Making predictions concerning the BP (LSE:BP.) share price isn’t simple. That’s as a result of the group’s monetary efficiency is carefully linked to the price of oil. Though it’s not apparent how a lot of its income comes from the sale of the black stuff, its oil manufacturing and buyer & merchandise divisions contributed 84% of income in 2024.
Subsequently, it stands to motive, that it does higher when power costs are excessive. This may be seen within the chart under, which reveals the money generated from its operations from 2019-2024, alongside the typical price of a barrel of Brent crude.
From a statistical standpoint, the 2 variables are 96% correlated. This implies they’ve a near-perfect relationship.
A crystal ball
Nevertheless, it’s unimaginable to precisely predict oil costs. They’re influenced by quite a few components, together with manufacturing selections by OPEC+ members, regional conflicts and international demand.
Over the previous decade, I’ve seen headlines suggesting Brent crude might attain something from $100 to $1,000 a barrel. It’s at present (14 February) round $75.
America Power Info Administration’s predicting a median price of $74 (2025) and $66 (2026). A survey of economists by The Wall Road Journal is forecasting $73 this yr.
If any of those estimates show to be right, BP will — in 2025 — in all probability have its most disappointing yr since 2021. As for 2026, it might be worse than its 2019 efficiency. And this might put stress on its share price.
However then once more, if a barrel of Brent crude hits $1,000 …
Nevertheless, the prediction of a four-figure oil price was slightly tongue-in-cheek. The article appeared in Fortune journal, in 2008, with the creator writing: “I say this with absolutely as much information at hand as the pundits who are now making headlines for themselves by their soggy $200 predictions. Nobody knows what’s going to happen. So I’m going to not know what’s happening at an even more dramatic level.”
With a lot uncertainty surrounding commodity costs, I believe it’s honest to say that predicting the BP share price is a mug’s sport.
A wholesome earnings stream
Nevertheless, the power big pays a beneficiant dividend. For the previous three quarters it’s paid $0.08 a share. If that is repeated yet another time, its annual payout of $0.32 (25.7p at present change charges) implies a yield of 5.6%.
That is comfortably above the FTSE 100 common of three.6%.
However it’s vital to keep in mind that dividends are by no means assured, significantly within the power sector the place earnings might be unstable. BP lower its payout in 2020 and regardless that it’s steadily been elevated since, in money phrases it stays 23% decrease.
However the yield’s not excessive sufficient to make me wish to make investments, though others seem to disagree.
Shareholders bought excited on 10 February when reviews emerged that Elliott Funding Administration had taken a place within the firm. Its share price jumped 8% on hopes that the ‘activist investor’ will drive modifications to the enterprise that’ll see it valued extra extremely. With the demand for hydrocarbons persevering with to climb, now might be time to contemplate investing.
Nevertheless, I’m not going to take a stake. Its reliance on the price of oil — which is so unpredictable — makes it too dangerous for me.