returned to profit in the third quarter as demand and prices continued to recover.
However, the FTSE 100-listed company warned that the current trading environment remains “volatile and challenging”, with the shape and pace of the recovery depending on the spread of the Covid-19 pandemic. The stock rose more than 2% in early trading, before falling back to trade down 0.7%, and remains down 58% year-to-date.
The London-based multinational reported an underlying replacement cost profit, its definition of net income, of $86 million in the three months to September 30. While that figure was a 96% drop from the $2.3 billion profit the company posted a year earlier, it is a major improvement from the record underlying loss of BP of $6.7 billion in the second quarter. It also beat the market consensus of a loss of $120 million.
Despite the improvement, year-over-year demand for retail fuels was 7% lower, while aviation demand was around 60% lower.
The world’s largest oil and gas companies have had to adjust to lower oil prices amid the pandemic and an accelerated transition to renewable energy. Chief executive Bernard Looney described him as “performing while transforming” on Tuesday.
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However, improving oil prices helped in the third quarter. BP said the average Brent price was $42.94 a barrel in the quarter, down from $30 in the second quarter but down from $62 a year earlier, while the lack of writedowns on its Exploration assets also contributed to performance, he said. However, this was partly offset by a significant drop in oil trading during the quarter, an area that produced strong results in the prior quarter.
The oil and gas industry has been one of the hardest hit throughout the Covid-19 crisis as the pandemic has caused demand to collapse and oil prices to plummet. BP announced a second-quarter loss of $16.8 billion and cut its dividend for the first time in a decade, lowering its long-term oil forecast.
Royal Dutch Shell
also cut its dividend for the first time since World War II and posted a record loss of $18.1 billion in the second quarter. The industry’s predicament has also served to accelerate the transition to green energy, with BP, Shell and Total stepping up their plans to become zero carbon by 2050. BP announced in August a tenfold increase in low-carbon investments carbon emissions at $5 billion a year. by 2030.
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Looking forward. BP may have convincingly exceeded expectations, but its problems, and the problems of the industry, are far from solved. Improving demand and prices helped in the three months to September, but analysts, as well as the company itself, are unsure if that will continue. “The recovery in oil demand, which has supported a return to profits, could now be threatened by a second wave of the Covid-19 pandemic,” said
Chief Investment Officer Russ Mold.
Mr Mold added that BP had a delicate balancing act ahead of it. “BP faces the challenge of investing in a transition to a cleaner, greener future while keeping its balance sheet in check and sustaining dividend payments,” he said. UBS analysts said the pace of earnings was a “welcome refocus on financials”, maintaining a buy rating on the stock with a target price of 340p, down from Monday’s closing price of 200p.
The transition to net zero carbon was never going to be easy, and the competition to become the global leader is already heating up. BP may be in a good position to capitalize, but investors could wait a while before reaping those rewards.