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BP shares set to slide over stranded assets, oil to hit $50 by 2021

The oil and gas major continues to see its share price trend lower as it prepares to dispose of ‘stranded assets’ amid weak demand due to Covid-19. Oil prices meanwhile could hit $40 in 2021, according to IHS Markit forecasts.

BP is set to end the week in positive territory, but the oil and gas major continues to see its share price trend lower as it prepares to sell large parts of its fossil fuel assets due to weak demand driving down energy prices amid the coronavirus pandemic.

However, the company has reportedly said that even if oil prices were to rebound sooner than expected, it would still dispose of its fossil fuel assets in order to free up cash to invest and prioritise investment in renewables.

The rationale behind the decision to sell its ‘stranded assets’ is based on the company’s choice to downgrade its oil price forecast to $55 a barrel, which renders $17.5 billion worth of its fossil fuel assets economically unviable.

The sale of billions of oil and gas assets is certainly in line with BP CEO Bernard Looney’s plans to reduce the company’s fossil fuel production by 40% by 2030 while dramatically ramping up its investment into renewables.

‘As we look at the outlook for BP over the next few years and as we see production declining by 40% it is clear we no longer need exploration to fund new growth,’ Looney told Reuters earlier this week.

‘We will not enter new countries to explore.’

Brent crude could hit $50 in 2021, says IHS Markit

Brent crude prices are expected to average at $42.35 a barrel this year, with oil forecast to finally break above the key resistance level of $50 in the second half of 2021, according to global information and research firm IHS Markit.

“As long as prices hold in the current range, demand concerns will likely help keep the [OPEC+] agreement on course,’ Diwan said.

‘When prices surpass $50/bbl, potentially lifting capital spending in the United States higher, that is when changes to the tenor of the discussion, and the divergence of interest could start to play out,’ he added.

At the time of publication, Brent crude is trading 56 cents lower at $44.53 a barrel, while the US West Texas Intermediate (WTI) is down 57 cents to $41.38

WTI eases off mid-week high

WTI enjoyed a strong first half of the week, but the past 48 hours have not seen a continuation of this bullish momentum, according to Chris Beauchamp, chief market analyst at IG.

‘Losses have been contained around $41.80 however, and a rebound from here would target $43.50 once more,’ he added. ‘A drop back below $41.50 further reinforces a more cautious outlook.’

How to trade stocks with IG

Looking to trade BP and other stocks? Open a live or demo account with IG and buy (long) or sell (short) shares using derivatives like CFDs in a few easy steps:

  1. Create an IG trading account or log in to your existing account
  2. Enter ‘BP Plc’ in the search bar and select it
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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