BP steps up its cost-cutting drive

Oil giant BP has announced a 53% year-on-year drop in second-quarter profits. That's due to falling oil prices and weak refining margins. The average oil price for the company's sales in the quarter was just $53 a barrel, compared to $110 last year. Chief executive Tony Hayward reiterated his view that $60-$90 is a "sensible" price for oil, but given "little evidence of any growth in demand" oil prices look set to trade in the bottom of the range for now.

What the commentators said

The challenge for BP, as for all oil companies, said Lex in the FT, is to balance the books when oil prices are low, while spending on exploration in order to top up supplies and maintaining the dividend. The latter comprises an eighth of all FTSE 100 payouts expected this year.

BP is aiming to balance cash flow at $60. But despite hacking $2bn out of costs in the first half thus meeting its full-year cost-cutting target it's not there yet. In the third quarter money out exceeded money in by $1bn. Enter another $1bn of targeted cost savings.

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Deflation in BP's supply chain amid the downturn should help there, said Nils Pratley in The Guardian. Suppliers of equipment are having to accept lower prices. Meanwhile, oil is well above BP's average price in the second quarter and the full benefits of axing 5,000 employees should kick in the second half. All in all, Hayward's plan to "make BP fit for action at $60 looks credible".

BP: 507p; 12m change -3%