BP flags 'exceptional' oil trading amid volatility of Iran war

(Sharecast News) - BP confirmed on Tuesday that its first-quarter oil trading result was set to be "exceptional", after the outbreak of war in the Middle East caused energy prices to soar and heightened volatility. Updating on trading, upstream oil production and operations was forecast to be slightly lower than the fourth quarter, and gas and low carbon energy slightly higher.

But the spike in energy prices at the end of the quarter means BP now expects stronger realised refining margins in the range of +$0.1bn to $0.2bn, with a lower impact from turnaround activity.

"The oil trading result is expected to be exceptional," the energy major added, compared to a "weak" fourth quarter outcome.

The US first attacked Iran at the end of February, leading the outbreak of hostilities across the region. As a result, refineries have either been shuttered or damaged, while supply has been severely curtailed after the vital Strait of Hormuz became too dangerous to pass. Brent is currently just below $100 a barrel, but regularly traded well above that through March. Prior to the outbreak of war it was trading around $70.

BP said that Brent crude averaged $81.33 per barrel during the quarter, compared to $63.73 in the fourth, while US gas Henry Hub first month index averaged $5.05mmBtu, up from $3.55mmBtu.

Net debt was also around $3bn to $5bn higher in the first three months of the year, BP noted, as it increased working capital amid the market turbulence.

It continued: "These estimates and expectations include impacts associated with the ongoing situation in the Middle East and current market conditions resulting in heightened volatility in crude oil, natural gas and refined product prices in the latter part of the first quarter.

"These market conditions are expected to impact financial results, including trading results and working capital movements."

Kathleen Brooks, research director at XTB, said: "BP reports results at the end of this month, but this update points to a strong picture for its trading division after a disappointing fourth-quarter performance.

"Not all commodity trading businesses have benefited from the war - some notable names were wrongfooted at the start of the conflict and incurred sharp losses. However, it appears BP was positioned well, and like other energy firms has made a fortune through buying available tankers of oil and selling them from huge premiums."

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