BP and Shell shares fall sharply amid oil industry speculation

BP (LSE:BP.) shares today extended their post-April fall to 28% as the energy giant and Shell (LSE:SHEL) suffered a FTSE 100-sapping reverse on the back of a potential big shift in the oil price landscape.

Brent crude futures stood at $71.62 a barrel, a decline of 2.5% in the session and 20% lower in six months after the Financial Times reported that Saudi Arabia may abandon its $100 a barrel price ambitions in favour of protecting market share.

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Alongside the potential for state-owned oil company Saudi Aramco to increase production from December, Libya also appears to be close to bringing back disrupted supplies.

The reported new approach by Saudi Arabia follows a two-year period in which major OPEC countries have cut their oil output to maintain price levels.

The support has helped bolster the cash flows of BP and Shell, giving them scope to cut debt and increase shareholder distributions through dividends and buybacks.

At BP, a lower share count last week led to a 10% rise in the second-quarter dividend payment to 8 US cents a share. It also extended its share buyback commitment, but an oil price firmly below $80 has heightened City concerns about the sustainability of returns in 2025.

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In a recent research note, Morgan Stanley said: “If Brent were to decline to $65/bbl, we expect that the risk to share buybacks would start to mount.

“Considering individual companies, both Shell and TotalEnergies SE (EURONEXT:TTE) have robust balance sheets and can probably continue their distributions longer than most.

“At the same time, BP's balance sheet has a higher gearing ratio and comparatively less room in its financial framework. These factors could impact its ability to sustain share buybacks if oil prices were indeed to fall into the $60s.”

BP’s below-par first-quarter results and July’s warning of headwinds that included lower refining margins and refinery impairments, have added to jitters.

From April’s level near 540p, BP shares traded as low at 380p Thursday, their lowest since July 2022. That included today’s slide of 19.85p, a performance that attracted interest from retail investors as BP ranked top of the list of most-traded stocks on the interactive investor platform.

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Shell was third-most popular, having fallen by 133p to its lowest level since January at 2,399p.

Its shares are down by about 18% since May, although a run of resilient results and the strengthening of its cash flows amid the capital and spending discipline of chief executive Wael Sawan, have limited some of the downside.

Alongside last Monday’s payment of £1.6 billion via an unchanged quarterly dividend of 34.4 US cents (25.25p), Shell is buying back another $3.5 billion of shares in the current quarter. Bank of America regards the stock as its top Big Oil pick in Europe, alongside France’s TotalEnergies.

Shell is due to report third-quarter results on 31 October, two days after BP.

Today’s heavy losses have come despite the demand-side support of this week’s stimulus measures by China’s central bank.

In a session when Glencore (LSE:GLEN), Prudential (LSE:PRU) and Standard Chartered (LSE:STAN) all rose strongly, the performance of the FTSE 100 index was significantly short of the 1.5% gains achieved by the FTSE 250 index and benchmarks in Paris and Frankfurt.