Is the BP share price dip a FTSE 100 buying opportunity?

[MongiIG]

Is the BP share price dip an excellent FTSE 100 buying opportunity, given that it staged a recovery rally this week and evolves in a long-term uptrend?

Source: Bloomberg

 

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 Axel Rudolph | Market Analyst, London | Publication date: Monday 25 July 2022 

Is BP a good investment?

Despite BP's share price dropping by around 20% from its 456p June high, roughly in line with the fall in the oil price, it remains within its late 2020-to-2022 uptrend channel and above the 200-week simple moving average (SMA) at 353p, both of which means that the long-term uptrend remains intact and that the share is ultimately still bullish and worth buying, especially at current levels of around 382p.

Source: IT-Finance.com

 

The stock has dropped since June as investors are increasingly worried about the possibility of a recession later in the year.

Nonetheless BP is expected to post second quarter (Q2) 2022 revenue of $47.98 billion, a 31.5% year-on-year (YoY) increase on its first quarter (Q1) 36.47 billion with earnings per share (EPS) expected to come in at $0.33, more than double its Q1 2021 EPS of $0.14.

According to Refinitiv Eikon 20 analysts rate BP as a ‘buy’ or ‘strong buy’, seven as a ‘hold’ and one as a ‘sell’ with a median price target of 500p, some 30% above current levels (as of 21 July).

Source: Refinitiv

 

The British oil and gas company has had a strong start to the year on the back of high global demand following the invasion of Ukraine, with its share price rising by close to 40% to its 456p June high and, despite its around 15% drop since then, is still up close to 9% year-to-date, outperforming the FTSE 100 by approximately 13%.

At the same time, BP has suffered because the war in Ukraine saw it report a $20.4 billion loss in Q1 after it had taken a $24.4 billion hit from exiting its 19.75% stake in Rosneft. A third of BP’s oil came from Russia last year, as well as a significant portion of its income.

The FTSE 100 operator also had to endure the UK Chancellor Rishi Sunak’s additional 25% ‘energy profits levy’ on North Sea gas and oil operators, until ‘normal’ prices return or until the end of 2025. However, he included a ‘super-deduction’ from this additional tax, worth 91p on every £1 of investments in the North Sea.

While rapidly changing its oil-producing mix, BP has a long-term ambition to hit net zero by 2050.

What does the technical outlook say about the BP share price?

When analysing a weekly BP chart going back to 2020, it becomes clear that despite the June share price sell-off, it remains within a clearly defined uptrend channel and also above the 55- and 200-week SMA at around 353p. While this remains the case and while the next lower March low at 341.6p isn’t giving way, the long-term uptrend remains entrenched.

The fact that on the daily chart the relative strength index (RSI) didn’t confirm the recent lower lows seen on the BP chart, and instead made a series of higher highs, created positive divergence, a more often than not reliable signal of at least a short-term trend reversal being witnessed.

This is exactly what has taken place in the course of this week with the BP share price rising by around 7% within four trading days and once more trading above its 200-day SMA, having briefly dipped below it last week.

Source: IT-Finance.com

 

For the long-term uptrend to properly resume, a rise and daily chart close above the 55-day SMA and the late June high at 406p to 408.3p would need to be seen. In this case, the June high at 456p would be back in the limelight with the 500p region being eyed as well.

Only a currently unexpected, continued descent and fall through the March low at 341.6p would negate the long-term bullish technical view and probably provoke a sell-off to the November 2021 low at 310.55.