BP Plc, long considered the underperformer among oil supermajors, has emerged as the sector's top stock during the Iran war, benefiting from exceptional trading profits and avoiding the scale of production outages that are hurting rivals like Exxon Mobil Corp. Since the conflict began on February 28, BP shares have risen approximately 20%, while Exxon shares have declined about 2%.
Windfall at a Crucial Time
The windfall comes at a pivotal moment for London-based BP and its new chief executive, Meg O'Neill, the company's fourth leader in six years. BP shares had been the worst performing in the sector since a 2020 strategy to invest heavily in low-carbon energy and phase out fossil fuels failed to deliver returns, leading to rising debt. Now, the war has shifted dynamics in BP's favor.
Exxon Hit Hardest by Crisis
Exxon, which had been the standout energy performer over the past six years, is facing the most significant impact from the crisis. About a fifth of its global production, primarily from Qatar and the United Arab Emirates, is trapped behind the Strait of Hormuz. Additionally, a massive liquefied natural gas complex in which Exxon holds a stake was damaged by Iranian missiles and could take years to repair.
While crude prices have surged more than 45% to above $100 per barrel during the eight-week conflict, shares of major oil companies have not kept pace. This is because oil futures indicate a steep decline in the coming months as investors expect the strait to eventually reopen.
Earnings Reports Ahead
BP is scheduled to report earnings on Tuesday, followed by French major TotalEnergies SE on Wednesday, Exxon and Chevron Corp. on Friday, and Shell Plc on May 7. Higher oil and gas prices caused by the war have benefited supermajors, but gains are uneven. According to Raymond James, Exxon has about five times as much production affected by the war in the Persian Gulf as Chevron. European majors have significantly larger trading divisions than their US rivals, giving them greater scope to benefit from price volatility.
BP's Strategic Advantages
BP's stock has performed better than peers partly because it was cheaper initially, meaning it had more to gain from $100-per-barrel crude relative to its rivals. After suspending its share buyback earlier this year, analysts expect the company to use the cash infusion to pay down debt more aggressively, enhancing financial flexibility for future oil and gas exploration and production.
In a filing this month, BP noted that its trading results were expected to be exceptional, while Shell and Total also indicated elevated profits. In contrast, Exxon and Chevron are more risk-averse in trading, typically using derivatives to mitigate price volatility once cargoes are shipped. This strategy means the two US companies will take mark-to-market losses of nearly $7 billion in the first quarter, though they expect these so-called timing effects to fully unwind over the coming quarters once customers receive the cargoes.
James West, an energy analyst at Melius Research, commented: You have a market that is under-supplied with crude, so normalized prices will be higher for longer. While this should benefit the sector long-term, in the short-term there are differences between the stocks.
