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What's next for the BP share price amid unstable third quarter?

BP shares rallied in the latter half of Q2, but lockdown and multi-billion-pound write-offs saw prices falter on the opening days of Q3. How will this affect the stock?

BP Source: Bloomberg

Prices at the pump are up, but are BP shares a slippery proposition in Q3? With a day of trading in the third quarter done, BP share price charts were showing signs of trouble on 1 July. Prior to the end of Q2, BP announced 10,000 job cuts. With almost 15% of its workforce on the way out by the close of 2020, the implication is that the oil industry is heading for a major shake-up post-Covid-19.

Shedding primarily office-based assets to protect the ‘front line of the company’ is a signal of intent. Cutting costs while keeping the supply chain flowing suggests BP demand is set to increase in the coming months. That will come as no surprise to those watching oil equities. Q2 saw the price of oil make healthy gains month-on-month. From $18.38 per barrel in April to $40.20 in June.

Barrels can’t break $40 resistance

However, even with countries opening up and demand set to naturally increase, oil prices are yet to reach the $60+ value that Royal Dutch Shell projected. It had been suggested that $100 a barrel might be possible as Covid-19 lockdowns come to an end. However, with the price struggling to break the $40 resistance level, even $60 per barrel seems like a distant dream at this point.

Indeed, with parts of the US, Australia, and the UK reactivating quarantine measures, demand will likely drop. This, coupled with an overabundance of supply, could cause the BP share price to falter during the early part of Q3.

Shell has already raised the red flag. As the price of oil traded at $41 a barrel on 30 June, it announced a potential reduction in asset value to the tune of £17.9 billion. Shell share price charts soon reflected the news. From a high of 1344p per share on 30 June, Shell shares dropped to 1304p at the close of trading on 1 July. Those watching the BP share price also saw a similar drop.

Like Shell, BP informed investors that its assets could be worth £13.8 billion less due to oversupply and Covid-19. From a closing price of 316p on 29 June, BP shares opened at 310p on 2 July before quickly dropping to 308p by 8:30am (BST). The question now is how much of an impact recent updates will hurt not just the price of oil, but shares in BP and its peers. Financial write-offs and job cuts were inevitable given the problems caused by Covid-19. Add to this pre-existing tension between Russia and Saudi Arabia, and the outlook was also going to be conservative.

Second wave of lockdowns could hurt BP share price

What seems most pressing in the short-term, however, is the resurgence of lockdowns. Heading towards the close of Q2, all the talk focused on how regions were going to reopen. However, with the US experiencing a spike in daily infections, the narrative has changed. Although political leaders seem reluctant to implement nationwide lockdowns at this stage, second waves could blow all prior plans off course. An acid test for FTSE 100 investors will be how the UK responds when lockdown restrictions are eased on 4 July.

If Covid-19 numbers remain manageable, a state of normality may be on the horizon. That would inevitably help BP and other oil companies. However, if trends in the US are replicated in the UK and other parts of Europe, prices may slip. Long-term, BP shares will rebound. However, amid the ongoing uncertainty surrounding Covid-19, they may prove to be a slippery proposition for at least the early part of Q3.

How to trade oil stocks with IG

Looking to trade Shell, BP and other UK oil 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’ 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

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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