Overstone International Value Fund on BP plc
Thesis
BP benefits from the shortage of global refining capacity caused by wars in the Middle East and Ukraine. Roughly 10% of worldwide refining capacity is offline, lifting European refining margins to about $40 per barrel compared with a long-run average near $6. Higher crude prices have further supported the shares. At an assumed medium-term oil price of $80, BP trades at a low double-digit free cash flow yield, which the fund regards as inexpensive.
“BP is also a particular beneficiary of the shortage in refining capacity.”
Key risks
- The investment is sensitive to events in the Middle East.
- A reversal in crude prices would reduce earnings support.
- Refining spreads may contract as disrupted capacity returns.