Crude oil price
BP share price declined by more than 4% after the company shocked the market by announcing a huge write down and impairment. This is in reaction to the significant decline in crude oil price this year. The company’s share price is trading at £309, down from last week’s high of above £360.
BP is one of the biggest crude oil supermajors in the world. As a result, the performance of crude oil price this year has had serious implications on the company. While the price has jumped in recent weeks, it remains more than 20% below this year’s high. In response, BP share price has declined by more than 35% this year.
In a surprise announcement, the company said that it will have non-cash impairment charges and write-offs between $13 billion to $17.5 billion. In the statement, the company said:
“With the Covid-19 pandemic having continued during the second quarter of 2020, BP now sees the prospect of the pandemic having an enduring impact on the global economy, with the potential for weaker demand for energy for a sustained period.”
BP surprised investors when it decided to maintain its dividends even after the crude oil price declined sharply. Royal Dutch Shell, another supermajor decided to slash its dividends. It also announced that it would slash its capital expenditure this year.
This write down is important because it is worth about 20% of BP market cap.
The crude oil price is down by more than 4% today. Brent and WTI are trading at $37 and $34 respectively because the coronavirus pandemic is continuing. Yesterday, Beijing confirmed about 50 new infections following another set of 45 that were reported on Saturday. This new cluster raises fears that the disease is continuing to wreak havoc in the biggest economy. The price is falling even as data from the US showed that oil rigs are continuing to fall.
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On the daily chart, the price of Brent crude oil formed an evening star pattern on Monday last week. Since then, the price has declined from a high of $43.19 to the current $37.38. The price has moved below the 50% Fibonacci retracement and the 100-day exponential moving averages. With bears now in control, it means that the price will likely continue to decline as they attempt to test the important 38.2% retracement at $32.91.
On the flip side, a move above the 50% retracement at $38 will invalidate this trend.