The US Energy Information Administration (EIA) recently released its November energy outlook report. Within it, the research team forecasts where it believe different commodity prices will be over the coming year. Based on the latest figures for oil, I think the BP (LSE:BP) share price could have a tough year ahead.
Strong rally unlikely
The EIA forecasts Brent crude oil at $73.02 a barrel in Q4 2025. This contrasts the current price of $72.44. Put another way, if we fast-forward a year, there might not be much of a difference in the oil price. The EIA flags up “at least two main sources of oil price uncertainty – the future course of the ongoing Middle East conflict and OPEC+ members’ willingness to adhere to voluntary production cuts”.
Of course, I need to be careful when reading through reports like this. There’s no guarantee the forecasts will be correct. However, it’s interesting to build an informed opinion by taking into account these thoughts.
Most investors aren’t active oil traders. However, the oil price swings can certainly impact the share price of stocks like BP that are heavily involved in oil and other commodities.
How the stock’s impacted
Over the past year, the BP share price is down by 19%. Over the same period, oil’s down 12%. So there’s a clear connection here. BP makes a good portion of revenue from the production and sale of oil. So if the price falls, revenue for BP falls as it can’t sell it for as much as it could a year back.
If revenue falls, profit likely drops as well. This then impacts the share price as investors try and find better opportunities elsewhere. Or the dividend might get cut due to lower profits, scaring away income investors.
In the nine months so far this year, profit comes in at $2.34bn. This is a drop from the $14.86bn from the same period in 2023. So my concern here is that if we fast-forward a year and the oil price is basically the same, I’d expect profits to be similar as well. If that’s the case, I don’t see a material rally in the BP share price from here.
Other factors involved
It’s true that the stock could rally from different factors. For example, the latest report showed how net debt has risen to $24.26bn from $22.32bn. If the business focuses on reducing net debt in the next year, this could help to share price to rally as investors are less concerned about the debt pile.
Further, BP’s involved in other products, not just oil. This includes natural gas, biofuels and renewable energy sources. So if one of these areas does very well in the coming year, it could help the stock.
Yet ultimately, I feel BP shares could be in for a tough year ahead, unless something changes to spark a rally in the oil price. So I won’t be investing right now.
This post was originally published on Motley Fool
