The price of Brent crude oil has recovered from the economic downturn in 2020. BP (LSE:BP) and other oil companies suffered badly from the impact of Covid-19. Recently, the BP share price has been fluctuating. Could 2021 see a recovery on the horizon for the FTSE 100 giant?
BP share price woes
BP lost approximately 45% of its share price value in the space of a month between February and March 2020. At its lowest point, shares were trading for $233 per share. As I write this, I can buy shares for $260 a share. This is only a 10% increase in total over around 11 months. Brent crude is currently trading close to $60 per barrel, which is similar to pre-Covid levels and 13-month highs.
Despite the recovery in the oil price, I’m not overly buoyed by the BP share price for 2021 and beyond. I’m concerned about the risks that the oil producer faces. The Covid-19 saga continues to rumble on, with new strains dominating the headlines so far this year. This means further restrictions could well affect the demand for oil. There are also political factors that could affect the oil industry. Sanctions against Iran being lifted could mean a wave of unwanted oil released onto the market, which would drive current prices down.
A major positive in my eyes is BP’s commitment towards green energy. It wants to generate 50 gigawatts (GW) of renewable energy such as wind, solar and hydropower in its portfolio by 2030. This is an increase up from just 2.5 GW currently.
FTSE AIM opportunity
ASOS (LSE:ASC) recently announced the acquisition of the Topshop and Miss Selfridge brands from Arcadia in a deal worth £330m. The online fast fashion retailer has been going from strength to strength over the years. I think these acquisitions could catapult it even further, and 2021 could be an exciting year for the company.
While the high street shopping experience dwindled even further due to Covid-19, online-only brands have flourished. Since the market crash low, ASC has seen an astonishing 375% increase in its share price, which is the opposite tracjectory of the BP share price.
ASC’s shrewd investment in Topshop and Miss Selfridge could add hundreds of millions to its coffers. In 2020, the fallen Arcadia brands generated approximately £265m. I believe these figures could climb further by appearing on the ASOS platform, backed by its savvy digital marketing expertise.
Risk and reward
For me there are too many risks involved with BP. I do not even see it as a contrarian buy-and-hold investment right now, despite the fact it is one of the major oil players in the world and has a long history in the FTSE 100.
ASOS has improved in growing its profits, which have increased from 1% to nearly 5% in the last year. As with any stock, there are risks involved. ASC continues to invest massively in warehouses, which could affect profitability and efficiency if sales do stagnate. That’s because warehouses are fixed, unavoidable costs.
In addition, the FTSE AIM star, and other online fast fashion retailers, are under the microscope to ensure environmental and socially friendly practises. A recent supplier scandal at rival Boohoo rocked the company’s share price.
I would still rather invest my hard earned cash in ASOS over the BP share price right now. Here is another stock I am avoiding in 2021.