BP Stock: Gauging Short Interest in Q4

BP (BP) stock has fallen 2.4% sequentially. The stock is under pressure due to weaker results. The company’s third-quarter earnings fell sharply. Also, crude oil prices are lower compared to last year, which is weighing on the stock.

Short interest in BP stock and peers

In such a scenario, it isn’t surprising that the short interest in BP stock has risen. The short interest in BP was 0.09% on October 1—the beginning of the fourth quarter. Currently, the short interest has increased to 0.14%. A rise in the short interest usually implies an increase in the bearish sentiment in a stock.

ExxonMobil (XOM), Chevron (CVX), and Royal Dutch Shell’s (RDS.A) short interest has risen in the quarter. Their short interest has increased by 0.02, 0.06, and 0.03 percentage points, respectively. Now, their short interest is 0.99%, 1.19%, and 0.22%, respectively.

Weaker third-quarter earnings

BP’s earnings fell 41% YoY in the third quarter due to the fall in upstream, downstream, and Rosneft earnings. BP’s upstream earnings were impacted by lower realizations, which were impacted by weaker crude oil and natural gas prices. However, a rise in oil and gas volumes supported the segment’s earnings. The company’s downstream earnings fell due to weaker fuels and petrochemical earnings. To learn more, read BP’s Q3 Earnings Slump but Beat the Estimate.

Oil prices rise, weaker YoY

Oil prices have risen in the current quarter. WTI oil prices have increased 5.9% in the fourth quarter. The prices have risen due to optimism about trade talks. In the previous quarter, trade tension between US-China raised concerns about global oil demand. However, easing tension between the countries in the current quarter has supported oil prices.

Recently, OPEC+ agreed to deeper production cuts, which boosted oil prices. According to a MarketWatch report, Velandera Energy’s CFO, Manish Raj, said, “Today’s development suggests that OPEC cuts will be shared by all members and roughly a third of the cuts will be assumed by non-OPEC members, suggesting that actual barrels will be removed from the market.”

However, oil prices are still lower in the current quarter compared to the same quarter last year. In the fourth quarter, the average WTI oil price is $55.7 per barrel—lower than the average of $59.3 per barrel in the fourth quarter of 2018. So, oil prices are about 6.1% lower YoY in the current quarter.

Oil markets’ weak fundamentals have impacted oil prices. The markets are starring at an oil supply glut in the next year. OPEC’s cuts will remove extra oil barrels from the market.

BP’s earnings outlook for Q4

Analysts expect BP’s earnings to fall 32% YoY in the fourth quarter. The estimated fall in profits is based on the lower oil price outlook, which could impact the company’s upstream earnings. However, a better output could help the segment.

However, the forecasted fall in BP’s upstream earnings could be partly offset by an estimated rise in its downstream earnings. The refining environment seems positive with the upcoming IMO regulations on marine fuels. Refining cracks and oil spreads have started rising, which points to a better refining margin for the company.

Read BP Stock: Will Higher Crude Oil Prices Boost Its Earnings? to learn more.