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BP (first half results 1 August)
BP watchers will have noticed peer Royal Dutch Shell outperforming analysts’ expectations when it reported that second quarter profits more than tripled thanks to strong refining operations and a rise in oil prices. The Anglo-Dutch company also reported a massive recovery in cash flow to $12.2 billion and a drop in debt as its cost reduction efforts continued to pay off.
This bodes well for BP’s earnings report. There’s no doubt the year-on-year recovery in the oil price will boost earnings, but expect the company’s outlook to focus further on cost cutting as the oil price rally has now completely petered out and BP is still paying off the costs of the deadly 2010 Deepwater Horizon rig explosion. Indeed, the Wall Street Journal reported recently that BP has approached potential buyers of its North Sea assets and the company has also said it is considering an initial public offering (IPO) of its vast US Midwest and Gulf Coast pipeline assets. This means the focus is likely to be as much on the outlook as the earnings.
The chart points towards a pivotal area of support here for BP shares. The weekly chart highlights that we have continued to respect the 437 mark, which to some extent forms the right shoulder of a head and shoulders formation. With the 200-week simple moving average (SMA) also residing at that level, we are likely to either rally upwards from here or break below to spark another strong move to the downside. Keep an eye on the 432 level too as it helps form a zone of support, which must be passed through for the losses of recent months to persist.