There’s so much going on now for investors that it’s easy to lose sight of the big picture. It may have been almost six months since the FTSE 100 crashed more than 10% in a single day, but the fear of another stock market crash still looms large. The government’s employment report released earlier today isn’t pretty either. The unemployment rate rose in July despite easing in lockdown. Things can get worse from here.
Permanent demand shift likely
The after-effects of the Covid-19 crisis have yet to play out fully. In fact, they will play out in a big way in the coming years. FTSE 100 oil biggie BP (LSE: BP) recently said that oil demand is most likely past its peak. In a recent report, the company published three future scenarios. According to two of these, oil demand peaked in 2019, according to a Guardian article. Demand for renewables will rise, on the other hand. While the decline of big oil has been long in coming, as per BP, it has been hastened by the pandemic.
So what does it mean for the BP share price or the Royal Dutch Shell share price? The two companies are among the largest in the FTSE 100 set and also among the most traded stocks. This means that a turn in their fortunes can impact many investors’ portfolios, mine included. This is particularly true for income investments. Both BP and RDSB have long paid dependable dividends, until the crisis struck and they were reduced.
What’s next for the BP share price?
I don’t think it’s game over for them, at least not yet. BP is planning a transition to clean energy over the next decade, and the company’s future will be determined by how well it manages that. Until this becomes clearer, I’d sit tight.
There are also other good reasons to at least hold big oil stocks. The BP share price has started recovering recently despite global economic weakness as well as expected slower demand from now on. Further, it’s still paying dividends. Its dividend yield is also noteworthy at 6.1% at a time when many companies are either not paying dividends since the stock market crash at all or have low yields.
Moreover, oil demand is likely to be exaggeratedly low right now, because of recent travel restrictions and the continued pandemic. As activity gets back on track, I reckon that at least in the short to medium term energy demand will bounce back, in comparison. Last, if BP is able to strengthen its financials after Covid-19 is behind us, I think it may still be a good investment, even with structural weakening in oil demand.
As I see it, to put it briefly, in the next months and years we will see answers to a lot of questions about the future of the BP share price. I’d wait until such time.
