It’s been a bumpy few weeks for the FTSE 100 but the BP (LSE: BP) share price has enjoyed a robust rally. The same force is driving both, war in Iran.
On 27 February, the day before the conflict began, BP shares closed at 487p. Today, they’re 17.5% higher at 572p. They were doing well before that, as investors decided that after years of boardroom confusion, BP had to get its act together at some point. Also, the shares were cheap, and the yield high. BP shares are up 68% over 12 months. Can this continue?
They fell last week, after Donald Trump announced a 14-day ceasefire. Despite breaches, it more or less holds today. Tomorrow? Who knows. Oil price movements are impossible to second-guess at the best of times, and now feels like one of the worst times.
Volatile FTSE 100 stock
When markets are optimistic about a resolution to Iran, the FTSE 100 rises and BP plunges. When pessimism sets in, the opposite happens.
Brent crude ended February at $65. On 6 April, it topped $109. It’s since retreated to $95 a barrel. Where it goes next is anybody’s guess. JP Morgan warns it could hit $120 if the Strait of Hormuz is still a no-go zone over the summer.
BP can break even with the oil price at around $30 or $40 a barrel. It looks set for some bumper profits either way, although to a degree, markets have already priced them in. There are political risks too. Pressure could build for an even tougher windfall tax, as oil firms appear to make hay while voters struggle. Although this may not be the time to penalise energy suppliers.
There’s talk of the biggest oil supply shock in history, with up to a fifth of the world’s oil and gas supply under threat. Yet in practice, it may not be as bad as the early 1970s. The global economy is less oil-intensive, given greater efficiency and the rise of renewables. Also, the US is a much bigger producer thanks to shale.
It’s a long-term investment
We saw after the 2022 Ukraine energy shock that markets can adapt and find new sources of supply. This could happen here. Which could be a longer-term blow to Big Oil. I could mention another half a dozen risks, in either direction. So what can investors actually do?
At The Motley Fool, we recommend investing for the long term, which involves tuning out the short-term political – or geopolitical – noise. Not easy, especially today.
With that in mind, I think BP shares are worth considering, because fossil fuels remain essential to the global economy, even as the energy transition gathers pace. The Middle East crisis has confirmed that. Without oil, many motorists can’t drive, jet planes can’t fly, and people could even starve in some countries, as oil is needed for fertiliser and feedstock too. Also pharmaceuticals.
Investors who want exposure today should consider drip-feeding money into BP, taking advantage of any further dips in the price. But don’t assume today’s rally will continue. The next few weeks will be bumpy, for BP and everyone else.
