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I BP (LSE: BP) price has had a tough 2024 and looks too cheap for me to resist. So I bought the FTSE 100 the oil and gas giant in September and November at what I thought was a bargain price of six times earnings.
I’m down 7.7% so far but as I intend to hold the stock for years and decades, these are early days.
Long-term BP investors will be bullish, with shares down 18.93% over the past 12 months. The trailing yield of 5.95% will partially cover those losses. The obvious reason is the price of oil, with Brent crude down 6.36% by 2024 to $71.04 a barrel.
Can this FTSE 100 stock rally hard next year?
BP is more than just an oil producer, but its shares are still closely related to energy prices. We saw that during the energy shock of 2022 when they rolled around.
Where oil goes next is anyone’s guess. There are many variables at play. US President-elect Donald Trump has pledged to increase shale production next year. By increasing supply, Trump can lower the price. Even if the US economy recovers, this could increase demand. But a trade war could bring it back down.
Trump promised to bring peace to Ukraine. If he knows that, Russian oil and gas may flow back into Europe, driving down prices. But what if he doesn’t?
Then there is Saudi Arabia. In September, there were rumors that it would turn on the spigots to regain lost market share, causing prices to drop further. But last week, OPEC+ delayed the start of its production hike and slowed the pace of output increases.
I just read Oilprices.com that natural gas prices are expected to rise this winter “due to a combination of high demand, tight supply, and increased limited production”. And I never talked about the green revolution.
Will switching to renewables lower fuel prices? Or will falling oil and gas prices crush renewables? That is a big problem for BP in particular, as it is rowing back on its ‘Beyond Petroleum’ strategy, and back to the conventional fossil scene.
It’s all beyond my little mind. So what do the experts say? Friday (6 December), Morgan Stanley predicted that Brent crude would average $70 a barrel in the second half of 2025. If it’s right, that won’t light a fire under BP’s share price.
Yet the 26 analysts who provide one-year share price forecasts are optimistic. They set an average target of 505.8p, up 34.25% from today. That seems optimistic but I hope they are right. Of this, 11 called it a Strong Buy, four called it a Buy and 14 called it a Hold. There is only one Sell.
I can justify my decision to buy BP on diversification grounds. I did not hold any power stock. Moreover its shares were cheap. And the dividend is high and rising. Next year the forecast will reach 6.3%, covered twice directly by earnings.
Personally I don’t know where BP shares will go in 2025. Neither knows. But given the low valuation and high yield, I’m happy to go along for the ride.
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