BP’s numbers to boost windfall tax talk, FTSE dips after bank holiday break

BP

“BP’s first quarter results will do nothing to quell talk of a windfall tax on oil and gas companies,” says AJ Bell Investment Director Russ Mould.

“The oil giant might have hoped attention would focus on an apparent $20.4 billion loss – created by impairments linked to its exit of interests in Russia – but the strongest underlying profit in a decade of $6.25 billion was more revealing of the impact of surging oil and gas prices on the business.

“What feels like an achievement worth celebrating almost needs an apology by BP – and there may almost be an element of regret on its part that the numbers are so far ahead of forecasts.

“The argument for the windfall tax goes something like this – BP’s profit and cash flow is being artificially inflated by the war in Ukraine and ordinary people are already paying the price through much higher household bills. Shouldn’t BP, with its broader shoulders, share the burden? Particularly given it feels able to boost shareholder returns with an enhanced share buyback programme.

“It was no surprise to hear chief executive Bernard Looney talking about ‘backing Britain’ and flagging billions of pounds worth of investment in projects to boost domestic energy security.

“Whether this will be enough to stave off a new levy remains to be seen. The political pressure to do so is only likely to escalate as the cost of living continues to surge in the UK.

“The exit from Russia, while bringing with it considerable costs, arguably helps with the transformation of the group and strong cash flow is helping to bring down debt.

“BP has ambitious plans to become cleaner and greener but today’s update is a reminder that fossil fuels, with all the environmental and geopolitical mess they entail, remain central to the company for now.”

Markets

“After the UK dozed through the drama of flash-crash Monday on the markets, the FTSE 100 certainly remained half-asleep on Tuesday when UK stock trading reopened after the bank holiday. The blue-chip index slipped 0.3% to 7,518.

“Metal producers and pharmaceuticals acted as a drag on the index, with the former extending losses seen after the recent quarterly updates from mining sector – most of whom reported operational challenges.

“Markets are particularly worried about lockdown in China and how fast US interest rates might go up. We’ll get clarity on the latter tomorrow when the Federal Reserve gives its latest policy decision, with markets expecting half a percentage point increase in the Fed Funds rate. Central banks typically raise rates by a quarter percentage point, but the Fed is under pressure to be more aggressive to combat rising inflation.

“While all eyes are on the Fed this week, it is important not to forget the Bank of England’s next interest rate decision will be made on Thursday.

“The market expects a quarter percentage point increase to 1% for UK rates which will prompt a lot of chatter about recession, particularly as consumers are already under a lot of financial pressure from the rising cost of living. There couldn’t be a worse time to push up borrowing costs, but the Bank of England needs to do something to tame inflation and that means raising rates.

“Bucking the negative market trend was the financial sector, with M&G, Legal and General and Barclays among the top risers on the FTSE 100.”

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