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​​​​BP share price mixed ahead of upcoming earnings

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BP's share price has experienced a significant drop of 20% from its peak in February. However, there are reasons for optimism.

BPSource: Bloomberg

 Chris Beauchamp | Chief Market Analyst, London | Publication date: Friday 28 July 2023 

BP shares under pressure ahead of earnings

One reason is the more positive outlook for oil prices. Currently, oil prices are at their highest level since late-April, and the overall outlook is the most encouraging it has been in months. Saudi Arabia recently announced a reduction of 1 million barrels per day in oil production for July, in addition to the 3.66 million barrels per day in cuts made by the OPEC+ oil cartel since October.

One aspect that many investors may have overlooked in BP is its ability to generate profits in all market conditions. BP's trading teams reportedly accounted for around 14% of the company's total earnings in 2022. In the first quarter (Q1) of 2023, BP announced an underlying replacement cost profit of $5 billion, driven in part by exceptional oil and gas trading results.

In the Q1, the company completed $2.2 billion of share buybacks using surplus cash flow. BP plans to allocate 60% of its cash flow for future buybacks this year. In its 2022 results, the company increased the Q4 dividend payout to 6.61p per share.

Shell earnings declined in Q2

In the second quarter of its financial year, Shell has experienced a significant decline in profits, mainly attributed to the decrease in energy prices following the peak caused by the Russia-Ukraine conflict. The company reported net profits of slightly over $5 billion for the three-month period ending in June. This represents a decline of over 50% compared to the $11.5 billion achieved during the same period last year, and it fell short of analysts' expectations.

Furthermore, this figure is significantly lower than the $9.65 dollars earned by Shell in the Q1 of this year. Despite these challenges, Shell remains committed to rewarding its shareholders by implementing a share buyback program and increasing its dividend payments.

Mixed performance for both BP and Shell share prices in 2023

Both BP’s and Shell’s share prices have been unable to make much headway so far this year. BP had a strong start to the year, gaining 15% by February, with Shell up 10%, but these gains have ebbed away. The FTSE 100, not exactly a strong performer this year, has actually outperformed both companies so far.

Share price comparison chart

Shell BP comparisionSource: Google Finance

It must be noted that both share prices have enjoyed very strong recoveries since their 2020 lows, both having rallied around 190% since November 2020.

Valuation remains low

The underperformance of both share prices this year does at least have one consolation – it means the stocks continue to trade at low valuations. On current P/E ratios, BP trades at 4.4 times earnings and Shell trades at 5.06 times earnings. These are undemanding levels and do allow for outperformance in coming quarters if oil prices continue to pick up.

BP share price – technical analysis

Ahead of next week’s earnings, BP shares have rallied off their recent lows around 450p, but have stalled at the 200-day simple moving average (SMA).

However, the breakout above trendline resistance from the April high remains intact, and a recovery back above 480p may bring out the buyers. The next hurdle for the price will be 490p, which held back gains in May.

A move above this level then opens the way to trendline resistance from the February-high, which would come into play above 510p.

Sellers would need a close below 446p to signal that this significant area of support had been firmly broken to the downside and that a more bearish view prevailed.

BP chart

BP share priceSource: ProRealTime
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