BP (LSE:BP) shares are among the most traded on the FTSE 100. And this year, investors in BP will have done pretty well. The share price is up 40% over the past 12 months, despite a huge writedown due to its decision to leave the Russian market.
So, what’s next for BP and should I be looking to add this stock to my portfolio?
Long-term performance
If I’d bought £1,000 of BP shares five years ago, today I’d have £995, plus dividends. Those dividends would actually have been pretty sizeable at around £200 over the five years. So, in terms of the share price alone, that’s not a great return, but the overall return isn’t too bad at all.
In fact, in the years leading up to the pandemic, BP was trading around 20% higher than it is today. And that could partially reflect the near $25bn dollar writedown on its assets in Russia. But it could also reflect a possible downturn in the oil market.
Outlook
BP’s share price is elevated from 2021 simply because oil prices have been higher this year. Its upstream, downstream and trading segments are all making more money.
In early August, BP said that underlying cost replacement profit — its preferred measure of profit — rose to $8.45bn in the second quarter from $6.25bn in the first and $2.8bn in the second quarter a year earlier.
The figure was well ahead of analysts’ expectations of $6.8bn, partially due to an “exceptional” oil trading performance.
But there’s a lot of uncertainty in oil markets right now. In fact, OPEC suggested last week that it looks like there might be a surplus of oil on the global market this year, and this could see it consider cutting production accordingly.
And these concerns were compounded on Monday as Chinese economic data renewed global recession concerns. The central bank in China — the world’s largest crude oil importer — cut interest rates as data showed the economy slowing unexpectedly in July.
In response, oil prices fell around 4%. Brent crude futures had fallen $4.75 to $93.40 a barrel by midday.
Some analysts have suggested that oil could fall even further. In fact, Citi suggested oil could fall as low as $60 a barrel this year amid forecasts of a global economic downturn.
Will I buy BP stock?
I’m bullish on oil in the long run, as I think we’re entering a period of scarcity with likely higher commodity prices and increased global competition. But I see oil falling this year as the global economy goes into reverse. As such, I won’t be buying BP shares now, but I’ll keep a close eye on them and will look for a better entry point later this year.
