BP writes off $18 billion as oil prices set to trade lower amid second wave fears

The oil and gas major wrote off $18 billion worth of assets this week, as oil prices are set to trade lower as investors fears of a second wave of coronavirus cases mounts.

BP wrote off $18 billion worth of assets this week, as oil prices are set to trade lower as investors fears of a second wave of coronavirus cases mounts.

Brent crude is down 39 cents to $40.66 a barrel at the time of publication, while the US West Texas Intermediate (WTI) is trading 50 cents lower at $38.22 a barrel.

BP closed 1.3% lower on Friday at 304p per share, with the stock down 36% year-to-date.

BP acknowledges dim outlook for oil

BP’s decision to write off $18 billion in existing assets is a significant sign that the company acknowledges that hydro carbon producers are sitting on oil fields that will likely never be developed due to the Covid-19 pandemic weakening demand and increasing interest in renewables.

‘In February we set out to become a net zero company by 2050 or sooner,’ BP CEO Bernard Looney said in a statement earlier this month. ‘Since then we have been in action, developing our strategy to become a more diversified, resilient and lower carbon company.’

‘As part of that process, we have been reviewing our price assumptions over a longer horizon. That work has been informed by the Covid-19 pandemic, which increasingly looks as if it will have an enduring economic impact,’ Looney said.

‘So, we have reset our price outlook to reflect that impact and the likelihood of greater efforts to 'build back better' towards a Paris-consistent world,’ he added.

BP recently revised its price outlook for oil, with the oil and gas major saying that its expects the long-term price for Brent crude to be around $55 a barrel, up to 30% lower than it previously forecast.

What this dim outlook for oil means in real terms is that many oil fields owned by the likes of BP and its peers will not bring in adequate returns and some of the undeveloped fields will not be developed.

Say goodbye to oil dividends

BP shocked investors and pleased shareholders earlier this year when it opted to maintain its dividend pay-out despite the economic impact of the Covid-19 pandemic and the dramatic fall in oil prices.

However, the company’s recent revision of its outlook for oil prices and it decision to write down billions in assets sends a very different message – one of a business that has begun to understand the long-term economic impact the virus will have on demand and commodity prices.

As it stands, BP’s write-downs will weaken its balance sheet and force the company to take on more debt to offset the challenging market conditions it and its peers face.

But due to the company’s actions, credit ratings agencies could take a dim view of oil producers like BP and opt to downgrade them, which could increase cost of borrowing and put and end to dividends for some time.

How to trade stocks with IG

Looking to trade the BP and other stocks? Open a live or demo account with IG and buy (long) or sell (short) shares using derivatives like CFDs and spread bets 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

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. See full non-independent research disclaimer and quarterly summary.

Speculate on commodities

Trade commodity futures, as well as 27 commodity markets with no fixed expiries.1

  • Wide range of popular and niche metals, energies and softs
  • Spreads from 0.3 pts on Spot Gold, 2 pts on Spot Silver and 2.8 pts on Oil
  • View continuous charting, backdated for up to five years

1In the case of all DFBs, there is a fixed expiry at some point in the future.

See opportunity on a commodity?

Don’t miss your chance. Try a risk-free trade in your demo account, and find out whether your hunch could have paid off.

  • Log in to your demo
  • Try a risk-free trade
  • See whether your hunch pays off

See opportunity on a commodity?

Don’t miss your chance. Upgrade to a live account to take advantage.

  • Analyse and deal seamlessly on fast, intuitive charts
  • Get spreads from just 0.3 points on Spot Gold
  • See and react to breaking news in-platform, when it matters

See opportunity on a commodity?

Don’t miss your chance. Log in to take advantage while conditions prevail.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
Sell
Buy
-
-
-
-
-
-
-
-
-
-
Sell
Buy
Sell
Buy
-
-
China 300
-
-

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

Plan your trading week

Get the week’s market-moving news sent directly to your inbox every Sunday. The Week Ahead gives you a full calendar of upcoming economic events, as well as commentary from our expert analysts on the key markets to watch.


For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of spread betting and CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.