Market Research News

BP Profit – BP is Back in Profit Due Helped by Oil Price Increase

  • May 2, 2017
  • By Pete Nisbet
  • 0

BP profit figures have been assisted by a recovery in the price of oil. Nevertheless, it should be stressed that, while BP has posted a profit for the first three months of 2017, the market is still volatile and can change at any time.

BP Profit

Just how volatile was brought home by a recent dip in the price of oil due to a poor Chinese economy. Fear of a reduction in oil demand by China did not affect BP’s first-quarter profit, but may affect the second quarter. OPEC could cut output to stop a further fall, and it is rumored that this could happen sooner rather than later. The scheduled OPEC meeting on 25th May in Vienna is keenly awaited in anticipation of what action might be agreed to stabilize oil prices or even to increase them.

Potential Reasons for BP Profit

The reported replacement cost profit for BP was reported $1.4 billion (£1.1 billion) for January to March of this year, compared to a loss of $485 million (£377 million) for the same period in 2016 and a total loss of $999 million for the year. A slight price increase earlier this year and BP’s cost-cutting exercise both contributed to the first-quarter profit and BP share prices increased 3% as a result.

 

Although the oil price had recovered last year to $50 a barrel from an earlier $30, it was still way behind the high of $100 back in 2014.  The price drop was largely a result of overproduction, and was reversed after an agreement between oil producing countries to cut production.

Effect of American Shale Oil and Gas

Another aspect of oil prices is the potential effect of American shale oil and gas.  U.S. shale oil is more expensive than OPEC oil and has fewer potential outlets. However, it is another factor that could upset the applecart and lead to a price war between OPEC and U.S. oil. This is sure to have an effect on the profit potential of oil giants such as BP.

 

That aside, BP is “performing well” according to BPO Finance Director Brian Gilvary. Compared to 1914, BP costs are down by $7 bn a year, partially due to thousands of jobs being cut from the firm’s exploration and production divisions with more planned for this year. Around 600 of these were from BP’s North Sea operations.

BP Profit Affected by Deeepwater Horizon Costs

It was not only BP that enjoyed a healthy first quarter. Chevron, Exxon Mobile and Total also reported earnings that were stronger than expected for the first quarter of 2017. Another issue still facing BP is the cost of the 2010 Deepwater Horizon disaster in the Gulf of Mexico. The company has paid $2.3 billion towards that, and expects to pay a total of between $4.4 billion and $5.5 billion this year. A total of $62.7 billion has been set aside so far to cover costs accrued since the oil leak disaster.

 

Bob Dudley, BP CEO, believes the billions of dollars spending cuts and the deferment of planned projects enables the company to be looking towards growth and acquisitions at a time when crude prices appear to be rising. Even though OPEC, Russia, and some other countries have cut oil production in an attempt get prices up again, global oil supplies are still high.

 

Future BP profit figures may be affected by American shale oil, which could upset this tenuous balance – in fact, it seems like it is doing so already. For now, however, BP appears to be handling its issues reasonable well considering the high level of current global oil supplies.

About Pete Nisbet

Pete has been working in the field of website design and content for many years. He has a great interest in technology and current affairs, particularly business affairs. Pete's interests are technology, writing and world affairs and he is widely traveled. Pete also holds an Honors BSc from the University of Edinburgh.