.
Long term, short term
Let’s put aside the long-term threat to the oil business from alternative energy for now. It’s not going away, but I’m increasingly convinced that oil will still be around until after I’m gone.
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BP’s forecast price-to-earnings (P/E) ratio of only six by 2026 takes some of the sting out of it too. I feel that’s just a wee bit too pessimistic.
But a different fear worries me going into 2025 — the price of oil. Brent crude has been sliding since April, and it’s now around $74 per barrel. I might be happy enough with that, except for one thing.
The oil producers’ group, OPEC+, intends to start winding back its earlier production cuts, now delayed to December after recent price falls.
Slowing demand
But predictions show demand growth slowing. And even then, the OPEC outlook is at the top end of industry estimates. The International Energy Agency sees a demand plateau this decade, well below what OPEC hopes for.
But wait… at the low end of current estimates, oil demand might only plateau this decade? So nobody expects it to actually fall any time soon?
Does this mean renewable energy might not come close to killing off hydrocarbons in the near future after all?
Still, if Donald Trump goes ahead with his “Drill, baby, drill” thing when he’s back in office… and the Ukraine war ends and we all can buy cheap Russian oil again… I’d hate to guess how far prices might fall.
What to do?
I’ve bought and sold oil stocks a few times over the decades. And I’ve always thought about where the cost of a barrel might go. Generally, I’ve guessed at a long-term stable level of around $75.
But the future could see it a fair bit lower than that. And I think I can only do one simple thing: ignore the oil price altogether.
I really should consider buying based on whether I think the stock valuation looks low today. And if the dividend outlook seems healthy enough to put a decent amount of cash in my pocket every year.
From that angle, I find it hard not to want to buy BP shares.
So will I?
I do expect the BP share price to be one of the FTSE 100‘s more volatile in the next decade. But if I don’t plan to sell, that’s fine. I might even get chances to buy more at lower prices.
I should be ready to invest more cash in my Stocks and Shares ISA early in the New Year. BP will be on the shortlist.
