Shares in oil giant BP (BP) gushed 4% higher in pre-market trading as the hike in fossil fuel prices during the Iran war helped it report bumper Q1 profits. Analysts said it could use the cash surge to fund a new M&A growth plan and keep its share price climbing. But challenges over its debt levels and Middle East disruption could temper investors’ expectations.
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Oil Trading Soars
In its first results since the launch of the conflict in late February, and the first under new chief executive Meg O’Neill, BP reported Q1 profits of $3.2 billion, well ahead of the $1.38 billion in the same period last year. It said that profits in its customers and products division, which includes its oil trading unit, surged to $2.5 billion, up from just $103 million a year ago.
The main catalyst was the soaring oil price during the conflict, which has seen attacks on key energy facilities and the closure of the strategically important Strait of Hormuz. Oil prices rose to around $120 a barrel at one point, but are now around $110 as a peace deal continues to look out of reach.
Although oil prices are set to remain elevated, BP cautioned that it expects upstream production in the second quarter to be lower because of seasonal maintenance in the Gulf of America/Mexico and the “effects of disruption in the Middle East.”
The well-known dividend-paying stock lifted its Q1 dividend 4% compared to the same quarter a year ago, but net debt came in at $25.3 billion, up 14% from the previous quarter.
What Does the Market Say?
“The highest quarterly profit in the best part of three years is not a bad way for a new BP to begin her tenure. Circumstances have helped but, as Napoleon famously attested, there’s no harm in being a lucky general,” said Dan Coatsworth, head of markets at AJ Bell. “However, disruption to BP’s own operations in the Middle East may have impacted production given guidance for output to be lower for 2026. There may also be some frustration that BP’s hefty borrowing pile has ticked higher on lower operating cash flow and higher costs. “
He added that O’Neill can’t count on the backdrop remaining helpful indefinitely, and that Shell’s (SHEL) acquisition of Canadian shale firm ARC Resources (ARX) “may dial up the pressure for BP to articulate a growth strategy of its own alongside its turnaround plan.”
Susannah Streeter, chief investment strategist at Wealth Club, said that BP is not immune to the damage and destruction in the Gulf with its Rumaila oil field in Iraq being hit by drones.
“Then there’s the overall disruption expected as cargoes mount up and the Strait of Hormuz remains closed. So, while volatile energy prices are set to continue to benefit the trading division, there’s going to be a tale of repair and maintenance costs to bear going forward,” she warned.
Is BP a Good Stock to Buy Now?
On TipRanks, BP has a Hold consensus based on 5 Buy, 6 Hold and 1 Sell ratings. Its highest price target is $58. BP stock’s consensus price target is $49.47, implying a 7.62% upside.
