BP‘s (LSE:BP) share price have been up and down like a yo-yo so far this year. The oil major remains up 0.5% since 1 January, though on a 12-month basis it’s fallen a whopping 20.8%, pulled lower by declining energy prices.
But City analysts are broadly in agreement that BP shares will rise by double-digit percentages over the next year. And combined with the prospect of more juicy dividends, it seems an investment in the FTSE 100 firm today could yield solid near-term rewards.
So how realistic are these price forecasts? And should I consider buying BP shares for my portfolio?
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21% price gains?
City analysts aren’t unified in their bullishness for the next 12 months. But the average share price amid the 27 brokers with ratings on BP sits at 491.1p. That’s up 21.2% from current levels of 405.25p.
One especially confident broker believes BP shares will balloon 60.1% over the forthcoming year, to 648.60p per share. However, it’s also worth noting that some believe they’ll tread lower over the period. The most pessimistic forecaster predicts a price of 393.6p, down 2.9% from today.
Price drivers
So what could be the potential drivers for BP’s share price over the next 12 months? First and foremost, its performance is likely to be chiefly influenced by the performance of the black liquid it produces.
Aside from this, signs of progress in its restructuring strategy will be crucial. Fears over debt levels have long plagued the company, so it hopes to cut net debt from $23bn to $14bn-$18bn by 2027, achieved through a blend of investment reductions, cost-cutting and asset sales (of $20bn).
This won’t be easy to achieve, but let’s give BP the benefit of the doubt and say it makes good progress on its aim. Yet this might not be alone if conditions in the oil market become challenging. And this is where I have a problem.
Dark clouds gathering?
A fragile outlook for oil prices has become decidely gloomy in recent hours, causing Brent crude to fall 6% on Thursday (3 April), to $70.22 a barrel.
President Trump’s estimate-busting trade tariffs, combined with likely retaliatory measures from the US’ major trade partners, threaten to stall the global economy and drive up inflation, hitting energy consumption. The demand picture was already clouded by chronic underperformance in China’s economy.
Existing supply-side worries have worsened too, as the OPEC+ cartel has vowed to triple its production target for next month. It will now increase output by 411,000 barrels a day, accelerating its plans to ditch previous output reductions.
Are BP shares a potential buy?
I’m not just concerned about BP’s share price over the next year either. With the company slashing renewables investments and increasing oil production, its longer-term outlook is also plagued with uncertainty as fossil fuels become increasingly unpopular.
Today, BP shares trade on an undemanding price-to-earnings (P/E) ratio of 9.3 times. But even at this level, I’m not prepared to invest in the FTSE 100 oilie. I’d rather find other UK shares to buy.
