The BP (LSE: BP) share price has had a tough 2024 and looked too cheap to me to resist. So I bought the FTSE 100 oil and gas giant in September and November at what I thought was a bargain valuation of less than six times earnings.
I’m down 7.7% so far but given that I aim to hold the stock for years and ideally decades, these are early days.
Long-term BP investors will have had it tougher, with the shares down 18.93% over 12 months. The trailing yield of 5.95% will only partially offset that loss. The obvious culprit is the oil price, with Brent crude falling 6.36% in 2024 to $71.04 a barrel.
Can this FTSE 100 stock rally hard next year?
BP is more than just an oil producer, but its shares still correlate closely with energy prices. We saw that during the 2022 energy shock when they rocketed.
Where oil goes next is anyone’s guess. There are so many variables at play. US President-elect Donald Trump has pledged to ramp up shale production next year. By boosting supply, Trump could drive the price lower. Although if he gets the US economy motoring again, this could drive up demand. But a trade war could drive it back down.
Trump has pledged to bring peace to Ukraine. If he manages that, Russian oil and gas could flow into Europe again, driving down prices. But what if he doesn’t?
Then there’s Saudi Arabia. In September, there were rumours that it would open the spigots to recover lost market share, driving prices even lower. Yet last week, OPEC+ delayed the beginning of its production increase and slowed the pace of the output hikes.
I’ve just read on Oilprices.com that natural gas prices are set to surge this winter “due to a combination of high demand, tight supply, and limited production increases”. And I haven’t even mentioned the green transition.
Will the shift to renewables smash fossil fuel prices? Or will falling oil and gas prices smash renewables? That’s a biggie for BP in particular, as it rows back on its ‘Beyond Petroleum’ strategy, and returns to familiar fossils territory.
It’s all too much for my little brain. So what do the experts say? On Friday (6 December), Morgan Stanley predicted Brent crude would average $70 a barrel in the second half of 2025. If correct, that won’t light a fire under the BP share price.
Yet the 26 analysts who offer one-year share price forecasts are optimistic. They’ve set a median target of 505.8p, up 34.25% from today. That seems optimistic but I hope they’re right. Of these, 11 call it a Strong Buy, four name it a Buy while 14 say Hold. Only one says Sell.
I can justify my decision to purchase BP on diversification grounds. I didn’t hold any energy stocks. Plus its shares were dirt cheap. And the dividend is high and rising. Next year it’s forecast to hit 6.3%, covered exactly twice by earnings.
Personally, I don’t know where BP shares will go in 2025. Nobody does. But given the low valuation and high yield, I’m happy to go along for the ride.
