BP (LSE:BP.) shares have soared despite, or more likely because of, the fierce conflict in the Middle East. The business has significant operations in the region. And a surge in oil prices has pulled the oil giant higher.
Over the last month, the FTSE 100 company has risen 13.1% in value. It means a £5,000 investment made on 10 March would now be worth £5,655, a gain of £655.
Can the share price keep on climbing? With selling from retail investors heating up, I’m not convinced…
Top of the ‘sold’ list
AJ Bell is the third-most-popular investing platform in the UK. So trading activity here is a useful indicator of what retail investors are thinking.
In the last week, BP shares were the sixth-most-purchased stock with AJ Bell. However, the business sits at the top of the most-sold list too. This may be down in part to simple profit-taking after the stock’s recent strong run. But there may be other factors at play as well.
Interestingly, oil stocks aren’t the only ones rising sharply following the start of the Iran War. Renewable energy stocks have also been rallying — Greencoat UK Wind, for instance, has gained 5.6% in value over the last month.
Why? Oil supply disruptions in the Middle East have put the issue of energy security back on the agenda. It’s led to speculation that the rapid rollout of green energy capacity will accelerate as nations seek to better protect themselves from inflationary and economic shocks.
In this climate, long-term demand for BP’s product could fall more sharply and quickly than had been anticipated before recent events. And with the FTSE firm selling clean energy assets and reducing green investment budgets, it’s even more exposed.
What’s the near-term outlook?
But what are the prospects for BP and its share price in the nearer term? For even the most seasoned analyst or investor it’s hard to tell, given the fluid situation in the Middle East.
At the moment a fragile ceasefire is holding. But if the conflict ratchets up again, more oil-related infrastructure could be hit and the Strait of Hormuz remain closed, pushing oil prices skywards again.
Crude prices remain volatile, swinging above and below $100 a barrel. However, it’s not just supply that investors need to consider — demand for oil could sink in the event of a prolonged war, as inflationary pressures rise and economic growth is hit.
This in turn could remove a key plank of energy price support in the months ahead, and pull oil stocks lower again.
Are BP shares a potential buy?
So the question is, should investors think about buying, selling or holding BP today? At 580p a share, it still offers attractive value for money, I feel, with a forward price-to-earnings (P/E) ratio of 10.6 times. That’s also below the 10-year average of 11–12.
But even at today’s prices, I’m not tempted to buy BP shares for my own portfolio. The near-term outlook remains hugely uncertain. And I’m not convinced by its longer-term picture either, given the steady growth of renewable and nuclear energy sources. I’d rather buy other UK shares for my portfolio.
