The BP (LSE:BP) share price was one of the FTSE 100’s few winners last month. The oil major managed an impressive 24.5% gain.
The main reason – of course – is the increase in the price of oil. But for long-term shareholders, it will mean much more than that.
Oil prices
Rising oil prices mean oil companies make money. As Warren Buffett put it in the 1985 Berkshire Hathaway letter to shareholders:
If a CEO’s company makes a lot of money simply because the price of its product rises – due to external factors or a shortage – that’s not a reflection of his skill. It’s like a person being born with a large inheritance and claiming he’s a financial genius.
Buffett is – as usual – entirely right. BP’s share price is up because oil prices are up and that’s not under the company’s control.
That being said, the firm benefiting from high oil prices hasn’t been a given in recent years. So the latest move is worth noting.
Right place, right time – finally
Maybe BP doesn’t deserve much credit for being in the right place at the right time. But it didn’t succeed even at this in recent years.
The last time oil prices were this high was 2022. But while this was happening the firm was busy focusing on offshore wind farms. These proved to be a disaster. Not only did BP miss out on high oil prices, but inflation and higher interest rates made projects unviable.
This resulted in huge losses at a time other oil majors were making money. And by the time the firm shifted back, prices were much lower.
I’m not a BP shareholder. But even I’m pleased to see them doing well after years of being in the wrong place at the wrong time.
A brighter future
None of this happened under the current CEO’s leadership. And Meg O’Neill has the company focused squarely on hydrocarbons instead of electrons.
I think this is a good thing. Not because of any prediction about what the future of energy looks like, but because of what BP is good at.
It’s one thing for British American Tobacco to explore different nicotine products. But it’s another for oil companies to start building wind farms.
BP has genuine specialist knowledge and capabilities when it comes to oil and gas. And it’s not at all obvious this is true of renewables.
As a result, I think the company’s focus is the right one. Even with the ups and downs of oil prices, this looks like the right long-term strategy to me.
Investing in oil
Investors who own oil stocks should be ready to deal with price volatility. And it looks like the next move from here might be lower.
Even if the conflict drags on, oil supply is more elastic than for other commodities. Drilling a new well takes less time than opening a new copper mine.
That means it’s hard to think that now is the time to consider buying BP shares. But investors who own the stock have a lot to be positve about
The firm’s structural changes mean it’s finally where it arguably ought to have been all along. And that can only be a good thing for shareholders.
