Will BP’s Share Price Underperformance Continue amid Trump’s Energy Policies?

BP shares (LON: BP) have delivered very little for holders through 2024, with a decline of 18.23% in the stock price significantly underperforming the market. The 5 year trend has not been much better, with a 24.25% dip in share value leaving many wondering about the future outlook in a potentially changing energy environment. The future trajectory of shares under President Donald Trump's administration, could potentially spur a resurgence in the energy sector, or more of the same.

One of the key aspects of President Trump's energy policy is the expected boost for domestic drilling. This could bode well for BP, as increased drilling activity on U.S. soil might present lucrative opportunities for the company. Despite being a British multinational, BP garners a significant chunk of its revenues—29%—from the United States, positioning it to potentially benefit from a friendlier fossil fuel regime.

BP's financial health seems sturdy with a breakeven point at around $40 a barrel. Nonetheless, there are concerns that the company's profits, dividends, and share repurchase programs could be at risk should oil supply continue to outpace demand. The World Bank's forecast that global oil supply could eclipse demand by an average of 1.2 million barrels per day adds to the worries of an already oversupplied market that could precipitate a fall in oil prices.

Moreover, fiscal changes proposed by Trump, including slashing corporate tax rates to 15%, may give an edge to U.S.-based competitors such as Exxon Mobil, Chevron, and ConocoPhillips, which would directly benefit from the tax cuts, unlike BP. These changes could potentially impact BP's competitive standing in the U.S market.

Despite the current market challenges and predictions of oversupply, some investors find value in the fallen stock price of BP. Given its low earning multiple and strategic positioning in the U.S., BP shares are considered cheap by some, including market commentators who are personally invested in the company and express intentions to increase their holdings for the long term.

It is often suggested that buying into commodity stocks like BP should be a long-term strategic move, especially when prices are depressed due to the cyclical nature of the commodity markets. This approach is tailored towards investors who are looking for long-term gains rather than immediate returns.

While the BP share price has faced turbulent times, the broader policies of the Trump administration could offer opportunities for the company to recover and thrive. However, there are multiple factors such as global oil supply dynamics and competitive tax advantages that could influence BP's fortunes. Investors considering BP shares may want to contemplate the potential risks and rewards, keeping an eye on the intersections of corporate strategy, market conditions, and geopolitical developments under President Trump's energy policy.