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BP Faces Headwinds Over Weaker Refining Margins & Sluggish Oil Demand
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BP plc (BP - Free Report) , the British energy giant, has cautioned that its third-quarter profits have taken a toll due to lower refining margins and sluggish oil demand. The energy giant also mentioned that the demand for crude appears to be stagnating, which might have weighed on its financials in the quarter.
Weaker Refining Margins Lay Pressure on BP’s Q3 Profits
BP’s refining margins are expected to drop $400-$600 million as compared to the prior quarter. Moreover, the company noted that oil trading performance is anticipated to be weaker for the September quarter. BP provided these updates ahead of its earnings release on Oct. 29, 2024. Flat fuel margins in this quarter are also likely to have affected its earnings in the Products division.
BP is expected to have sustained a stable production level in its oil production, and gas and low carbon energy segments. The company does not expect to record any significant growth across its upstream operations. However, the energy major notes that the oil production and operations segment might have suffered a negative financial impact of $100-$300 million due to price lags on production, particularly in the UAE and the Gulf of Mexico.
The company has mentioned that it expects higher exploration write-offs of $200-$300 million to negatively impact its quarterly results. Previously, a similar warning over weaker refining margins was issued by Shell. Shell’s profit margin in the Refining segment dropped 30% sequentially due to a decline in the demand for refined products. A slowdown in economic activities worldwide is expected to have affected all major players in the energy sector in the third quarter.
Stagnant Oil Demand Adds to Financial Pressure
The price of Brent crude witnessed a significant drop in the third quarter. BP stated that the decline in oil prices can be partly attributed to a slump in the Chinese economy. This is because China is the largest importer of crude globally. Recently, oil prices have spiked again due to geopolitical events in the Middle East. This may lead to supply-chain bottlenecks.
Rise in Net Debt Weigh on BP’s Financials
BP also stated that its net debt might have risen in the third quarter due to weaker refining margins. The oil giant also expects $1 billion in divestment proceeds in the September quarter, which has been delayed. BP shall record the proceeds in the fourth quarter instead. The company has witnessed a sharp decline in its profits in 2024, making it a difficult year for BP’s new CEO, Auchincloss, who assumed office in January this year.
To restore investor confidence, the company has taken some major decisions, including a shift in focus toward oil and gas. The company has turned its back on its ambitious emission reduction goals and scrapped its 2030 production target to reduce its oil and gas output by 40% and expand its renewables segment.
BP’s Zacks Rank and Key Picks
Currently, BP carries a Zacks Rank #5 (Strong Sell).
PEDEVCO is engaged in the acquisition and development of energy assets in the United States and Pacific Rim countries. PED stands to benefit significantly from its holdings in the Permian Basin, one of the most prolific oil-producing regions in the United States and the D-J Basin in Colorado, which includes more than 150 high-quality drilling locations. Combined with bullish oil prices, this is expected to boost the company's production and overall profitability.
Archrock is an energy infrastructure company based in the United States, with a focus on midstream natural gas compression. It provides natural gas contract compression services and generates stable fee-based revenues.
FuelCell Energy is a clean energy company offering low-carbon energy solutions. It produces power using flexible fuel sources such as biogas, natural gas and hydrogen. The company designs fuel cells that generate electricity through an electrochemical process that combines fuel with air, reducing carbon emissions and minimizing the environmental impact of power generation. As such, the company is anticipated to play a crucial role in the energy transition by enabling industries and communities to shift from traditional fossil fuels to low-carbon alternatives.
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BP Faces Headwinds Over Weaker Refining Margins & Sluggish Oil Demand
BP plc (BP - Free Report) , the British energy giant, has cautioned that its third-quarter profits have taken a toll due to lower refining margins and sluggish oil demand. The energy giant also mentioned that the demand for crude appears to be stagnating, which might have weighed on its financials in the quarter.
Weaker Refining Margins Lay Pressure on BP’s Q3 Profits
BP’s refining margins are expected to drop $400-$600 million as compared to the prior quarter. Moreover, the company noted that oil trading performance is anticipated to be weaker for the September quarter. BP provided these updates ahead of its earnings release on Oct. 29, 2024. Flat fuel margins in this quarter are also likely to have affected its earnings in the Products division.
BP is expected to have sustained a stable production level in its oil production, and gas and low carbon energy segments. The company does not expect to record any significant growth across its upstream operations. However, the energy major notes that the oil production and operations segment might have suffered a negative financial impact of $100-$300 million due to price lags on production, particularly in the UAE and the Gulf of Mexico.
The company has mentioned that it expects higher exploration write-offs of $200-$300 million to negatively impact its quarterly results. Previously, a similar warning over weaker refining margins was issued by Shell. Shell’s profit margin in the Refining segment dropped 30% sequentially due to a decline in the demand for refined products. A slowdown in economic activities worldwide is expected to have affected all major players in the energy sector in the third quarter.
Stagnant Oil Demand Adds to Financial Pressure
The price of Brent crude witnessed a significant drop in the third quarter. BP stated that the decline in oil prices can be partly attributed to a slump in the Chinese economy. This is because China is the largest importer of crude globally. Recently, oil prices have spiked again due to geopolitical events in the Middle East. This may lead to supply-chain bottlenecks.
Rise in Net Debt Weigh on BP’s Financials
BP also stated that its net debt might have risen in the third quarter due to weaker refining margins. The oil giant also expects $1 billion in divestment proceeds in the September quarter, which has been delayed. BP shall record the proceeds in the fourth quarter instead. The company has witnessed a sharp decline in its profits in 2024, making it a difficult year for BP’s new CEO, Auchincloss, who assumed office in January this year.
To restore investor confidence, the company has taken some major decisions, including a shift in focus toward oil and gas. The company has turned its back on its ambitious emission reduction goals and scrapped its 2030 production target to reduce its oil and gas output by 40% and expand its renewables segment.
BP’s Zacks Rank and Key Picks
Currently, BP carries a Zacks Rank #5 (Strong Sell).
Some better-ranked stocks in the energy sector are PEDEVCO Corp. (PED - Free Report) , Archrock Inc. (AROC - Free Report) and FuelCell Energy (FCEL - Free Report) . PEDEVCO and Archrock presently sport a Zacks Rank #1 (Strong Buy) each, while FuelCell Energy carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
PEDEVCO is engaged in the acquisition and development of energy assets in the United States and Pacific Rim countries. PED stands to benefit significantly from its holdings in the Permian Basin, one of the most prolific oil-producing regions in the United States and the D-J Basin in Colorado, which includes more than 150 high-quality drilling locations. Combined with bullish oil prices, this is expected to boost the company's production and overall profitability.
Archrock is an energy infrastructure company based in the United States, with a focus on midstream natural gas compression. It provides natural gas contract compression services and generates stable fee-based revenues.
FuelCell Energy is a clean energy company offering low-carbon energy solutions. It produces power using flexible fuel sources such as biogas, natural gas and hydrogen. The company designs fuel cells that generate electricity through an electrochemical process that combines fuel with air, reducing carbon emissions and minimizing the environmental impact of power generation. As such, the company is anticipated to play a crucial role in the energy transition by enabling industries and communities to shift from traditional fossil fuels to low-carbon alternatives.