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BP's Massive Profits From Oil Trading in 2020 Reduce Losses

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BP plc (BP - Free Report) made around $4 billion last year through its trading arm, per Reuters. The trading profit amount came really close to 2019 figures, as shown in an internal presentation, the report claimed. The company does not disclose the figures in public.

Even though the coronavirus pandemic significantly slashed global crude demand, BP’s trading arm managed to make huge profits by buying the commodity when prices were historically low and later selling them as prices recovered. In the second quarter of 2020, this strategy brought to the company a hefty $1.7 billion, per Reuters. However, the amount declined to $250 million in the fourth quarter, as natural gas prices jumped against BP’s expectations.

Last year, the company incurred a loss of $5.7 billion, excluding the writedowns. As such, the profits from trading provided some support to the company’s full-year results, which were affected by lower commodity prices and production. The British energy giant expects underlying production in 2021 to be higher marginally than 2020 due to the production ramp-up from key projects.

The oil price volatility brings the opportunity to gain heavy on trading. Another European energy major, Royal Dutch Shell plc , also uses a similar strategy, which provided it some cushion during the pandemic-led downturn. The cash from trading can help companies like BP and Shell on their transition path, while they focus more on renewables. This can come in handy when the companies are reducing dependency on hydrocarbons.

The trading profits can fuel BP’s ambition of becoming a net-zero company by 2050. Notably, BP intends to boost low-carbon spending to $5 billion per annum by 2030. Within this period, it plans to reduce emissions from operations by 30-35%. It also intends to enhance renewable power generation capacity to 50GW and reduce the weightage of hydrocarbons from the portfolio by 40% from 2019 levels.

Price Performance

BP’s shares have gained 23.6% in the past year compared with 51.6% growth for the industry.

Zacks Rank & Stocks to Consider

BP currently has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space include Berry Corporation (BRY - Free Report) and EOG Resources, Inc. (EOG - Free Report) , each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Berry’s bottom-line estimates for 2021 have witnessed four upward revisions and no downward movement in the past 60 days.

EOG Resources’ bottom line for 2021 is expected to increase 205.5% year over year.

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