The BP (LSE: BP) share price dropped under 400p earlier this week. Traditionally, that’s a stage that’s solely typically been seen throughout troubled occasions for the corporate.

This yr’s droop has pushed BP’s dividend yield up to six%. I’m questioning whether or not this droop may very well be a possibility so as to add the oil and gasoline big to my revenue portfolio.

Why are the shares falling?

Uncertainty within the Center East has led to elevated oil price volatility this yr. Any main disruption to provides might trigger costs to rise.

The oil price has swung round as speculators have wager on completely different eventualities. Brent Crude oil reached $90 per barrel in April, however has fallen to $74 per barrel on the time of writing.

One other complication is that weaker world demand for refined merchandise similar to petrol and chemical compounds can also be hitting BP’s earnings.

In its third-quarter replace, BP warned that earnings from its refineries fell by $400m-$600m throughout the third quarter.

Are we heading for one more oil crash?

Over the past 16 years, I’ve seen the oil market crash on three events (2008, 2015 and 2020). That’s not what’s taking place now. To date this yr, we’ve simply seen a reasonable slowdown.

In accordance with the September version of the authoritative IEA Oil Market report, the primary purpose for that is “a rapidly slowing China”, the place oil consumption has been falling in latest months.

On the identical time, the IEA says that world oil provide has been rising, regardless of some outages in Libya and Norway.

The fact is that nobody fairly is aware of what is going to occur subsequent. Decrease oil costs would possibly stimulate stronger demand, however this isn’t assured. A deeper droop may be wanted to rebalance the market.

Lots relies on what occurs in China — one thing that’s powerful to foretell.

Is BP low cost sufficient to purchase at present?

Bumper earnings since 2021 have allowed BP to rebuild its dividend and repay debt. The corporate has additionally funnelled billions of {dollars} into share buybacks – the share depend has fallen by 1 / 4 for the reason that finish of 2021.

I believe BP might be in higher monetary well being than it’s been for a very long time. Even in one other crash, I believe the corporate can be more likely to cope higher than it may need carried out up to now.

I’m additionally inspired by CEO Murray Auchincloss’s dedication to “a resilient dividend”.

Within the firm’s half-year outcomes, Auchincloss stated that the payout needs to be supported by money technology at oil costs down to “around $40 per barrel Brent”.

Metropolis analysts’ earnings estimates additionally counsel to me that the dividend will stay secure, barring a serious market crash.

The most recent dealer forecasts for 2024 point out that earnings of $0.64 per share needs to be sufficient to cowl the anticipated dividend twice. That’s typically thought-about an honest security margin and provides me confidence within the 6% yield on provide.

On steadiness, I believe the shares look moderately priced at present and doubtless provide a secure dividend.

Nonetheless, my sums counsel they’re will not be at a very cut price basement stage.

Given the uncertainty going through this enterprise, I’m going to attend somewhat longer earlier than making a choice.