Why BP And Oil Stocks Fell Sharply

When oil prices climbed to a 2.5 year high, it lifted highly leveraged oil and gas companies. BP (NYSE:BP) and Exxon (NYSE:XOM) benefited from the improved prices but fell sharply last week. What happened?

The Organization of the Petroleum Exporting Countries and their allies (OPEC+) delayed its decision on the supply levels up until yesterday. This uncertainty sent BP stock lower. Now that OPEC+ ministers agreed to increase supply, shortages should ease and prices should firm up from here. The world economies are heating up. Inflation rates are rising considerably higher, a bullish condition for the energy market. Oil suppliers including BP and Exxon may bounce back from here.

On July 30, Exxon reports quarterly results, followed by BP, which reports on Aug. 3. Look for both firms to reaffirm their generous quarterly dividend rates as cash flow improves. Conversely, clean energy initiatives may add to project costs. The firms will not report good returns on green energy projects in the near term. It takes several quarters before they pay off.

Still, as XOM embraces carbon capture and storage projects, its reputation as a dirty fuel firm weakens. XOM will participate in the project in Scotland. Clean energy investors may accumulate XOM shares instead of betting on unproven, speculative firms in this space.

Disclosure: The author owns shares of BP.