Crude Oil prices
BP share price is under intense pressure today ahead of the third-quarter earnings. The shares are also falling because of the tumbling crude oil prices, stronger US dollar, and the overall weakness of the stock market. Its shares are trading at 203p, which is slightly higher than its 25-year low of 195.15. Similarly, Royal Dutch Shell share price is down by close to 2%, making it one of the worst-performing stock in the FTSE 100.
BP, and other oil and gas companies have been under intense pressure recently. This year alone, the stock has dropped by almost 60%, making it one of the worst stocks in London. Nonetheless, its stock has outperformed that of Royal Dutch Shell, which has dropped by more than 60%.
The reasons for BP’s decline are obvious. First, the price of crude oil has dropped by more than 40% this year. And in recent weeks, the price has been falling as investors react to the rising number of Covid-19 cases and the likelihood of low demand for the commodity. Today, Brent and WTI oil price has dropped by more than 2%.
Second, BP and Shell have been forced to readjust their balance sheet. A few months ago, the company slashed its assets by more than $17.5 billion. It cited the lower oil prices for doing that. Other oil companies, including Shell, also decided to slash its assets.
Third, BP share price has dropped because the company decided to slash its dividend in a bid to save costs. Finally, the stock has dropped because of the overall dislike of oil companies by investors. In recent days, some high-level asset managers and banks have said that they will stop investing and funding these firms.
BP share price has dropped ahead of the company’s third quarter earnings. Analysts polled by Reuters expect that the company’s earnings will be a loss of $0.05 per share as its revenue comes in at $45.84 billion. The revenue will be an increase from the second quarter’s increase of $31.86 billion. In the second quarter, the firm reported a loss of $1.98 per share.
Still, judging by the company’s history, there is a possibility that its earnings and revenue will be better than what analysts expect. That is because, according to Seeking Alpha, it tends to perform better than analysts’ expectations.
Most importantly, BP share price tends to rise whenever it releases its earnings. Indeed, it has jumped in eight of the past nine earnings. Most analysts are bullish on the company. In the most recent earnings, analysts at Goldman Sachs upped their target of the shares to 500p, implying a 100%+ increase from the current price. Those at RBC and JP Morgan also expect the shares to rise to 310p and 425p, respectively.
On the daily chart below, we see that BP share price has been in a sharp downward trend. Today, the price is along the psychological level of 200p, ahead of its earnings. It is also slightly below the 25-day and 15-day exponential moving averages.
Therefore, I expect that the price will continue falling as the number of cases continues rising. However, for tomorrow, the company’s shares may rise ahead and after earnings.
