Why BP shares are rising today

At BP (LSE: BP) share price since the start of trading this week. When I write, it is the biggest mover FTSE 100, up 4%. OPEC+’s decision to cut production by around 1 million barrels per day has fueled concerns that supply will not keep pace with demand.

OPEC back in control?

The surge in the barrel of oil to $ 84 behind the decision of OPEC +, in my opinion, gives an early indication that the cartel once again begins to reassert its dominance in the global energy market.

Just last month major exploration and production companies in the US warned that supply-side constraints were becoming more severe. As Energy Devon District The CEO said:We’re just a razor’s edge away“.

Since the shale boom came out in 2014, capital investment in the oil industry has continued to decline. As a result, the ability of the US to provide new supplies quickly is now being reduced.

If production in the US remains flat, the inevitable result will be an increase in the volatility of oil prices, due to the current rise in prices precisely.

Structural forces

Considering the current price of oil, investment should flow into the space. But no. I see many reasons for this.

First, bumper profits were made by the likes of BP, shell and Exxon Mobil not used for oil prospecting. However, shareholder pressure means that most of it is distributed in dividends and share buybacks.

Second, tightening monetary conditions have made access to capital challenging. In addition, there is no incentive for companies to invest. If oil is a dying industry, as many believe, then it makes little sense for companies to engage in multi-year capex exploration projects. After all, who wants to be left with stranded assets?

Finally, there is pressure from the government and the ESG (environmental social and governance) mandate. This is definitely detrimental to the industry in many aspects. But what’s not on most radars is to attract talent. Are young people who want to study geology and related subjects at university, in such an environment?

Did BP buy it?

As the above information has shown, investing in oil and gas polarizes opinion. Some see parallels with the tobacco industry. Clearly, rising dividends and buybacks lend credence to this argument.

But in my opinion, the notion that the industry is uninvestable and in the long-term decline is wrong. What the past few years have taught us is that the world needs black gold in the future.

Energy security has moved to the top of the political agenda. The reality is that there are no easy solutions, only trade-offs.

BP is positioned to capitalize on structural trends. It has a mixed portfolio that will allow it to continue to exploit volatility in the energy market, while also investing in renewable and low-carbon technologies. That’s why just a few weeks ago, I bought more shares for my Stocks and Shares ISA.