The Motley Fool

Why I think the oil crash makes BP shares a screaming buy

Image source: Getty Images.

BP (LSE: BP) has seen its shares lose 38% of their value since the Covid-19 pandemic triggered a FTSE 100 crash. Oh, and an oil crash. With oil trading at record lows, you might think I’m mad for seeing BP shares as a screaming buy right now.

To make matters worse, on Monday, the unthinkable happened. The US oil price went negative for the first time in history. Now, that’s an oil crash. But why would that make me bullish over BP shares?

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

The headline took a moment to sink in with me, but it means just what it implies. The US is so awash with oil production, and storage facilities are getting so full, that suppliers were actually paying buyers to take the stuff off their hands.

Good for BP shares?

Now, you don’t need me to tell you that’s no way to run an oil business. And it’s not good for BP shares, or shares in any other oil company. In fact, the BP share price dropped 6% on Tuesday morning though, as I write, it’s back to a fall of around 4% on the day. 

But that negative oil price is a bit of a short-term quirk, based on trading deadlines and things like that. And here in the UK, Brent crude is changing hands for around $20 per barrel, as I write. That’s still perilously cheap, as the cost of production is higher than that for many companies. If the oil price continued at those levels for long, we could see a lot of them going bust.

Smaller oilies

Putting BP aside, If I owned shares in smaller oil companies, or ones shouldering large amounts of debt, I’d be very concerned. After the last oil crash, I bought shares in Premier Oil. But when I revisited that decision some time later, it stuck me it really wasn’t in line with my long-term strategy and was just an opportunistic punt. I accepted I had made a mistake, and I sold.

I’m very glad of that now, as Premier Oil shares have slumped to only around 20p in the oil crash. That’s a share price fall of 80% since the pandemic hit. And I think it could get even worse. Premier is saddled with close to $2bn in net debt. And though it has some cash and enough undrawn debt facilities to keep it going for a while, it’s not in a happy situation.

BP, on the other hand, isn’t going to go bust. Or, at least, if it does then I’ll probably give up on this investment lark for ever, because it’ll have shown how bad I am at it.

BP shares next year?

During the last oil crash, I predicted prices would recover to around the $75 level. That’s pretty much what happened and is down to luck, rather than any qualities I might have as an oil price guru. But where will oil be a year from now? In five years? I reckon a lot higher than today’s crisis level.

And that’s why I rate BP shares as a great buy today, for those with a long-term time horizon.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Where to invest £1,000 right now

Renowned stock-picker Mark Rogers and his select team of expert analysts at The Motley Fool UK have just revealed 6 "Best Buy" shares that they believe UK investors should consider buying NOW.

So if you’re looking for more top stock ideas to try and best position your portfolio in this market, then I have some good news for your today -- because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.