Yesterday saw a significant drop in the share price of BP (BP.) in which I have a holding. This resulted from a trading statement that forecast lower margins in its refining business and weak oil trading performance. Earnings in the second quarter will be between $500 million and $700 million lower than for the previous three months. There will also be major write-downs on a refinery in Germany.
BP shares have performed very badly this year compared with Shell. Should I dump BP shares and switch into Shell or US competitors as many institutions seem to be doing? This is not a simple question and without a simple answer. Trading shares based on short term events or commodity prices is usually a mistake.
The key question for BP is have they moved too quickly into alternative energy projects and hence are reducing profits on their traditional oil/gas refining and distribution businesses. The market seems to think so.
Will electric cars replace internal combustion engined ones and undermine one of the major markets for oil? Saudi Aramco (the world’s largest oil company) are betting otherwise. There was a good article in the FT yesterday on this subject – see https://www.ft.com/content/a3019ce4-be91-4dc8-83c5-489f18bf56cf . They are backing the development of new combustion engines. Yasser Mufti, the executive vice-president at Saudi Aramco is quoted as saying: “It will be incredibly expensive for the world to completely stamp out, or do without internal combustion engines. If you look at affordability and a lot of other factors, I do think they will be around for a very, very long time.”
The UK and many countries in Europe are trying to move away from oil rapidly when the US and rest of the world are not doing so. They are taking a more pragmatic and realistic view in my opinion.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
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