Can BP surpass oil majors’ success?

Can BP match the outperformance seen in other major oil firms; and if so, will there be an increased return to shareholders?

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The positive environment

Given the average price of crude over the last quarter analysts are expecting very good earnings from oil producers. Earnings of other major companies have come in well above expectations. Analysts have been upgrading their profit forecasts for BP. As of writing, the consensus is that BP will report earnings of $2.12 per share, and have revenue of $58.7B.

Another factor that could support a better outlook is that BP already provisioned for the cost of withdrawing from Russia in the first quarter. It is unlikely to be repeated. Especially considering that if the loss from its sale of Rosneft is discounted from last quarter's results, then it would have been BP's best result in history. And the market conditions have only improved since then.

Catching up with the others

BP shares have underperformed rivals over the last quarter. To catch up, BP would have to do some of the same actions as Shell, such as announcing a share buyback or paying down debt. Given the extraordinary nature of the earnings, it's unlikely BP will announce a substantial increase in the dividend.

BP could be facing a challenge: Politics. With the Tory leadership contest in full swing, the windfall tax on oil company profits has not been mentioned as much. Both of the leading candidates have been talking about reducing taxes. But, once the election is over, attention could return to oil companies' large earnings while the UK Treasury is short on funds - particularly if general income taxes are cut. This could encourage BP to increase pay-outs in the form of buybacks. Another option is to announce substantial capital investments, such as in renewables. Which option could be pivotal for the stock price's performance, and the outlook section with regards to what to do with increased profits is likely to be the most read portion of BP's quarterly results.

BP share price at 50% Fibo

The stock price of BP is hovering around the 400p round level, where the 50-week average and 50% Fibonacci lie. The stock received rejection at the golden pocket of the 600-200p leg, which happens to be at the same level the 600-585p trendline extends down to. Furthermore, it is also where the 200-360/310p channel overlaps with the said trendline at 445p. The event caused a sizeable drop in prices, but the 20-week average at 360p has formed a local low.

If the slow SMA breaks, 345p and 310p are medium-term supports. From there, 275p and eventually 200p are major supports. Inversely, the break of 400p would lead to 445p in the medium-term. Above there, 480p and 540p would be exposed before the 600p top.

Source: Spreadex trading platform

Key takeaways

Analysts are expecting BP's earnings to come in well above expectations considering the recent strong performance of other oil producers. Adding to that, BP has already provisioned from withdrawing from Russia and might discount Rosneft’s loss from last quarter’s results.

However, UK’s elections are creeping in and windfall taxes on oil companies’ earnings could be a challenge BP has to face after the election is over. If BP increases buybacks or announces large investments in renewables the stock would be open to a boost. But if its decision to use increased profits is not satisfactory for investors, the share price could fall.