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The BP (LSE: BP.) share price has made shaky progress. It’s climbed 5% in the past week but less than 9% over the year. Not now there’s a cloud looming over 2026.
The FTSE 100 oil giant has frustrated investors after its flirtation with the green transition ended in a humiliating retreat to what it knows best – fossil fuels. At least it’s on familiar ground now. BP recently reported its biggest oil discovery in 25 years, the Bumerangue field off the coast of Brazil, while second-quarter earnings of $2.35bn, beating analyst forecasts of $1.81bn.
That allowed the board to lift its dividend 4% to 8.32 US cents and maintain its £750m quarterly share buyback programme. Today’s trailing yield of around 5.7% is far better than the FTSE 100’s 3.25% average, which is one reason I bought the stock six months ago.
Cash flow and calmer waters
Chief executive Murray Auchincloss is doing what every embattled boss does: cutting costs, trimming debt, selling assets ($20bn’s the target) and promising tighter capital discipline. That should boost cash flow and shareholder returns, but the real driver of the BP share price is still oil.
Right now, Brent crude trades at around $65 a barrel. BP can break even at roughly $40, but the market’s next move could deal a blow to its prospects. The International Energy Agency warned on 17 October that “the global oil market may be at a tipping point as signs of a significant supply glut emerge”.
It said the surplus averaged 1.9m barrels per day from January to September this year. China’s been stockpiling oil at record levels and now has little spare capacity, while US inventories are running high and Middle Eastern producers are pumping hard. Demand growth remains “tepid”, according to the IEA.
That’s grim news for BP. Goldman Sachs now reckons Brent could fall back towards $40, which would hit the company’s earnings and probably the share price too.
Stock forecasts and faith
Analysts are surprisingly upbeat. The 29 brokers tracking the stock have produced a median one-year target price of around 483p, which would mark an 11.5% rise from today’s level. Add in the dividend, and total returns could hit 18%.
Forecasts can’t be relied upon, of course. There is very wide range of predictions, from a low of 374.7p to a high of 824.8p. A huge amount of unknowns could affect the price, from wars to trade rows. For investors, the trick is to take the long-term approach and ride out the cycles rather than trying to second-guess them.
Patience and perspective
Energy stocks are cyclical and often best bought when sentiment’s low. For all BP’s problems, its fundamentals still look solid enough, with strong cash flow and a generous dividend.
Personally, I’m holding my shares but won’t be buying more just yet. The oil glut could deepen before it eases, and plenty of FTSE 100 stocks look better value today. I still think BP’s one to consider buying, but patience is key. I’m keen to top up my BP tank – just not today.
