In a sea of red, one company stood out at the end of last week on Hargreaves Lansdown’s list of most traded stocks.
Oil supermajor BP (LSE: BP.) was the most frequently bought UK stock on the popular investment platform.
It’s not too difficult to see why either. During the month of February, the BP share price performed strongly.
Nevertheless, nobody should be investing in a company simply because its shares have climbed. With that in mind, I’m going to take a closer look at whether BP shares could be among the best for me to buy now.
A bullish oil and gas industry
The first thing to note is that it’s not just BP that has been profiting handsomely over recent weeks. The oil and gas sector as a whole has enjoyed bullish upwards momentum.
Undoubtedly, this has been helped by the strong recovery of oil prices, which have returned to pre-pandemic levels.
More importantly, however, recent gains have been sustained by OPEC’s decision to hold their combined output unchanged following talks last week.
Most analysts had expected the world’s major crude producers to coordinate an increase in output. That’s especially given the strong recovery in prices and an oil market that appears to be stabilising.
Nevertheless, the group decided not to flood the market with new oil, sending prices to a 14-month high.
The implications for BP
While the world’s oil consumers probably think differently, high prices come as great news for BP. The industry titan needs an oil price of $42 per barrel to break-even. As of the time of writing, the Brent crude price is around $69.
This means that BP can begin to pay down its debt and start to strengthen its finances. Additionally, the oil supermajor is seeking to further slash its operating costs to target a $35 per barrel break-even price.
However, rising oil prices alone won’t be the silver bullet for BP’s recovery. With debt currently amounting to a whopping £63bn and full-year revenues down 35% year-on-year, there are tangible risks ahead.
To me, it looks as if a combination of sustained higher oil prices and lower operating costs will be required to ensure future success. That’s by no means a straightforward task, with one half of the plan remaining completely out of BP’s control.
Furthermore, diversification towards renewables will be an immensely costly process. It’s one that will rely on prolonged higher oil prices to fund investment, which is by no means guaranteed.
All in all, BP’s prospects hinge on the unpredictable and often volatile nature of oil prices, which could make the coming months and years tricky for the group.
My final verdict
For now, however, the world continues to run on oil and gas, giving BP ample time to diversify towards a potentially lucrative renewables focus.
Moreover, it remains comfortably above its oil price target for now. This means the group can begin paying off its debt and continue implementing its long-term renewables strategy.
As such, I’m confident BP shares may not be the very best buys out there, but I see them as among the best for me to buy today.
While success depends largely on the price of oil, I think the company’s impressively low operating costs and positive renewables strategy could prove to be catalysts for future growth.
