It’s straightforward to suppose the BP (LSE:BP) share price has been falling as a result of oil costs have been heading decrease. However that’s solely a part of the issue. 

Election outcomes on each side of the Atlantic have additionally modified the panorama. And I feel BP’s current observe report’s additionally a big situation. 

BP’s points 

After a constructive first quarter, oil costs fell in 2024. This was as a result of increased output from some OPEC+ producers accompanied by weak demand from China and a post-pandemic restoration that started to falter. 

Brent crude oil 2023-24

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The corporate estimates a $1 drop within the price of Brent causes a $340m fall in annual pre-tax earnings. And BP can’t do a lot to affect oil costs, making this a key threat.

On account of oil costs falling from April to the tip of the 12 months, earnings per share persistently got here in decrease than the 12 months earlier than. However this shouldn’t be a shock for traders.

BP earnings per share (ttm) 2023-24

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Anybody contemplating investing in oil shares needs to be ready for at the least some volatility because the price of crude modifications. With BP nonetheless, this isn’t the one threat to contemplate.

Election outcomes

With oil a commodity, the principle benefit an organization can have is decrease manufacturing prices. And elections on each side of the Atlantic considerably impacted BP final 12 months. 

The UK elected a authorities seeking to transition away from hydrocarbons and in the direction of renewables. Because of this, taxes for UK oil firms look set to rise – particularly in core operations. 

Over within the US, the incoming administration appears set to chop taxes and is aiming to incentivise power manufacturing. The mixture of those developments doesn’t assist BP’s aggressive place.

Importantly although, Shell‘s facing the same challenges. But the stock hasn’t fared as badly in 2024, which suggests the stress on BP shares isn’t nearly oil costs and windfall taxes.

Fallacious place, fallacious time

Over the previous couple of years, BP’s managed to get itself within the fallacious place on the fallacious time when it comes to its technique. The corporate invested closely in wind and photo voltaic power initiatives a number of years in the past. 

Sadly, BP’s experience is in oil and fuel. Because of this, its forays into renewable power technology resulted in massive losses in 2022 when it might have been cashing in on excessive oil costs.

BP earnings per share 2020-23

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Since then, the agency has shifted again to its core competencies. Nevertheless it appears to be doing this simply as oil costs are beginning to come down, having missed a possibility after they had been a lot increased.

Shell earnings per share 2020-23

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Against this, Shell stayed centered on hydrocarbons. And I feel it is a key a part of why traders have been extra tolerant of its earnings falling in 2024 – they benefitted when costs had been excessive.

What now?

I feel BP now has the precise technique and the distinction in valuation means I just like the inventory higher than Shell at as we speak’s costs. However I’m not ready to purchase both in the intervening time. 

To some extent, the most recent windfall tax developments are in all probability priced in. However I see this as an ongoing threat that’s tough to evaluate precisely and that’s sufficient to maintain me on the sidelines.