Shares in oil giant BP (BP.) have surged to a post-2020 high today on the spike in crude prices. The stock price is up around 8% this week and more than 30% year-to-date as Brent crude has soared.
Rising energy prices
The price of oil jumped 6% to $115.70/barrel after more attacks on Middle East energy infrastructure overnight. Iranian missiles targeted Ras Laffan Industrial City in Qatar, which produces some 20% of global LNG (liquid natural gas).
The attack followed an Israeli strike on the South Pars gas field, which draws on the same natural gas reservoir. European LNG prices spiked 30% overnight as the continent is a major user of Middle Eastern gas.
In Germany, year-ahead baseload power contract prices rose 7% to nearly €100 per MWh (megawatt-hour). Despite its extensive renewable energy infrastructure, Germany is still heavily reliant on imported gas for power generation.
Update on cost savings
BP also raised its target for 2027 cost savings from $6.5 billion to $7.5 billion or around 30% of its 2023 cost baseline. It initially forecast $5 billion of savings in February 2025 but raised that target to $6.5 billion last month.
The previous increase in targeted cost savings came after the firm agreed the sale of a 65% stake in its Castrol unit. The sale will raise over $6 billion, including dividend accelerated payments, which will be used to pay down debt.
Today’s announcement comes on the back of the decision to sell its Gelsenkirchen refinery in Germany to the Klesch Group. The site manufactures fuel for aircraft and vehicles as well as supplying feedstocks to the petrochemical industry.
When we wrote on BP about six weeks ago the shares were down after the company suspended its buyback programme. Then the story was all about preserving cash and strengthening its balance sheet.
How times have changed in the space of a few short weeks. If the war in the Middle East continues to broaden and more energy infrastructure is damaged, prices will keep going up.
At the end of the day the cure for high prices is high prices, because they cause demand destruction. Hopefully that doesn’t come to pass, but for now BP and its shareholders are reaping the whirlwind.
Read the press release here: https://www.bp.com/en/global/corporate/investors.html
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