What's going on?
Oil and gas earnings have disappointed investors lately, but on Tuesday, oil giant BP bucked the trend with a higher second-quarter profit than expected.
What does this mean?
Oil’s price is lower now than this time last year, which would normally weigh down an oil producer’s profit. But BP recently purchased miner BHP’s US shale business, helping boost its quarterly output from a year ago – and more oil to sell on meant more profit. BP’s European rivals, Italy’s Eni and France’s Total, weren’t as able to weather the price storm: both recently reported weaker-than-expected second-quarter profits.
Why should I care?
For markets: Oil follows growth.
Oil’s price typically rises and falls with global economic growth, since it’s used so widely in making and transporting products. BP, however, doesn’t need oil prices to rise much to hit its targets: it’s planning for a roughly static oil price, even as tensions in the Persian Gulf threaten to limit supply and raise prices further. The oil producer said on Tuesday that it’d pay investors a dividend as expected – but its focus will now be on reducing the debt it took on buying the BHP business that helped deliver such a strong profit. It’ll start by selling off other, less useful parts of its own business.
Zooming out: When BP went high, the stock market went low.
The British pound fell to two-year lows versus the dollar this week. And while it’s usually worth more than the euro, many currency exchanges have begun offering less than one euro per pound. The recent fall seems to be in response to the increasing likelihood that the UK will leave the European Union in October without an exit deal. A cheaper pound may attract foreign investors eyeing a bargain, but their increased demand didn’t make up for investors’ selling of UK stocks on Tuesday – perhaps in the hope of avoiding the risks to British companies’ profits (and therefore share prices) in the coming months.