Image source: BP plc
BP shares (LSE: BP) are now the top performing stock on the FTSE 100 over the past month, up 20%. The boost has been driven by soaring oil prices, with Brent Crude trading above $100 a barrel for much of the past month.
As the Middle East conflict rages on with no end in sight, what does this mean for energy stocks?
Even after the rally, BP still looks like a classic oil major story: decent income potential, solid cash generation, and a dollop of uncertainty.
Surging oil prices have boosted its profits and cash flow but this could reverse just as fast if tensions ease or supply comes back online.
Its latest FY2025 results showed underlying replacement cost profit of $7.49bn, down 16% year on year, while net debt came in around $26.1bn.
In February, BP also paused share buybacks to focus more cash on debt reduction, with management still targeting net debt of $14bn-$18bn by 2027.
That tells you a lot about the current investment case. BP is not in bad shape, but it is still prioritising balance sheet repair over maximum shareholder returns. That makes the shares more sensitive to oil prices than a pure income stock would be.
Analysts currently see an average 12-month price target of about 540p, slightly below current levels. Forecasts also suggest earnings per share could rise to 13p in Q2 2026 before easing back to around 10p by year end. That reflects how dependent BP’s profits remain on commodity prices and refining margins.
It’s an unusual situation for investors to consider — earnings that could move around a lot from quarter to quarter. Still, the income story is attractive for those that can handle some volatility.
But for those seeking steady growth, it’s less attractive. So how does it weigh up against key rival Shell?
Shell looks stronger on balance sheet flexibility and shareholder returns right now. It ended 2025 with net debt of about $45.7bn, but it also delivered $42.9bn of operating cash flow and returned $22.4bn to shareholders through dividends and buybacks.
Shell has also stuck with a progressive dividend policy and resumed sizable buybacks, while BP has temporarily stepped back from buybacks to reduce debt.
That said, BP may look cheaper and more geared to a further oil price spike. Shell looks the steadier operator, BP looks more cyclical.
For British investors, the key point is this: BP is still worth considering for dividend income, with the caveat that there may be some wild price swings in the coming months.
At 4.2%, the yield is higher than the FTSE average and almost double that of Shell. So long as the oil market remains strong, BP can produce healthy cash flow to cover it.
