BP (LSE:BP) shares are among the most traded on the FTSE 100. The UK-based firm is one of the world’s largest hydrocarbons outfits, employing some of the most advanced technology to enhance its operations around the world.
But it’s also a company in transition. BP aims is to be net zero by 2050 or sooner across operations, production and sales. It is also planning for more than 40% of the capital it invests to be in bioenergy, convenience, electric vehicle charging, renewables and hydrogen by 2025.
However for now, BP is still heavily dependent on demand for hydrocarbons. So with the stock up 29.5% over the past 12 months, have I missed my chance to buy?
A bumper year
After a challenging period during the pandemic, 2022 has been a bumper year for oil and gas companies. Brent crude — the leading global price benchmark for Atlantic basin crude oils — reached around $125 earlier in the summer. And, for a while, it stayed there.
BP’s profitability depends on oil prices. High prices mean higher margins. And with one exception, Brent Crude has remained above $90 since late January. So despite a huge write down on its Russian operations, 2022 has been a good year for BP.
To provide added context, in 2020, BP said it was working to reduce its breakeven price to $35 a barrel by 2021. Although, right now with demand high, BP’s breakeven price is likely higher as the company will want all of its available assets — even the more expensive ones — online.
What’s next for hydrocarbons?
Demand for oil is now waning, and OPEC’s decision to slash oil production targets for October by 100,000 barrels per day is testament to that. But it’s entirely possible that demand might continue to fall below supply as the year goes on, in which case we will see Brent and WTI weakening further.
Analysts at Citi have suggested oil could fall as low as $60 a barrel this year amid forecasts of a global economic downturn. There are several reasons behind this, including recession forecasts in Europe and falling Chinese production.
Would I invest in BP?
I would not invest in BP right now. That’s because I think there is further downward pressure on oil to come later in the year and into 2023. And this will push the BP share price down — after all, BP is a cyclical stock.
However, I am planning to buy BP stock when, as I anticipate, it falls. Obviously, I want to buy low and sell high, but I’m also looking at the decade ahead. I believe we’re entering an era of scarcity characterised by increased competition for resources. In turn, this means that during the next decade, we will see higher resource prices on average.
So, in the long run, I see BP as a good place to put my money. I’m just not buying yet.