Where next for BP shares after a 10% price rally?

An increase of almost 10% for the BP share price over four weeks has investors hoping for positive things in 2021. However, oil companies need to diversify if they want to match the green energy trend and make long-term gains.

  • BP share price gains 10%, peaking at 285p
  • Analysts predict last hurrah for oil industry
  • Green energy is expected to shape the market in the long term
  • Want to take a position on BP shares, long or short? Open an account today

BP shares (LON: BP) reached a four-week high on 10 December. Peaking at 285p, the price reflected a mini bull run prompted by renewed optimism in COVID-19 vaccines. With the food and drug administration (FDA) giving Pfizer’s drug the green light and the UK already administering it, expectations are that normality is on the horizon. That’s likely to increase oil consumption demand in the early part of 2021 and bolster the BP share price, according to analysts.

Analysts are bullish on BP share price

From a select group of investment analysts, CNN Business found that 29 have held a buy rating since 1 December. Of those surveyed, 25 have a median price target of 262p, and a high of 390p. BP shares opened at 268p on 15 December before gaining 2.2% within an hour of trading. However, Derek Brower believes the current surge won’t last forever. The Financial Times analyst recently outlined what he sees as a ‘last hurrah’ for the oil industry.

In his view, the sector has outperformed the S&P 500 over the last three months because many see the writing on the wall. As economies transition to green energy, Brower believes there will be one final spike for the oil industry. That will fuel a final bull run over the next few years before the market peters out. His analysis is supported by Goldman Sachs - the investment bank predicted a V-shaped recovery and new highs by 2022.

Diversification could determine future of BP shares

That’s good news for anyone watching the BP share price right now. However, the message from analysts is that change is coming. Boris Johnson and his soon-to-be US counterpart Joe Biden have shown support for projects such as the Green New Deal. BP, for its part, has reacted. It’s now investing $5 billion each year into renewable energy projects, and this strategy is already bearing fruit. On 10 December, the company announced a new green deal with Amazon.

BP will supply 404MW of wind power to Amazon’s European datacentres. In turn, Amazon will continue helping BP with its mass digitisation project. More than 60% of BP’s European operations have been digitised over the last year. This, in tandem with an enhanced presence in the renewable energy market, plays into analysis offered by Brower and that the BP share price is likely to continue its rally as COVID-19 vaccinations prompt a surge in demand for oil. What’s becoming clear for many investors though, is that diversification and investment in green energy will shape the market over the next decade.

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