BP’s reset plan shows early vulnerability as oil nears $70

(Bloomberg) – BP Plc’s strategy reset isn’t even a week old, but it’s already showing some vulnerabilities.

The London-based energy giant was the second-worst performer on the FTSE-100 on Tuesday following a plunge in crude prices. Its shares fell 4.2% to the lowest in a month, compared with a drop of 3% for Shell Plc. 

The decision by the Organization of Petroleum Exporting Countries and its allies to finally go ahead with a long delayed plan to revive production, combined with President Donald Trump’s imposition of tariffs on Canada, Mexico and China, pushed Brent crude toward $70 a barrel in London — a key level for BP. 

Two of the company’s most important pledges to investors — to increase cash flow by more than 20% a year to 2027, and raise returns on average capital employed that year above 16% — require Brent above $70. The international benchmark is likely to fall below that crucial threshold, according to Bloomberg Intelligence.

BP Chief Executive Officer Murray Auchincloss acknowledged at the time that crude prices would depend on external factors that are “hard to predict.”

“It’s entwined in U.S. politics,” he said in an interview on Thursday. “How do relationships unfold with Russia? How do relationships unfold with Iran? How do relationships unfold with OPEC?”

BP’s slide and the drop in crude prices complicates a bet by Elliott Investment Management, which has bought up around 5% of BP. The activist investor has been ramping up pressure on BP after its new strategy fell short of its expectations, people with knowledge of the matter said.

If the OPEC+ production increase and Trump’s trade war usher in a materially weaker outlook for the global oil market, that would make Elliott’s efforts to turn around BP’s performance more difficult.

Meanwhile, Auchincloss is in the middle of a 10-day roadshow meeting with investors in London in hopes of getting them excited about his new vision.