The BP (LSE: BP) share price ended the year on the back foot, falling almost 6% in December. BP shares climbed around 12% over the year though. Throw in the trailing yield of 5.6%, and the total return was nudging 18%. This isn’t bad, but it isn’t great either. So is BP primed to rally hard in 2026? As ever, opinions differ.
FTSE 100 throwback stock
The FTSE 100 oil giant has had a bumpy millennium. It remains a key portfolio hold for many, but sometimes I wonder whether it’s living on its past glories.
BP has struggled ever since the Deepwater Horizon tragedy in 2010, and management policy has often been in disarray. While it’s belatedly chosen its side in the fossil fuel debate, that could backfire if renewable energy kicks on.
I haven’t got space to run through all of last year’s boardroom turmoil, but December’s hasty exit of CEO Murray Auchincloss after less than two years put the tin lid on it. Investors are hoping his successor Meg O’Neill, from Australian firm Woodside Energy, lasts longer and does a better job.
She’s BP’s first external appointment, which brings hope of a fresh perspective. Mind you, I’ve just checked Woodside’s share price performance and it doesn’t exactly inspire confidence. It’s done worse than BP!
Progress will be tough, given the downbeat outlook for the oil price. Crude is sliding towards $60 a barrel, and analysts expect it to stay weak in 2026. Markets remain oversupplied, floating storage is at its highest since 2020, and tighter sanctions on Russia or US pressure on Venezuela haven’t moved the needle. A peace deal in Ukraine could add to the glut.
Meanwhile, China is flooding the world with cheap electric cars and investing heavily in renewables, while a US recession could hit demand further. Plenty of reasons to worry about BP shares today.
Dividends, buybacks and worries
Of course, any of this could change overnight. Forecasting oil price movements is a mug’s game. And Q3 profit of $2.21bn did cheer investors by beating forecasts, even if it was below Q2’s $2.35bn.
O’Neill has a huge turnaround ahead: completing the retreat from renewables and tightening BP’s focus on upstream oil and gas production. Debt stands at $26bn, arguably much more once other liabilities are included. O’Neill will want to accelerate the disposal of underperforming assets to work that down. There’s another cloud looming as a break-up or takeover can’t be ruled out either.
Some of these worries are already priced in. BP trades on a modest forecast P/E of 14.2, with a predicted yield of 5.7%. Plus there’s a generous share buyback programme running at $750m a quarter.
I was surprised to check out broker forecasts, and find them pretty upbeat as 29 analysts produce a one-year median target of 504p. That implies a gain of more than 18% from here. Throw in that forecast yield, and the total return heads towards 24%. If somebody offered me that today, I’d bite their arm off.
I don’t share broker optimism though. Having listed all the problems, I think 2026 could be another choppy year. Investors should think carefully before adding BP to their portfolio. Let’s hope I’m wrong and those upbeat forecasts are correct.
