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The BP share price (LSE: BP.) has had a good week. It climbed 6% and is now up more than 20% over the past three months. That offers some relief to long-suffering shareholders, although it’s still down 11% over the past year.
Tragically, the rally began when conflict between Israel and Iran drove the oil price from just over $60 to just under $80 a barrel. BP is not purely an oil producer, but energy prices remain the biggest driver of earnings.
FTSE 100 comeback
The oil price pulled back after the bombing stopped, but started rising again last week. That was partly down to Donald Trump delaying threatened tariffs, kicking the decision into August, while renewed Houthi attacks on shipping pushed the geopolitical risk premium higher. Reports that Trump may make a “major” announcement on Russia added to the uncertainty.
OPEC also updated its long-term forecast, projecting global oil demand will rise to 122.9m barrels a day by 2050, driven by growth in India, Africa and the Middle East. That helped steady nerves.
There are dozens of moving parts. And the reality is that nobody has a clue where oil goes next. Which means nobody really knows what the BP share price will do either. To be fair, I could say that about any stock.
Trading update lands
BP released a Q2 update on 11 July. While reported upstream production rose, falling oil and gas prices took their toll. Oil averaged $67.88 a barrel in Q2, down from $75.73 in Q1. That could knock $600m to $800m off earnings. The gas and low carbon energy segment may face a further hit.
The company expects stronger refining margins, rising from $15.2 to $21.1 a barrel, while oil trading should also deliver a strong result. Net debt has fallen slightly, but remains close to $30bn.
A stock with baggage
BP’s ailing share price has driven up the trailing dividend yield to an attractive 6.02%. Forecasts suggest that could climb to 6.3% next year. The board is still busily buying back billions of its own shares. BP’s forward price-to-earnings ratio sits at 12.5, falling to 11 in 2026. Which looks decent.
We also learned last week that BP is returning to Libya, signing a deal to explore three sites and reopen its Tripoli office. That may help improve long-term production.
Still, strategy remains muddled with BP torn between shareholders demanding it refocuses on fossil fuels, while activists demand greater commitment to renewables. Expectations are modest, with 28 analysts forecasting a median 7.5% rise in the share price to 432.5p over the next year. As of 11 July the shares traded at 401.75p. Throw in the yield and the total return jumps to around 13.5%.
I bought BP last autumn, and my double-digit loss is now in single digits. Add dividends, and I’m roughly flat. Could it go gangbusters from here? I’d like to think so but suspect the challenges and uncertainty are simply too great, especially with the world potentially slipping into recession.
BP is still worth considering with a long-term view, for income as much as growth, but only as part of a balanced portfolio. This is a volatile sector. It’s a long time since BP could be called a no-brainer buy.
