Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

BP Upstream Getting Crushed

Companies / Oil Companies Jan 13, 2016 - 11:47 AM GMT

By: AnyOption

Companies BP’s announcement earlier of another 4,000 job cuts on top of existing measures designed to ease the pressure of rapidly tumbling oil prices comes as no surprise, especially with crude oil prices tumbling to a brand new multi-year low.  The industry has fallen to such depths that the Saudi’s are even contemplating taking a piece of their petroleum empire public to raise desperately needed cash to continue waging their price war.  However, the current British Petroleum is on Saudi Aramco, and stands as a shadow of its former self.  Now, with oil prices set to stay depressed for an indefinite period of time, BP is trimming what remains of the company to weather the storm while trying to boost shareholder value.


Lower for Longer

The phrase formerly synonymous with interest rates is now used to define the outlook for crude oil prices.  With the entirety of the crude oil futures curve pricing $50 per barrel, BP has had to shift away from upstream activities, depending increasingly on downstream operations to make up for the shortfall.  As the latest layoff announcement shows, the company intends to slash the exploration and production headcount to the bare bones, especially in high cost projects such as the North Sea wells.  Efforts to reduce costs can only go so far and BP cannot eliminate capital expenditures especially in an industry that requires intensive ongoing maintenance and high development costs. 

Luckily for BP, its expansive downstream assets ensure that the company has stable cash flows, especially amid improving margins for the business.  Refining is one bright spot for the company during the ongoing turmoil with high utilization rates and strong margins keeping revenues afloat for investment in other areas of the business.  While the move away from upstream assets will be felt as cash flows improve from cost cutting, it comes at a time when BP is working to expand its LNG presence to diversify revenue streams.  However, with energy prices unlikely to rebound in the near future, the company is hunkering down for the time being.

Value Still There

Like the limbo, BP is wondering just how low costs and oil prices can go.  The company’s valuation shrunk substantially over the past year with share prices falling -15.5% over the past 12-months.  The opening of 2016 has been no peach especially with oil prices crossing below $30 per barrel, dragging down shares further.  The key to any sustained rebound in the company’s fortunes remains a reversal in energy prices that will enable BP to reenergize upstream operations.

While BP is likely to be sensitive to falling oil prices as revenues continue their slide, there remain strong incentives for long-term believers in the company’s vision.  With a dividend yield topping 8.21% and no plans to cut it soon, investors with patience will be rewarded, especially if demand for LNG improves and BP manages to capture a larger share of the total gas market.  Strong refining margins will buoy the company over the near-term and protect dividends, but longer-term the outlook remains challenging, especially for oil related assets. 

Another Channel Lower

Technical indicators remain largely in strong confirmation of the predominantly bearish bias that has prevailed in shares over the last year.  In a follow up to an earlier article, after trending lower for some time, BP shares managed to breakout to the upside for a brief correction alongside oil prices before sliding once more.  Once again, BP shares are trading within an emerging downward trending channel.  Ideally, any rebound towards the upper channel line should be taken as an opportunity to sell more with the expectation that prices will return to the bottom of the channel.  With shares now in the middle of the range, execution of a short position is not ideal however owing to the entry point.

Value investors looking to catch the falling knife should remain cautious, as oil prices still have room to fall.  BP remains below both the 50-day and 200-day moving averages which are currently both trending lower and acting as upside resistance.  Support at 325p could prove surmountable and put up a fight against continued downward momentum, especially with the RSI rapidly approaching oversold levels.  Ideally, for traders looking to ride the wave lower in crude, waiting for prices rebound towards 350p presents a much more attractive entry point while long-only investors patiently await a better entry point.

Near-Term Risks Versus Value


Given the outstanding fundamental circumstances and a prevailing longer-term trend lower in both BP shares and oil prices, it is hard to imagine that this is the point of reversal in the company’s fortunes. While there is arguably great value locked in the shares from the perspective of dividends, that value can improve further as share prices fall.  While in immediate trading shares might bounce modestly especially after nearly a poor start to 2016, rallies should be sold, targeting 325p and below on the downside.  Only when the smoke clears from the ongoing global price and production war, will BP shares be on a sustainable path higher.

Anyoption™ is the world's leading binary options trading platform. Founded in 2008, anyoption was the first financial trading platform that made it possible for anyone to invest and profit from the global stock market through trading binary options.

Our goal here at Market Oracle is to provide readers with valued insights and opinions on market events and the stories that surround them.

Website anyoption.com

© 2016 Copyright  Anyoption - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in