Crude oil is up 4% and the tone in global markets is turning cautious following an escalation in US – Iran tensions. Iran has promised a harsh retaliation to US airstrikes and the killing of Qasem Soleimani a feared Iranian general, which has deepened the risk off atmosphere days into the New Year.
With a 4% rally in oil, attention will naturally turn to oil majors. BP’s upstream earnings are impacted by the price of oil. Consequently, BP is positively correlated to the price of oil with a coefficient of 0.58. This means that 58% of the time BP’s share price has moved in the same direction as oil. BP’s correlation coefficient is higher than that of Exxon Mobile and Royal Dutch Shell whose coefficients are 0.49 and 0.52 respectively. This means that BP’s correlation with oil is stronger than that of its peers.
BP reported Q3 underlying profits before tax of $4.5 billion, 32.5% behind the same period last year. This reflected lower production and lower oil and gas prices upstream and reduced refining margins downstream. Oil prices were lower on average year on year by some 12%.
Trade optimism and planned deeper OPEC cuts helped boost oil prices in the final quarter where average oil prices were just 6.3% lower year on year.
Looking ahead the price of oil is expected to be supported amid the elevated middle eastern tensions, a US – China trade deal and deeper OPEC cuts. As a result, BP could push higher.
Of 11 analysts:
8 recommend strong buy
2 recommend buy
1 is neutral
Levels to watch:
BP share price dropped 5% across the previous year and tumbled 19% from last year’s high of 583p in April to the end of the year.
The stock price has jumped 1.7% across the morning session. Despite the jump, BP remains below its 50, 100 & 200 sma. A break above resistance at 493p could see BP push above 500 and negate the current downward trend. Support can be seen at 460p.
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.