For investors, the presidential debates made it clear that stocks reliant on fossil fuels for financial health face at best an uncertain future. In the case of BP plc (NYSE:BP), you have to wonder whether there’s at least some short-term daylight. One would hope BP stock is an outlier, given how the energy sector is taking a drubbing of historic proportions.
Judged by the company BP keeps, things don’t look so hot. Recently, I’ve written about how Exxon Mobil (NYSE:XOM) and Marathon Oil (NYSE:MRO) are wallowing in investment sludge thicker than sweet crude. (Maybe sour crude is more like it.)
Drilling down, if you will, BP stock must be viewed in the context of its sector and then as a company in its own right. Where does it stand as gushers or dry rigs go? Most investors would settle for a steady profit flow from the well. Here’s my assessment of the petroleum behemoth. Spoiler alert: It ain’t good.
BP Stock and a Beat-Up Sector
Sector health for individual companies is a non-negotiable as energy stocks go, BP stock included. And the news most definitely has been miserable at the retail end. The average price of a gallon of gas in mid-September fell two consecutive weeks to $2.17, according to GasBuddy.
Fast forward and the numbers moved backward. By Oct. 26, gas prices recorded their fourth straight week of decline, galumphing along at $2.14. Adjusted for inflation, that would’ve been $1.97 back in 2016, which was the last time many consumers paid $3 a gallon.
How has BP stock fared in the midst of this? Meh at best. For 2020, it’s off 61%. Recalibrated in light of the novel coronavirus funk that ripped through much of Wall Street, BP is off 7% since mid-March. Here again, sector woes have played a role. Energy stocks sagged the week of Oct. 26, this time amid fears that the current spike in Covid-19 cases will sap demand.
Pumping Pain, Even With Gain
Now let’s examine BP stock news in particular. Does it offer a glimmer of hope or the bummer of nope? Here, the story is mixed. Yes, BP outperformed analyst projections for the third quarter of 2020, making $86 million as opposed to losing $120 million. But as good news goes, it was a punchbowl full of tepid, curdled milk. Echoing concerns over the Covid-19 pandemic that have rocked the broader energy market, BP warned on Oct. 27 that it would slash 10,000 jobs globally.
Thus, the profits failed to boost share prices; in fact, BP stock lost 5% over Oct. 27 and 28, landing at a share price of $14.88. The market likely factored in that year over year, quarterly profits sank from $2.3 billion.
One bright spot could transform BP’s prospects over the long haul. The company plans to move into alternative energy sources such as offshore wind and hydrogen, CEO Bernard Looney said. But that in large part represents a reaction rather than a vision. Here’s why I think so.
BP Needs to Tap New Energy Sources
The reality facing BP stock is more than dire. As the Guardian reports, “BP’s energy economists have said demand for oil may never recover after the pandemic [my emphasis], which has taken a heavy toll on transport industries, and may be on the brink of an unprecedented decades-long decline.”
Assuming that the demand for oil hits said decline, what does that mean for a company that lives and breathes, fails or succeeds, based on petroleum prices? Don’t take my word for it: You just heard it straight from the mouths of BP’s economists. It more than makes the case when representatives of the energy company you’re writing about render a verdict with more authority than investment experts can.
As for whether you should expend your energy of chasing BP stock, well, I think you know by now how I feel. Don’t. Long term, oil isn’t the energy future of an imperiled planet. Short term, oil prices have hit the skids. Somewhere in between, those prices are likely to never recover.
Only when viewed through the lens of conquering alternative energy sources, and marketing them effectively, does BP stock or any investment in the sector stand a chance.
On the date of publication, Lou Carlozo did not have (either directly or indirectly) any positions in the securities mentioned in this article.