There can be few people who have not heard of BP. It is the third-largest energy company in the world, and the fourth-largest company of any type in the world. It works in all areas of oil and gas, from exploration and production through refining, distribution, and financial aspects such as trading. It has also developed renewable energy interests in biofuels, wind and solar power, and hydrogen.
Historically, the company can trace its origins back to 1901, when the first concessions were granted by the Shah of Persia, now called Iran, to search for oil. Fifty years later, the parliament of Persia nationalized the oil industry, and after some legal wranglings and a coup the British involvement was established at 50%. Following this, British Petroleum was formed in 1954, and subsequently found oil in both Alaska and the North Sea.
One of the early problems for British Petroleum was the foundering of the Torrey Canyon oil tanker off the English coast in 1967. In 1979, the Ayatollah Khomeini came to power and unilaterally ended the company’s interests in Iran. But the main problem with which you are probably familiar was the breakdown of safety precautions and massive oil spill in the Gulf of Mexico recently. This was reflected in the stock price at the time: –
You can see the terrific plunge in March 2010 on this monthly price chart.
BP has had a chequered history on social responsibility, having been involved in several environmental incidents in which it has not been found blameless. However, in 1997 it was the first major energy company to take on board the need to reduce greenhouse gases and combat climate change, and it currently invests more than the US$1 billion each year to develop renewable energy. While cynics may say that this was still good commercial sense to combat the forthcoming loss of profit from the inevitable reduction in oil and gas consumption in the future, it provides an excellent resource for such research.
Spread Betting BP plc Rolling Daily
The gas and oil giant BP is a major company that you can specialize in spread betting on, so that you can get to know the way the price moves. The current quote for a rolling daily bet on BP is 444.41 – 445.29. If you think that the price will be going down, you could place a short or sell bet at 444.41, wagering say £10 per point.
If your bet is correct, and the price does go down, then you might close your spread trade when the quote gets down to 386.13 – 387.01. You can work out how much this spread bet won by simply multiplying the points gained by your stake. The bet was placed at 444.41, and it closed at 387.01, a gain of 57.4 points. For your chosen stake, this amounts to £574.
Of course, some of your spread bets will lose, and you must be prepared to work out how much such an outcome will cost you. If the price went up to 481.62 – 482.50, you could close the bet to minimize your losses. You use the same method to work out your loss. The opening spread bet went on at 444.41, and it closed at 482.50, a loss of 38.09 points. Therefore this would have cost you £380.90.
Many spread traders use stop loss orders to allow them to minimize their losses if their bets do not work out. If you do this, you do not have to keep an eye on the market all the time as the bet will be closed by your spread betting company when it reaches the level that you specify. Suppose this happened when the price went up to 467.63 – 468.51. This time you have lost 468.51-444.41 points, which is 24.1 points. Multiplying by your stake, your loss is kept down to £241.
BP plc Futures
Most spread betting providers will allow you to bet on the future price of the stock, usually for three periods, the near future, mid-future, and far future. IG Index’s current quote for the far future is 445.78 – 451.16. If you think that the price will go up in the next few weeks or months, you could place a long or buy bet for £8 per point, at the buying price of 451.16.
First, the price may go up to 497.62 – 502.48, and you can close your spread bet and take your profit. You placed the bet at 451.16, and it closed at the lower (selling) price of 497.62, giving you a profit of 46.46 points. As you bet £8 per point, this means you have won £371.68.
But you must consider the second case, when the price goes in the opposite direction to your spread bet. Say it drops to 412.37 – 417.25, and you decided that you had to close your trade to cut your losses before it dropped any further. Your bet was still placed at 451.16, but this time it closed at 412.37, which means you lost 38.79 points. At £8 per point, you have lost £310.32.
Many traders decide to set stop loss orders when they open new trades. These require your spread betting provider to close your bet if the price goes against you by an amount you specify. Unless you use a Guaranteed Stop Loss, which will cost you more in the amount of spread, there is no guarantee of the actual price your bet will close, as the regular stop loss order simply tells your broker to close your spread bet at the market price. Suppose you have a stoploss order, and it closed your spread bet when the price dropped to 431.10 – 436.05. You have lost 451.16 less 431.10, which is 20.06 points, so the spread bet this time has cost you £160.48.