Shares of BP (LON:BP) (LSE: BP) have been trading in a narrow range for weeks and its performance since the beginning of the year is positive with an increase of about 6% despite the recent fall in oil prices.
When the news of the attack on oil tankers in the Gulf of Oman was announced on Thursday, the share price briefly reached the lowest point in the range at £5.23 before recovering quickly. This knee-jerk move, probably intended to trigger stop-loss protections, might signal a renewed buying interest by institutional investors.
The burning American response Since President Trump’s decision to withdraw from the Iranian nuclear agreement of 2015, the US and Iran have been at odds with each other. The crisis has intensified since May 13, when four tankers were sabotaged off the coast of the United Arab Emirates.
In response, the US is increasing sanctions against Tehran and deploying military assets in the region.
Based on military intelligence, the US blames Iran for Thursday’s attacks by Norwegian and Japanese tankers.
Iran, which is suffering from economic sanctions imposed by the US, is suspected of preparing to resume its nuclear programme.
The latest developments with the recent attacks could lead both countries to the brink of war.
The rise of oil price might fuel BP’s share price The price of crude oil has fallen by about 20% since its April peak, due to fears of a slowdown in the global economy caused by growing trade tensions between the US and China.
Following recent attacks, the West Texas Intermediate barrel is trading about 4% above the lowest of its daily range at about $50. These levels might seem attractive for fundamental demand traders in an attempt to hedge against growing geopolitical risks.
BP shares have been stable for three months despite oil prices digging a hole. Speculation of an increase in fundamental demand for oil could trigger a buying momentum for BP, in my opinion.
My fundamental view of BP At the current share price of £5.37, BP is valued at about 14 times its earnings, below its US rivals Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) with a P/E ratio of about 17.
BP offers a dividend yield of 6% at the current share price, in line with its competitor in the FTSE 100 Royal Dutch Shell (LON:RDSa), and well above the US oil majors, with an average dividend yield of around 4.5%.
BP also appears to be cheaper than Royal Dutch Shell, which is trading near its historical highs. The BP share price has a margin of growth of about 12% before reaching its own previous top level.
On the downside, OPEC recently lowered its outlook for global demand. But since then a BP report has indicated that energy consumption growth is double the annual average, making analysts confident about oil companies.
Neither Jean-Philippe nor The Motley Fool UK have a position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019