Market confidence has improved significantly during the past 12 months. This is reflected in the FTSE 100’s 13% rise in that time. Yet the BP (LSE: BP) share price hasn’t benefitted from the broader uptick in investor appetite.
Despite the breakthrough with Covid-19 vaccines — and the boost this has given to the economic recovery — BP’s share price is basically flat from this point in 2020. In fact, the UK oil share’s edged 2% lower in that time.
Is the market missing a trick here? At current prices, BP seems to offer considerable value for money. City analysts think BP will bounce back into the black in 2021. This leaves the company trading on an undemanding forward price-to-earnings (P/E) ratio of 12 times. What’s more, a 5.2% dividend yield smashes the broader 3.5% for UK shares to driftwood.
Why BPs share price could rise again
There are several reasons why I think the BP price could begin trekking higher again soon. These include:
#1: Oil prices climbing again. A fresh spike in crude prices could well be around the corner. Crude values have failed a few attempts to break through the $70 per barrel marker, sure. But a falling Covid-19 infection rate worldwide could help prices rise strongly if lockdowns and travel restrictions in some parts of the world end sooner than expected. News of fresh supply problems in Iran could also help BP’s share price rise again.
#2: Its green energy drive impresses investors. The future of traditional oil majors like BP have come under intense scrutiny as the move towards green energy picks up pace. But this FTSE 100 firm is taking aggressive steps to harness the soaring popularity of renewable sources. Indeed, it intends to have 50 gigawatts of renewable energy assets on its books by the end of the decade. That’s TWENTY times what the company currently has in its portfolio. Signs of progress on this front might also give the BP share price a shunt in the right direction.
Reasons to pause
It wouldn’t surprise me to see the oilie start to gain in value again. But it doesn’t mean I’ll be investing in BP any time soon, as it faces colossal long-term obstacles. The huge investment in fossil fuels that many major oil-producing nations, like Canada and Brazil, are making is one. The massive spending of recent years threatens to swamp the market with excess material that will weigh down crude prices.
My main worry for the BP share price however is the aggressive approach lawmakers are adopting to phase out oil and gas. It’s one that threatens to hammer revenues across the FTSE 100 firm’s core operations and is likely to cost oil majors like this billions of dollars to transition to low-carbon sources.
Just this week, a Dutch court ordered Royal Dutch Shell to reduce carbon dioxide emissions by 45% by 2030. It’s possible other industry giants like BP could be obliged to follow similar actions as fears over the climate emergency worsen.