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You may not be totally shocked to discover that BP (LSE: BP) shares outpaced every UK blue-chip in September, rising around 10%. The month’s second-best performer? Fellow FTSE 100 oil and gas giant Shell. The fact that Brent crude spiked to $107 a barrel last month may have had something to do with it.
The war in Iran’s dragging on, threatening oil supplies just as winter approaches. That’s sent the price of crude, diesel, petrol and jet fuel sharply higher. UK diesel prices hit a record 199.18p a litre this week.
Crude keeps climbing
Oil stocks don’t simply follow the price of crude, but have a huge influence. Higher oil prices boost revenues from producing and selling oil, although other variables such as refining margins, gas prices, trading, costs, production and US dollar strength also matter.
BP’s underlying replacement cost profit hit $5.7bn in Q2, up from from $2.4bn in Q1, while operating cash flow surged to $10.9bn.
Yet it wasn’t all one-way traffic. Brent slipped back towards $96 towards the end of the month as hopes of diplomatic progress resurfaced. Saudi Arabia also increased exports after restoring its East-West pipeline, easing some of the supply pressure.
I’d rather this stock was falling
Although I hold BP, I’d rather its shares were struggling and the rest of my portfolio was flying on good news from the Middle East. That would mean lower energy prices, falling inflation, interest rate cuts and an end to the cost-of-living crisis. We can dream.
I’ve felt all along that markets have put too much faith in hopes of an Iran peace deal. I was surprised whenever shares bounced on reports that a breakthrough was close because the underlying situation looked nowhere near resolved.
Winter could be tough, and that may keep supporting BP (and Shell). But investors shouldn’t buy stocks just for the short term. It’s the long-term that matters.
A handy portfolio diversifier
Climate change remains a huge challenge. I can understand why investors might shun BP for that reason. The world needs to reduce its reliance on fossil fuels, but the transition isn’t going to happen overnight. We’ll need oil and gas for years to come, even as investment in cleaner energy accelerates.
A major clean-energy breakthrough could change that equation, while BP needs to keep replacing reserves and finding profitable new sources of oil and gas.
Today, BP’s doing a job as a portfolio stabiliser, providing a rare point of light on days when everything else is falling. The shares are up 33% over the last year and offer a trailing dividend yield of roughly 4.5%. With a forecast price-to-earnings ratio of about 7.3, they don’t look expensive either.
That doesn’t mean they can’t fall. Oil prices could plunge if the war ends, while at the other end of the risk scale, a war-induced global slowdown would hit demand. Despite the risks, I think BP shares are well worth considering. And there are plenty of other FTSE growth and income stocks I’d check out too…
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Harvey Jones owns shares in BP.
This story originally appeared on Motley Fool
