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The FTSE 100 main share index is up 7% in 2024. It’s risen because the urge for food for blue-chip shares has reignited following years of underperformance.
I’ve lengthy felt that Footsie shares have appeared low cost on an historic foundation. And buyers are actually piling into the index within the quest for bargains. It’s a pattern I count on to proceed in 2025.
I additionally plan to maintain searching for FTSE 100 shares. A few of my purchases within the yr thus far embody Aviva, Authorized & Basic, Ashtead and Coca-Cola HBC. However there are some firms I’ll proceed avoiding just like the plague.
Oil main BP’s (LSE:BP.) one in every of them.
Oversupply worries
The escalating Center East battle has boosted oil costs this yr. And with army motion stepping up, they might rise additional in 2025 if fears of crude shortages reignite.
This might naturally enhance oil producers like BP. Nonetheless, as issues stand, I believe the dangers of shopping for the power big outweigh the potential advantages.
It is because any provide disruptions might be outweighed by plummeting demand. It’s a danger that the Worldwide Vitality Company (IEA) flagged up in its newest report this week.
The physique notes that “supply keeps flowing, and in the absence of a major disruption, the market is faced with a sizeable surplus in the new year”.
As a result of weak Chinese language demand, the IEA predicts international oil demand of 1m barrels a day in 2025. That is down considerably from the 2m barrels we consumed every day in the course of the 2022-2023 post-pandemic interval.
In the meantime, the IEA thinks provide from non-OPEC international locations alone will probably be 1.5m barrels a day. Mixed with output from the OPEC cartel, the world might be swimming in extra oil that dampens costs.
Debt issues
Crude’s dropped again under $70 a barrel in current hours. And there might be extra blood on the ground within the weeks and months forward if key financial releases from the US and China proceed to disappoint.
BP’s share worth is down 16% within the yr thus far. That is better than the 9% decline in Brent crude costs in that interval, and displays fears over how the oil main will service its excessive money owed in a low-price atmosphere.
The corporate’s internet debt was $22.6bn as of June. And it warned this month that ranges could be increased on the finish of the third quarter, due partially to weak refining margins.
In the present day, BP’s internet debt to EBITDA ratio is 2.3 instances. That is increased than I’d like within the present local weather. If oil costs do decline this might spiral uncontrolled, placing big stress on dividends and the share worth.
BP shares commerce on a price-to-earnings (P/E) ratio of 8 instances. However given the worrying near-term outlook — to not point out the worrying longer-term image as renewable power takes over — I’d slightly purchase different FTSE shares for 2025.
