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BP Stock: Will Higher Crude Oil Prices Boost Its Earnings?


Nov. 18 2019, Published 10:29 a.m. ET

BP (BP) stock has been rising in the current quarter. The stock has risen 3.2% sequentially. The rise in BP’s stock price is in line with the increase in crude oil prices and equity markets in the quarter. The S&P 500 Index (SPX) has risen 5.1% sequentially. Today, the S&P is much stronger than it was at the beginning of the quarter. Chevron (CVX), Royal Dutch Shell (RDS.A), and Suncor Energy (SU) have risen 1.7%, 1.2%, and 2.8%, respectively, in the quarter.

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So far, WTI has risen 6.8% to $57.7 per barrel in the fourth quarter. Crude oil prices are vital for integrated oil and gas companies. The prices determine the companies’ upstream realizations and profits. Also, natural gas prices have risen 13.5% sequentially. So, higher oil and gas prices mean more profits and vice versa for these companies.

Notably, during the period of high crude oil and natural gas prices, upstream earnings accounted for a significant portion of these companies’ total profits. We’ll evaluate how oil prices could impact BP’s earnings in this quarter.

Is BP stock rising due to higher oil prices?

According to BP, a dollar per barrel rise in oil prices raises its adjusted profit (pre-tax replacement cost operating profit) annually by $340 million.

Despite the rise in oil prices in the current quarter, they’re still lower on a yearly and sequential basis. On average, WTI prices are at $54.8 per barrel in the fourth quarter. The current average is lower than $56.4 per barrel in the third quarter and $60.0 per barrel in the fourth quarter of 2018. As a result, oil prices will likely exert downward pressure on BP’s upstream earnings in the fourth quarter.

BP stock might be rising due to higher oil prices in the quarter. However, on average, crude oil prices are lower in the quarter.

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BP’s upstream volumes

According to BP, its upstream production in the fourth quarter will be more than the third quarter. The increased output is due to the completion of seasonal turnaround and maintenance activities.

In the third quarter, BP produced 2.57 MMboed (million barrels of oil equivalent per day). So, in the fourth quarter, the company’s output should be more than 2.57 MMboed. BP’s volumes will rise sequentially in the fourth quarter.

In the fourth quarter of 2018, BP’s output was 2.46 MMboed. So, the company’s volume expectation of above 2.57 MMboed reflects a year-over-year rise in upstream production in the quarter. Hopes of higher hydrocarbon production might boost BP’s stock price in the fourth quarter.

Will upstream earnings rise in Q4?

BP’s upstream earnings could remain flat YoY led by lower oil prices and offset by higher volumes. Sequentially, the earnings could be almost the same or see a marginal upside or downside movement.

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Downstream earnings forecast

BP’s refining earnings depend on the refining margin and throughputs in the quarter. The company publishes the RMM (refining marker margin), which is the average of the regional crack that’s weighted by area-wise refining capacity.

In the current quarter, the company’s RMM has risen 45% YoY to $15.9 per barrel. The RMM has risen 8% sequentially. So, the refining margin conditions seem healthy in the quarter. The refining cracks are strong in the US Northwest region. Notably, the cracks have risen 149% YoY to $30.6 per barrel in the fourth quarter. Also, the cracks in Australia have risen 50% YoY.

On throughputs, BP expects almost the same level of turnaround activity as the third quarter. So, the throughput could remain flat yearly and sequentially in the fourth quarter.

BP’s downstream earnings could rise based on better refining margins in the fourth quarter. There shouldn’t be downward pressure due to lower throughputs.

Q4 has been positive for BP stock

BP’s earnings could rise in the fourth quarter due to higher downstream earnings. The company’s upstream earnings could be flat with slight movement in either direction. The fourth quarter is turning out to be good for BP stock.


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