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BP has reported that its profits for the first quarter of the year have more than doubled, driven by a sharp increase in oil prices following the outbreak of the conflict involving Iran. The energy company recorded earnings of $3.2 billion (£2.4 billion) from January to March, attributing this substantial growth to an “exceptional” performance in its oil trading segment. This figure significantly exceeded analysts’ predictions and was far above the $1.38 billion profit reported during the same period last year.
The surge in oil prices has been closely linked to instability in the Middle East, particularly the US-Israel conflict with Iran, which has led to the near closure of the Strait of Hormuz. This strait is a critical chokepoint, typically responsible for transporting about 20% of global oil and liquid natural gas supplies. Brent crude, the global benchmark for oil prices, was trading around $73 per barrel before the conflict erupted. Prices then soared to nearly $120 at one stage, although they have since fallen below $100 as uncertainty remains over the reopening of the strait. Currently, Brent crude is priced at approximately $110 per barrel. The resulting volatility has expanded the difference between buying and selling prices, allowing traders to generate higher profits.
Within BP, the customers and products division, which encompasses oil trading, reported a remarkable profit increase to $2.5 billion compared to just $103 million last year. Chancellor Rachel Reeves commented on this performance, stating, “BP and other oil and gas companies play a really important part in our energy mix,” while emphasizing the significance of properly structured windfall taxes to capture supernormal profits. The UK’s Energy Profits Levy, introduced in 2022 as a response to the spike in energy company earnings following Russia’s invasion of Ukraine, applies only to profits from UK oil and gas extraction, while much of these companies’ revenues are earned abroad. The levy has been extended to run until March 2030.
These financial results mark the first report under BP’s new chief executive Meg O’Neill, who assumed the role in early April after Murray Auchincloss’s departure. O’Neill acknowledged the challenging operating context, saying she joined “at a time when our industry is operating in an environment of conflict and complexity.” She highlighted BP’s efforts to work with customers and governments to ensure fuel reached where it was needed, aiming to minimize market disruption. Despite strong trading revenues, BP’s upstream oil and gas production remained flat and is expected to decline in the upcoming quarter, partly due to ongoing disruptions in the Middle East. Following the news, BP’s share price rose by 3% and has increased about 20% since the Iran conflict began.
Investment experts noted the benefits BP’s trading operations have gained amidst the oil market’s turbulence. Susannah Streeter, chief investment strategist at Wealth Club, remarked that BP’s trading arm had “clearly thrived in an environment of wild swings, leading to high velocity trading,” though she warned production figures have suffered from damage to facilities in the Gulf region. Charles Hall, head of research at Peel Hunt, commented that while trading gains might persist “a little bit longer,” the broader global situation remains highly uncertain.
Environmental campaigners criticized BP’s profit announcement, emphasizing the adverse effects on ordinary people facing elevated energy costs. Mike Childs, head of science, policy, and research at Friends of the Earth, said, “Just as we saw in 2022 following Russia’s invasion of Ukraine, fossil fuel giants are quids-in when global instability drastically inflates fuel prices. But again, it’s ordinary people who pay the price when soaring energy prices threaten to plunge the UK into an even deeper cost of living crisis.” He called for increased investment in renewables and energy efficiency to reduce the UK’s exposure to volatile fossil fuel markets.
Currently, UK households benefit from an energy price cap that protects gas and electricity bills. The typical annual dual-fuel bill paid by direct debit is set at £1,641 until the end of June. However, due to escalating wholesale oil and gas prices since the Iran conflict began, the cap is expected to rise by approximately £200 when it is adjusted in July
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