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​​​BP earnings to slow due to weaker refining margins

​​While oil prices have been steadier, BP is expected to report a weaker performance at its upcoming quarterly results.

BP PLC Source: Bloomberg

​​​BP earnings – what to expect?

BP's underlying adjusted net income for the fourth quarter (Q4) is expected to decrease to $3 billion, according to consensus estimates. The company′s adjusted cashflow is projected to be around $6 billion.

​The key drivers of performance in the Q4 include relatively stable oil and gas prices, as well as softer global refining margins. Gas trading may continue to be weak due to low volatility in the market.

​In terms of financial decisions, BP is likely to maintain buybacks at $1.5 billion in the Q1. The dividend could see a small increase after a 10% raise in the first half of 2023, bringing it to 7.27 cents.

​BP's balance sheet is expected to show net debt in the range of $22 billion, with a leverage ratio of 20% based on IAS-17 accounting standards.

​High upstream production to aid performance

​The company's resilience is particularly noteworthy, as recent operations suggest that BP is poised to achieve its highest upstream production in the Q4, with over 2.3 million barrels of oil equivalent per day. This robust production level is a testament to BP's robust operational capabilities and strategic positioning in the face of a broadly stable commodity-price environment.

​While full inventories and a flat market structure have indicated a potential for underwhelming gas-trading gains, it's important for traders to consider the broader context. Low volatility, although presenting challenges in trading, can also offer a stable ground for strategic decision-making and long-term investments. However, the potential unknown swing factor in this equation is oil trading, which could significantly impact BP's financial performance depending on market movements and company trading strategies.

​On the downstream front, BP is confronted with a sharply lower refining margin and availability, which contrasts with the previous quarter where these factors provided a substantial offset for earnings weaknesses. This shift underscores the importance of diversification within a company's portfolio—a lesson for traders who similarly seek to balance their investments to mitigate risks.

​New CEO on the cards

​As for leadership, the market is anticipating the conclusion of BP's CEO search. The likelihood of interim CEO Murray Auchincloss being appointed as the permanent CEO represents continuity and stability for the company. Auchincloss, already familiar with BP's operations and strategy, is expected to maintain the current course rather than introducing radical changes.

​For traders, the potential appointment of Auchincloss should be seen as a signal of steady leadership, which could translate into continued resilience and reliability in BP's performance. This is an essential factor to consider when evaluating BP's stock for one's portfolio.

​Analyst ratings for BP

​Refinitiv data shows a consensus analyst rating of ‘buy’ for BP with 6 strong buy, 10 buy, 6 hold and 1 sell – and a mean of estimates suggesting a long-term price target of 602.71 pence for the share, roughly 33% higher than the current price (as of 5 February 2024).

BP analyst Source: Refinitiv
BP analyst Source: Refinitiv

​Technical outlook on the BP share price

​BP’s share price, which recovered from its January 15-month low at 441.05 pence low, only managed to rise to last week’s high at 471.90p before resuming its descent towards the key long-term 455.00p to 441.05p support zone.

​BP Weekly Candlestick Chart

BP weekly chart Source: TradingView
BP weekly chart Source: TradingView

​The decline in the BP share price from its October 2023 peak at 562.3p remains firmly entrenched and will continue to do so as long as no bullish reversal takes it above its early January high at 481.40p.

​BP Daily Candlestick Chart

BP daily chart Source: TradingView
BP daily chart Source: TradingView

​A drop through the 441.05p January low would open the way for the February 2022 high and the September 2022 low at 421.10p to 419.15p to be reached.

The information 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 Bank S.A. 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 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. See full non-independent research disclaimer.

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