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The U.S. Energy Information Administration (EIA) recently released its November energy outlook report. Within it, the research team forecasts where they think different commodity prices will be over the next year. Based on the latest oil numbers, I think PA (LSE:BP) could have a tough year ahead.
Strong rebound unlikely
The EIA forecasts that Brent crude oil will reach $73.02 a barrel in the fourth quarter of 2025. This contrasts with the current price of $72.44. Put another way, if we fast forward a year, there may not be much difference in the price of oil. The EIA rises “at least two main sources of uncertainty about oil prices: the future course of the current conflict in the Middle East and the willingness of OPEC+ members to adhere to voluntary production cuts.”
Of course, I have to be careful when reading reports like this. There is no guarantee that the forecasts are correct. However, it is interesting to form an informed opinion taking these thoughts into account.
Most investors are not active oil traders. However, oil price swings can certainly affect the share price of stocks like BP, which are heavily involved in oil and other commodities.
How the stock is affected
Over the past year, BP's share price is down 19%. During the same period, oil fell 12%. So there is a clear connection here. BP earns a good portion of its revenue from the production and sale of oil. So if the price falls, BP's income falls, since it can't sell it for as much as it would a year ago.
If revenue falls, profits are likely to fall as well. This then affects the share price as investors try to find better opportunities elsewhere. Or the dividend could be cut due to lower earnings, scaring away income investors.
In the nine months to date of the year, profits amount to $2.34 billion. That's down from $14.86 billion for the same period in 2023. So my concern here is that if we move forward a year and the price of oil is basically the same, I would expect earnings to be similar as well. If that's the case, I don't see a material rebound in BP's share price from here.
Other factors involved
It is true that the stock could recover due to different factors. For example, the latest report showed how net debt has increased from $22.32 billion to $24.26 billion. If the business focuses on reducing net debt over the next year, this could help the share price rise as investors are less concerned about debt accumulation.
Furthermore, BP is involved in other products, not just oil. This includes natural gas, biofuels and renewable energy sources. So if one of these areas does very well next year, it could help the stock.
Ultimately, though, I think BP stock could have a tough year ahead unless something changes to cause a rebound in the price of oil. So I won't invest now.
