Oil giant BP (BP) hailed ‘exceptional’ first quarter trading driven by higher prices in the Iran war, but its shares were flat on fears that its cash bonanza would be spent on lowering debt rather than share buybacks.
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Trading Will Continue to Grow
Ahead of full Q1 results later this month, BP said oil trading was ‘exceptional’ compared with a weak Q4 and that its performance should continue to strengthen.
It said that the price of Brent averaged $81.13/bbl in the first quarter 2026 compared to $63.73/bbl in the fourth quarter 2025, which would support earnings. That price hike was sparked by the disruption in the Middle East as the Strait of Hormuz was closed and key energy facilities were struck during the conflict between the U.S., Israel and Iran.
BP said it expects upstream production to be broadly flat compared with the fourth quarter of 2025, with slightly higher gas output offset by a small decline in oil production.
It said that oil production and operations should benefit from a positive earnings impact of $0.1 billion to $0.2 billion, while refining margins are also expected to improve by a similar amount.
Net Debt Will Rise
However, the group expects net debt to rise to between $25 billion and $27 billion, driven, it said, by a working capital build of up to $7 billion linked to the higher price environment.
Dan Coatsworth, Head of Markets at AJ Bell, said that BP had given the market a glimpse into how the Iran war was impacting its business and it was clear that it was not all plain sailing.
“The spike in oil prices led investors to expect bumper profits from oil producers. BP doesn’t feel the benefit of higher prices immediately as there is a slight delay due to how output is priced on a one and two-month lagged basis. That suggests any big uptick to production-related earnings won’t be felt until BP’s second quarter,” he said. “However, its trading operations did see an instant gain as the industry scrambled to find available supplies.”
He added that a tick-up in net debt reflected the need for extra working capital to see it through this period of volatility.
Blow for Shareholders
“That might only be a short-term issue, but it does dampen expectations for BP to share any oil-related windfall with shareholders via buybacks and dividends. BP halted share buybacks in February to focus on debt reduction, and it might argue that any extra income related to the sudden jump in the oil price is better served paying down borrowings,” he said.
Susannah Streeter, chief market strategist at Wealth Club, added: “As oil prices rise, BP is likely to need more money to hold the same barrels and to keep its trading activity running, which pushes up borrowing in the short term.”
Is BP a Good Stock to Buy Now?
On TipRanks, BP has a Hold consensus based on 4 Buy, 7 Hold and 2 Sell ratings. Its highest price target is $55.50. BP stock’s consensus price target is $45.06, implying a 2.97% downside.
