New price target for BP shares after upgrade

Credit: CARLOS JASSO/AFP via Getty Images.

The Iran war boost for BP (LSE:BP.) shares after seven years of underperformance has been backed to continue after a City bank today lifted its price target to 700p.

UBS switched to a Buy stance for the first time in 14 months after its analysis in a report headed “Return of a Super Major” examined the impact of higher-for-longer oil prices and the four key areas of focus for new boss Meg O’Neill.

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The shares today stood at 565.7p, which represents a year-to-date rise of 29% having outperformed other European Big Oil stocks by 10% since the start of the Middle East conflict.

BP’s near-20% surge since the end of February reflects optimism that excess cash from much higher energy prices will accelerate the pace of its balance sheet deleveraging.

The company’s proportion of net debt to capital is the highest in the industry at 47%, which compares with the 2025 average of 28% in BP’s eight-strong peer group and 21% at Shell (LSE:SHEL).

However, UBS sees BP’s ratio falling to 27% under its base case scenario where oil prices average $80 a barrel between 2026 and 2028. It could even get to the same point by the end of this year if the oil price surges to average $133 a barrel in the current year.

The focus on deleveraging recently prompted BP to put its share buyback programme on hold, at a time when rival Shell is returning cash at a quarterly rate of $3.5 billion (£2.6 billion).

High operating cost intensity and a series of negative earnings revisions have also weighed on shares, meaning BP has underperformed other oil majors by 52% since 2018.

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This loss of City confidence came against a backdrop of $17 billion of impairments since the fourth quarter of 2023, with a large proportion of these from investments in renewables including offshore wind, solar, biofuels and renewable natural gas.

However, an improving financial performance, change of management and a series of successful exploration drilling results have boosted optimism.

UBS said: “We think the company can reverse these years of weakness with a ‘higher for longer’ price environment positive for the equity.

“Our analysis shows cost-savings targets can be exceeded, the reserves life boosted by projects of a higher quality than the base and leverage ratios are likely to decline materially from the second half of this year.”

It said future catalysts include the new chief executive’s strategy update towards the end of the year, as well as drilling results at key assets and further potential asset sales.

O’Neill took the helm on 1 April but has already signalled plans to revert back to BP’s structure of two main business units - upstream and downstream - that was ditched six years ago as part of a pivot towards clean energy objectives.

This week’s report by UBS identified four key areas of focus for former Woodside Energy boss O’Neill, who it said had taken the helm at a critical turning point for the company.

The first is the cost base, where savings of $3-6 billion from current levels have the potential to deliver a 20% increase to pre-tax earnings at the midpoint.

The next is to define growth opportunities, having made progress on this front after 14 discoveries since the start of 2025 including in Brazil and the US Gulf. These have refilled the resource pool with projects at a sector-leading rate of return of about 20%.

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The other priorities are the balance-sheet deleveraging and clarity on the distribution policy, including the conditions that would enable the reintroduction of share buybacks. The dividend is currently growing at a rate of 4% a year.

UBS adds that the current energy crisis is likely to increase the floor for oil and gas prices, leading to a higher for longer environment over the medium term given the need for countries to refill inventories, and also after factoring in elevated security and risk premium.

However, it adds that BP’s stock remains one of the most sensitive to prices and is among the most held of the European majors, which leaves the shares more vulnerable to near-term price weakness should there be further progress to unblock the Strait of Hormuz.

Should a peace deal be agreed over the coming days, the bank said it would use any period of weakness as an opportunity to add more exposure to BP.