After slumping 21.36% in a year, the BP (LSE: BP) share price needs a kick up the backside. Is incoming US President Donald Trump the man to deliver it?
During the election, Trump made it clear he would green light more domestic drilling on day one of his presidency.
Most observers expect him to shove net zero ambitions aside, axe funding for renewables, and drill, drill, drill for fossil fuels. Trump may be unpredictable, but I think we can bank on him doing just that. US voters love lower fuel prices.
Can this FTSE 100 stock fly in 2025?
So why didn’t BP shares take off like a rocket yesterday? Plenty of FTSE 100 stocks with exposure to the US did just that.
Rental equipment specialist Ashtead Group, which generates almost 90% of its revenues from the US, jumped 5.56%, as investors anticipate cuts to tax and red tape. Defence specialist BAE Systems climbed 4.92% with Trump demanding Europe beefs up its armies.
By contrast, BP edged up just 0.36%, despite generating 29% of its revenues from the States. Rival Shell fell 0.61%. Presumably, that’s because if Trump does drill, drill, drill, it could trigger a fresh supply spike that will drive down prices.
On 4 November (with the US election apparently on a knife edge), the World Bank predicted significant oversupply, with oil prices potentially falling below $60 a barrel in the next few years. Next year, it predicted that “global oil supply is expected to exceed demand by an average of 1.2m barrels per day”. We’ve only seen that twice before, in 1998 and 2020.
The World Bank pinned this flatlining on China, rising electric vehicle (EV) sales, increasing use of trucks powered by liquefied natural gas, and rising production within OPEC+ and without. Experts at Axios added: “This new reality might keep a lid on consumer energy prices even as geopolitical strife intensifies. It could also wreak havoc on the longstanding economics that underpin oil production”.
This oil giant looks brilliant value
BP can breakeven at roughly $40 a barrel, so it’s hardly terminal. But profits, dividends and share buybacks may come under pressure.
Second-guessing oil price movements’s a mug’s game. For years, experts were warning we’d run out of the black stuff, and then the US discovered shale. Next, experts predicted the green transition would wipe out fossil fuel demand. That hasn’t happened either. Yet.
BP’s also at a disadvantage to its US rivals. The new Labour government has just slapped a fresh wave of windfall taxes on UK oil producers. Trump’s set to do the opposite, with plans to slash corporate tax to 15% in a huge boost for US rivals such as Exxon Mobil, Chevron and ConocoPhillips.
I bought BP shares recently and have no intention of selling. I want exposure to energy prices for diversification purposes at least. Also, the stock’s ridiculously cheap, trading it just 5.67 times earnings. And the trailing yield is a blockbuster 5.91%. I still think this will be a great long-term buy-and-hold proposition.
I’m keen to buy more BP shares and will take advantage of further dips. Commodity stocks are cyclical. It’s best to buy when they’re down, but with a long-term view.
This post was originally published on Motley Fool
