It’s easy to think the BP (LSE:BP) share price has been falling because oil prices have been heading lower. But that’s only part of the problem. 

Election results on both sides of the Atlantic have also changed the landscape. And I think BP’s recent track record’s also a significant issue. 

BP’s issues 

After a positive first quarter, oil prices fell in 2024. This was due to higher output from some OPEC+ producers accompanied by weak demand from China and a post-pandemic recovery that began to falter. 

Brent crude oil 2023-24

Created at TradingView

The company estimates a $1 drop in the price of Brent causes a $340m fall in annual pre-tax profits. And BP can’t do much to influence oil prices, making this a key risk.

As a result of oil prices falling from April to the end of the year, earnings per share consistently came in lower than the year before. But this shouldn’t be a surprise for investors.

BP earnings per share (ttm) 2023-24

Created at TradingView

Anyone considering investing in oil stocks should be prepared for at least some volatility as the price of crude changes. With BP however, this isn’t the only risk to consider.

Election results

With oil a commodity, the main advantage a company can have is lower production costs. And elections on both sides of the Atlantic significantly impacted BP last year. 

The UK elected a government looking to transition away from hydrocarbons and towards renewables. As a result, taxes for UK oil companies look set to rise – especially in core operations. 

Over in the US, the incoming administration looks set to cut taxes and is aiming to incentivise energy production. The combination of these developments doesn’t help BP’s competitive position.

Importantly though, Shell‘s facing the same challenges. But the stock hasn’t fared as badly in 2024, which suggests the pressure on BP shares isn’t just about oil prices and windfall taxes.

Wrong place, wrong time

Over the last few years, BP’s managed to get itself in the wrong place at the wrong time in terms of its strategy. The company invested heavily in wind and solar energy projects a few years ago. 

Unfortunately, BP’s expertise is in oil and gas. As a result, its forays into renewable energy generation resulted in big losses in 2022 when it could have been cashing in on high oil prices.

BP earnings per share 2020-23

Created at TradingView

Since then, the firm has shifted back to its core competencies. But it seems to be doing this just as oil prices are starting to come down, having missed an opportunity when they were much higher.

Shell earnings per share 2020-23

Created at TradingView

By contrast, Shell stayed focused on hydrocarbons. And I think this is a key part of why investors have been more tolerant of its earnings falling in 2024 – they benefitted when prices were high.

What now?

I think BP now has the right strategy and the difference in valuation means I like the stock better than Shell at today’s prices. But I’m not prepared to buy either at the moment. 

To some extent, the latest windfall tax developments are probably priced in. But I see this as an ongoing risk that’s difficult to assess accurately and that’s enough to keep me on the sidelines.