Drop in BP Profits Expected

British Petroleum

A fall in the global price of oil is expected to hit third quarter profits at British Petroleum (FTSE:BP). The company reports to the market on Tuesday.

Analysts anticipate profits of just over $780 million dollars for the company’s third quarter results. This figure compares with $1.8 billion over the same time period last year.

The UK oil giant that achieved notoriety for the Deep water Horizon spill has struggled to maintain its edge in recent years. While compensation payments for the disaster have now largely been completed, the lower oil price environment has proved a further drag on profits. Its refining division has been particularly heavily hit on reduced margins.

The results come on what is known as ‘super Tuesday’. This day is so called because in addition to BP, its London listed rival Royal Dutch Shell is also due to release results. This will be keenly watched as markets try to gain insight into how these industry giants are coping with the lower price environment.

Royal Dutch Shell is expected to hold up better. Consensus forecasts indicate that third quarter profits should only show a small dip. The company is expected $1.7 billion dollars in profit. This is just short of the $1.8 billion reported for the same period last year. It is noted that deferred tax charges from a previous year may have flattered these results.

The decrease in profits is reflective of the lower oil price.  US Oil majors ExxonMobile and Chevron have already published their third quarter earnings with mixed results. Despite strong cost cutting, markets are still to make their minds up the effects of the low oil on profits going forward.

Both Shell and BP are bellwether UK stocks that are highly prized by investors for their yield. Shell  in particular has been an income staple for years in many investors portfolios.  Its recent cost cutting following the takeover of BG earlier this year is seen as having to helped secure income payments into the future. The market will be looking for both companies to maintain their dividends going forwards.

Prior to the announcement shares in BP stood at £4.84  . Royal Dutch Shell traded at £21.20 per share.

bp share price

Outlook

Share in BP have risen strongly along with other FTSE 100 constituents in recent months. However the lower price oil environment could dent further profits if it turns out to be the new ‘normal.’

Oil has moved higher strongly following sharp falls to lows below $30 per barrel. However, most oil traders are not backing significant further gains on the back of the latest rally.

With global oil inventories reporting an increased build up of stock, there are few signs of the oil price moving much higher from current levels.