Should I buy cheap BP shares today?

BP (LSE:BP) is a titan of FTSE 100so fluctuations in stock prices often help drive the broader index up or down.

The company’s stock price performance is correlated with oil prices. So, before I explain why I would buy BP shares for my portfolio if I had the cash to spare, you should take a brief look at this important commodity.

Oil market

Crude oil is one of the most important commodities in the world. In fact, these prices often have a ripple effect on the broader economy.

Higher oil prices mean higher gasoline prices at the pump, higher shipping costs, and increased input costs for producers.

Like other commodities, oil is bought and sold in international markets. Thus, prices fluctuate based on supply and demand.

In March 2022, oil prices rose to heights not seen since 2008. This happened as a result of the Russia-Ukraine war, which increased concerns about a global supply shortage from Russia.

However, since last June, the trend has been almost downward.

So what does this mean for BP stock?

Rising but low stock prices?

In 2022, BP’s share price performed strongly, increasing by around 30%. Surprisingly, this largely reflects higher oil prices.

What’s more, the stock price is now up 65% since the start of 2021.

However, BP’s price-to-earnings (P/E) ratio is estimated to be around 4.5. To put this into perspective, shell‘s The P/E ratio is about 6.75.

To me, this shows BP stock can still offer significant value. Here’s a brief look at why.

2022 is amazing

BP’s profits more than doubled last year to £23bn. This is the best result in the company’s 114-year history.

The performance of the mega supermajors represents an average increase of 48% in oil and gas prices achieved for oil production and operations.

In the short term, BP expects oil prices to be supported by a combination of improving demand and uncertainty in Russian exports.

Challenges and uncertainties

Even if performance cracks in 2022, challenging times and high levels of uncertainty will remain.

For starters, I’ll keep an eye on the ongoing downward trend in oil prices. Combined with the global economic slowdown in 2023, the risk of volatility is real.

In addition, due to the company’s ambitious investment plans, there is a major demand for cash that needs to be carefully considered.

Not least among these demands are carbon emission reduction targets. After all, if major investors are not convinced of its ESG credentials, I think BP’s long-term value could be greatly affected.

A vision of a bright future

However, I am more than convinced that BP’s plan to increase exposure to renewable and low-carbon energy sources will pay off in the long run.

The company has recently released a strategy update that confirms an investment of up to $16bn until 2030. This will be divided equally between oil and gas projects and the energy transition.

Being greener without sacrificing a strong return on investment is a problem that every company in the industry faces, but I think BP is the best at solving it.

Therefore, if I had money to spare, I would buy BP shares for my portfolio today and would be happy to hold on to them for as long as possible.