JPMorgan downgrades oil major BP, flags "weakening" share buyback momentum

Investing.com -- Analysts at JPMorgan Chase (NYSE:JPM) have downgraded their rating of BP (LON:BP) (NYSE:BP) to "Underweight" from "Neutral," citing a "substantial miss" in the oil major's third-quarter earnings.

The decision comes after BP reported lower-than-anticipated quarterly income on Tuesday due in part to weakness at its gas trading unit.

The British group posted $3.3 billion in underlying replacement cost profit, its main measure of income, below market estimates of $4B.

Interim Chief Executive Murray Auchincloss said the miss stemmed from a downturn in price volatility because of high gas storage levels in the U.S. and Europe, which weighed on trading activity at BP's gas division.

BP was hit as well by a $540 million write down on its wind power projects off the coast of New York. Authorities had previously rejected a request to renegotiate the terms of a related power purchase agreement, which BP had wanted to amend in order to reflect "inflationary pressures and permitting delays."

However, BP's three-month profit was still an improvement from the $2.6B in earnings it booked in the previous quarter, thanks to a jump in oil and gas production and strong refining margins.

In BP's first set of results since the surprise departure of former boss Bernard Looney in September for failing to disclose the details of past relationships with colleagues, Auchincloss noted that the business remains "committed" to its $1.5B share buyback program. BP also backed plans to use 60% of its 2023 surplus cash flow to fund buybacks.

But the JPMorgan analysts said there is "weakening momentum" in share repurchases, arguing that the "risk/reward on future cash return" is waning "particularly as volatility moderates across parts of the energy complex." They subsequently added that they "retain [a] preference" for BP rivals Shell (LON:SHEL), TotalEnergies (EPA:TTEF) and Eni (BIT:ENI).