BP shares climb after record profits

[MongiIG]

Record profits, another share buyback, and in improved outlook all helped BP trade near 3½ year highs.

 

 Jeremy Naylor | Writer, London | Publication date: Tuesday 07 February 2023 

Inevitably this has led to more calls for windfall taxes, but in an economy where taxation is already high, any further uplift will start discussions within the company to be registered elsewhere.

BP records record earnings

Another big oil company, another set of record earnings. This time it's the London- listed BP, as the oil giant has seen its shares rise three and three quarter percent out of the gate this morning as a result of the news that's come through where the company has said that profits have doubled to a record $27.7 billion lifted by a surge in energy prices seen since the Russian invasion of Ukraine in the fourth quarter.

Underlying replacement cost profit, this is the company's definition of net income, reached $4.8 billion, compared with forecasts of $5 billion profit in a company-provided a survey of analysts, so that fell short of expectations. But the company has announced a further $2.75 billion in buybacks and proposing a dividend of 6.61 cents per share.

There are now more calls coming through from many within the green lobby and those outside as well, suggesting that these big oil companies should have further taxes given to them on their excess windfall profits because of this rise in prices. The problem with that is that we've been hearing a lot of flexibility within the industry in suggesting perhaps maybe that if BP is faced with further tax rises, it might actually possibly take its business offshore. So that could well be a bit of a headwind.

Ironically, these oil companies are now benefiting from a lack of investment over the last few years to pacify the green lobby, which has managed to persuade big oil to invest in renewables. And this has led to a lack of new oil coming onto the market, which has supported prices.

Share price chart

Let's take a look at the BP share price, because this is the long-term chart. We're not too far away from the recent highs - well highs we saw around about three years ago at 508 pence, currently trading at 496.1.

The significance of that 508 is that it was the highs we saw back in January 2020. And if it tips over that, we’re then at levels not seen since November 2019. So you can see there's an upward impetus.

This red candle here was the date in which we saw Shell's record profits coming through at $40 billion. Now, that was a day when we saw negativity to the oil markets generally because of those numbers. But this today has seen this big uplift in shares. And if it closes at these levels, it'll be the highest close we've seen on the BP share price since November last year.

So clearly, investors liking what they're seeing, but holding guard until the government establishes whether or not it wants to increase the windfall tax, which they said could well put pressure on boards to discuss possibly moving some, if not all, of its operations offshore. And that would be a tragedy to the UK economy.

[MongiIG]

BP’s Record Profits has the FTSE 100 Index Approaching New All-Time High

Feb 7, 2023 | DailyFX
Richard Snow, Analyst

BP EARNINGS, FTSE 100 INDEX ANALYSIS

• BP announces record profit, share buybacks and a step back from oil output reductions
• FTSE 100 Index approaches its first test of the newly formed all-time high on upbeat BP results. BP share price and positive tailwinds from Shell help keep the index moving higher

BP ANNOUNCES RECORD PROFIT, SHARE BUYBACKS AND A SLOWER REDUCTION IN OIL OUTPUT

The London based company produced record profits of $27.7 billion in 2022, eclipsing its previous record of $26.2 billion in 2008, as oil prices soared. BP was well positioned to supply a constrained market with gas as economic sanctions on Russian energy commodities were implemented in defiance of Russia’s aggression towards Ukraine.

Likewise, Shell – the largest company in the FTSE 100 index – benefitted from increases in energy prices, particularly gas, which saw it post a record profit of $42 billion last year. BP has also announced a further $2.75 billion in share buybacks and plans to post a dividend of 6.61 cents. The stellar performance brings the combined profits of Western oil companies, including Chevron, Shell and Exxon Mobil to more than $159 billion for 2022.

In a rather controversial admission, BP announced it will be scaling back on its plans to reduce oil and gas production by 2030. The previous target was a 40% reduction from 2019 levels, which has now been reduced to 25%. Earlier this year the UK government announced a special windfall tax to partially fund a government subsidy that helps citizens pay for the more expensive energy bills, especially in the colder winter months. The amount of future taxation on oil companies needs to be well thought out because of the potential threat of such large companies moving to jurisdictions that have less aggressive taxation regimes.

The BP share price now appears to be attempting a bullish breakout as the recent surge in price action hovers around the prior highs that capped gains during this period of relative consolidation. The RSI suggests there could be more upside potential as the indicator is yet to suggest we are in overbought territory.

BP Share Price (Daily Chart) Showing Uptick Post Earnings Release

 

Source: TradingView, prepared by Richard Snow

 

FTSE 100 INDEX APPROACHES FRESH ALL-TIME HIGH ON STELLAR OIL PROFITS

It is no surprise that the FTSE 100 index remains elevated but could we see this trend begin to slow down as energy prices retreat from extreme levels? The answer to this question depends on the pricing mechanisms and year-forward pricing of gas, but also the relative performance of big banks and miners. The big mining companies have enjoyed a commodity boon of late as a result of China’s reopening.

After pulling back from marking a new all-time high, finding support around the 7680 level of prior resistance, the UK index now appears set for another go at the all-time high. Later this week we have our first look at UK GDP for Q4 and the year as a whole as UK citizens wait patiently to find out if a technical recession has been avoided. Early estimates of a flat month on month performance in December suggests it will be enough to avoid a second successive quarter of negative GDP growth – the definition of a technical recession. Should there be a negative impact to the data surfacing in the pound sterling, this may provide a further tail wind for the equity index to break to a new high.

FTSE 100 Index Daily Chart

 

Source: TradingView, prepared by Richard Snow