BP profits on track as oil price surges on

Yesterday’s 1.09 per cent rise in the company’s share price to 558p, the second highest rise in the FTSE 100, was ascribed by analysts to soaring prices rather than to BP’s simultaneous announcement of a minor increase in output.

Oil prices, meanwhile, rose to $58.28 a barrel, the highest rate since the New York mercantile exchange was launched in 1983, before falling back into negative territory at $57.01 and was being seen as a continuation of the market excitement caused last week by Goldman Sachs’ warning of a "super spike" that could drive the barrel price as high as $105.

While the price rises will cheer BP’s investors, they are likely to dismay the UK government, which now faces the prospect of rising pump prices in the run up to a general election.

BP shareholders will expect to cash in on the company’s good fortune, as the group confirmed that it had bought back $2 billion (1.06bn) of shares since the start of the year. The slower growth is being seen as a result of restrained investment in new exploration in consequence of the buyback.

BP appears not to have been overly affected by last month’s explosion at its Texas City refinery, which resulted in the deaths of 15 workers and which is slated to cost the company around 400 million.

In addition, the company has shrugged off slowing growth in Russian output and the effect of maturing fields in the US to post the increase in first quarter production from 4.02 million barrels last year to 4.09 this year.

The 1.9 per cent rise in BP’s output, the smallest in six quarters, leaves predictions of a final average 2005 production figure of 4.1 to 4.2 million barrels a day, a 2.5 per cent growth figure that contrasts with the 10 per cent rise recorded in 2004.

Pressure has been growing on BP’s operations outside of Russia, where piping and shipping oil out of the low-margin domestic market remains subject to government interference. Much of the optimism about BP’s final figures rests on the company’s plans to bring new fields on stream. The most significant of these, the Thunderhorse field in the Gulf of Mexico, is expected to produce 150,000 barrels a day when it begins production later this year.

Faced with yesterday’s benchmark price increases, OPEC yesterday acted to cool the market, indicating that it was ready to increase oil production by another half million barrels per day, if the rise in oil prices continued.

The cartel’s president, Sheikh Ahmed Fahd al-Sabah, said on Monday that a final decision would come in two weeks.

OPEC has already boosted production by at least 300,000 barrels per day since February.

Royal Bank of Scotland reported a 15.6 per cent decline in UK oil production in January. Gas production was down by 14.4 per cent. RBS senior economist Tony Wood noted that the decline occurred "despite a significant upturn in the North Sea investment climate", but he played down the effects of budgetary tax changes on the UK industry.