The oil industry has been extremely volatile in the last few years and the BP (LSE:BP) share price is no different. With the stock in potential bargain territory and oil prices now trading at high levels, I’m wondering if it’s finally time to add the company to my portfolio.
Recent performance and potential cheapness
In the past year, the shares have increased by over 28%, while over the last month they are down 11%. At the time of writing, they’re trading at 364p.
There is the distinct possibility that BP shares are bargains at current levels. By referring to forward price-to-earnings (P/E) ratios, I can see that BP registers 4.15.
| Stock | Forward P/E ratio |
| BP | 4.15 |
| Shell | 5.18 |
| Chevron | 9.39 |
| ExxonMobil | 8.29 |
This is lower than all major global competitors, and is an indication that I may be buying the shares on the cheap.
Surging oil prices
In recent months, the firm – a global oil and gas producer – has been benefiting from high oil prices. Currently, both West Texas Intermediate (WTI) and Brent Crude oil are trading just shy of $100 per barrel. This time last year, they were at the $70 mark.
This has mainly been caused by the war in Ukraine. In fact, investment bank JP Morgan has forecast that cuts to oil imports from Russian could lead to prices rising to between $190 and $380 per barrel in the coming months and years. Given the recent downward movement in the share price, I’m not yet sure that this scenario is reflected in the shares.
While these estimations may not materialise, it’s good news for BP that the oil price seems to be set to rise even further. This essentially means that the company’s produce is worth more, meaning that BP’s revenue and profits could also increase.
What’s more, the reopening of economies following the pandemic has led to greater demand for oil. However, there is the chance of a global recession occurring in the coming months, and history tells me that this can cause significant drops in the oil price. That could negatively impact BP in the short term.
A strong financial position
Nevertheless, as a potential investor it was encouraging to see the business rebound from a $24.8bn pre-tax loss in 2020 to a $15.2bn pre-tax profit in 2021. This is an indication of how good the company’s results can be if there is reasonable demand for oil on a global scale.
At the end of March, the business also had operating cash flow of $25.71bn. This could be used to either pay down debt or grow operations through further exploration.
Overall, BP is clearly functioning well at the moment. If oil prices continue rising, things can only get better. With the business also in strong financial shape, I will be adding the firm to my portfolio, hopefully getting a bargain in the process.
