Oil kept sliding after its first weekly drop since late April following BP’s move to downgrade its assets by up to $17.5bn (£13.8bn) because it expects crude prices will be lower than expected for the next 30 years.
Britain’s second-biggest oil company said its budgets will be based around an average price of Brent crude at $55 a barrel, in the wake of the coronavirus pandemic. This compares with oil at $66 at the start of the year.
BP said as a result of the health crisis governments around the world will accelerate low carbon energy projects. This may affect the unexplored prospects the oil giant plans to develop.
The group said has it “has revised its long-term price assumptions, lowering them and extending the period covered to 2050”.
Oil slides on fears of new virus spikes
BP chief executive Bernard Looney (pictured) said governments would use the pandemic to “build back better”.
“As part of that process, we have been reviewing our price assumptions over a longer horizon,” he said in a trading update. “That work has been informed by the COVID-19 pandemic, which increasingly looks as if it will have an enduring economic impact.”
The business said it planned to set out non-cash impairment charges and write-offs that will range between $13bn to $17.5bn at its second-quarter trading update on 4 August.
Share trading in BP fell almost 4% in London to 311p in the morning.
Last week, the the oil giant announced plans to cut 10,000 jobs following a global slump in demand for oil.
“Today’s update from BP feels like it is softening shareholders up for a dividend cut when the company posts its second quarter results at the beginning of August,” said AJ Bell investment director Russ Mould.
Mould added: “By laying bare the impact of the oil price crash on the business, slashing its oil price assumptions and taking tens of billions of dollars’ worth of write-downs, it is probably hoping any decision on the dividend will be seen in a more sympathetic light. This is particularly as plans for big job cuts have already been announced.
The move from BP came as West Texas Intermediate oil trading New York fell below $35 a barrel after losing 8.3% last week. This halted a six-week rally amid concerns that the virus will spike in various parts of the world and as the Federal Reserve warned the pandemic could inflict lasting damage on the American economy.
Beijing shut down its largest wholesale food market at the weekend following 57 confirmed virus cases in China in the 24 hours to midnight on Saturday, the highest daily toll since mid-April.
Florida, meanwhile, is among some US states that are still seeing sharp increases in cases.
Opec meeting this week
The supply response to the virus continued, with Baker Hughes data showing active drilling rigs across the US falling for a 13th week to the lowest in more than a decade.
However, Chinese refineries ran 13.7 million barrels a day in May, according to Bloomberg calculations based on figures from the nation’s statistics bureau. That was 7.5% higher than in April and 8.2% more than a year earlier.
West Texas Intermediate crude for July settlement recovered slightly to fall 2.4% to $35.38 a barrel on the New York Mercantile Exchange as of 10:30am in London. It has lost almost 13% since closing at a three-month high on June 10.
Brent for August delivery declined 1.5% to $38.14 on the ICE Futures Europe exchange after dropping around 8% last week.
Opec and its allies will review the state of the market this week at an online meeting of the group’s technical committee on Wednesday.
However, supply reductions from Opec and the US have begun to stabilise the market back, and analysts suggest that a repeat of April’s plunge below zero is unlikely.