Home OrganisationsEuropean Union BP’s $20 billion loss, EU mulls Russia crude ban, HSBC investors sanguine about break up calls

BP’s $20 billion loss, EU mulls Russia crude ban, HSBC investors sanguine about break up calls

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Susannah Streeter

Susannah Streeter, senior investment and markets analyst Hargreaves Lansdown:

‘’$20.4 billion is an eye-watering quarterly loss for BP but it’s far from unexpected. The market had already factored in a huge hit due to its Russia exit and now the company has unveiled the price to pay is a big and bold $25.5 billion. That’s the amount it has set aside in pre-tax charges and the cost of extricating itself from Rosneft.

But surprising on the upside is the boost to underlying profits which came in at $6.2 billion, sharply higher than the consensus expected of around $4.5 billion. The company has been raking in cash as the supply squeeze on oil markets has intensified. The war and the high geopolitical tensions has brought about a surge in the oil price which is up 40% since the start of the year, spiking in the first weeks of the war at $139.

With growing expectation that the European Union will slap a ban on Russian crude exports at the end of the year the price is set to stay elevated, which will help BP recoup the cost of its expensive exit.  The further $2.5 billion share buy-back announced underlines the company’s confidence that the direction of travel will be accompanied by higher crude prices given more of the world is set to shun Russian oil. Although there will be inevitably be questions raised about whether more revenues should be used to accelerate BP’s ongoing green transition rather than boosting shareholder returns.

Although there is still resistance in the bloc to a Russia crude embargo, leaving highly reliant countries like Slovakia and Hungary off a joint policy may be the solution for the EU’s strategy. Germany appears to be increasingly leaning to tougher measures given the incessant assault on Ukraine after economic minister said the country would be able to cope with a ban by the end of 2022.

Expectations of further economic pressure on Russia in terms of a widening crude embargo has kept the price of oil elevated given that half of Russia’s 4.7 million barrels of crude exports daily are currently destined for the EU. A barrel of Brent remains above $107 dollars a barrel. The expectation of a further supply squeeze on international markets if more Russian oil is shunned is outweighing worries about a demand drop brought on by the ongoing and onerous zero-covid strategy in China.

Overall an element of calm has descended on financial markets overall as traders assess the lay of the land without any significant shocks shaking up stocks. Citibank has raised its hand to claim the fat finger episode which induced Monday’s moment of madness on European indices, caused by the wrong input of data by a trader.

The decision by the Reserve Bank of Australia to lift its key interest rate a notch more than expected highlights the growing consensus among central banks that much tougher action is needed to rein in soaring inflation which is causing such a headache for economies.  It is the first time in a decade that the RBA has lifted its official cash rate and the Australian dollar jumped 1.4%. With wage growth also picking up steam along with consumer prices, the signs and signals are coming thick and fast that more hikes should be expected.

HSBC shareholders are pretty sanguine today about the calls for the bank to be split up and its Asia business hived into a separate entity with shares rising. The Bank’s stated determination to continue its pivot to Asia while also spanning the world, appears to have reassured shareholders that there won’t be an immediate change of course following demands from the bank’s largest shareholder, the Chinese insurance giant Ping An. 

 If anything the demand for a more intense focus on Asia under a separate entity, is a vote of confidence in the steps management have already taken to boost growth by selling its French retail operation, and the US mass market business and ploughing the capital being released into historically stronger performing regions in Asia. But there is a risk surging covid cases in China could take their toll with the bank already having experienced reduced equity market activity, wealth management slowdowns and closed branches after outbreaks in Hong Kong. China’s beleaguered real estate sector is also a continuing headwind for the bank, which a separate Asia focused entity would be particularly susceptible to.

Looking ahead investors will be assessing any geopolitical repercussions of UK Prime Minister Boris Johnson’s speech to the Ukrainian parliament later and is expected to announce £300 million in high-tech military provisions. He’ll be the first Western leader to address the chamber, and Russia has already warned about lightning retaliation if nations continue to send arms to Ukraine. ‘’

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