Fiscal policy and central banks have a major influence on the profitability of many organizations, including British Petroleum. B.P is located in the United Kingdom and has a key market in the United States. The U.K and the U.S both a fiscal policies that have benefited and hurt B.P financially. As we read below, we will witness how the central bank and fiscal policies of both nations have affected British Petroleum Profit Margin.
The Central Bank of England
British Petroleum's (B.P.) home market is the United Kingdom. The U.K. does not have a federal reserve, but they do have a central bank. The Central Bank of England "was founded as a private bank in 1694 to act as banker to the Government" and serves as the central bank of the United Kingdom (About Us, 2022). Some roles of the Central Bank of England are to conduct monetary policy to achieve price stability (low and stable inflation) and to help manage economic fluctuations. Controlling interest rates is a significant function of the Central Bank of England, affecting B.P.'s overall profit.
According to About Us (2022), "we also work to keep the cost of living stable so your money keeps its purchasing power. One way we do this is by changing the main interest rate in the U.K.". Fluctuation in interest rates can affect the cost of imports and exports and the consumer's purchasing power. The Central Bank of England currently lists inflation at 9.9% and a bank rate of 2.25% as of September 23, 2022. Dating back three years to September 27, 2019, the bank rate was .75%. On September 29, 2020, the bank rate was 0.10%, and on September 27, 2021, the bank rate was stable at 0.10%. The first significant increase could be seen on July 4, 2022, when the bank rate shot up to 1.25% according to the Central Bank of England.
B.P. Profitably of Home Country
British Petroleum is an oil giant whose profit margin is not easily swayed. Unlike many organizations, oil companies have a supply that will remain high in demand no matter how high the interest rates rise. B.P. reported a "profit for the quarter was $9.3 billion, compared with a loss of $20.4 billion for the first quarter 2022" (bp global, n.d, 2022). The $20.4 billion loss was due to exiting its 19.7% shareholding with Russia. B.P.'s investors also increased cash flow for the second quarter of 2022 with an overall 10% increase in dividend payout.
The Federal Reserve of the United States
The United States is a key market for British Petroleum. The federal reserve system is the central bank of the U.S. The federal reserve's role is to conduct the nation's monetary policy to promote maximum employment, promote the stability of the financial system, and foster payment and settlement system safety and efficiency (Federal Reserve Board - About the Fed, n.d, 2022). The federal reserve list the current federal funds rate as of September 28, 2022, at 3.08% (The Fed - H.15 - Selected Interest Rates (Daily) - September 28, 2022, n.d.). Dating back three years, the fed funds rate on September 19, 2019, was 2.08%, compared to .09 on September 19, 2020, and .08% on September 19, 2021.
(FRED Economic Data, 2022)
B.P. Profitability Key Market
As previously mentioned, the U.S. is B.P.'s key market. Much like B.P.'s home market, hikes in inflation have not harmed B.P.'s profit margin. As data from the second quarter rolls populate, we can see how profitable B.P. has been in the United States. B.P. had a second-quarter profit of $8.5 billion. According to Meredith (2022), the $8.5 billion is "compared with a profit of $6.2 billion in the first three months of the year and $2.8 billion for the second quarter of 2021".
Fiscal Policies in the U.K
According to Cowen & Tabarrok (2020), fiscal policy "is federal government policy on taxes, spending, and borrowing that is designed to influence business fluctuations" (p. 806). The U.K has two fiscal policies that can hurt and benefit B.P. The fiscal policy that can help B.P is the cancelation of corporation tax increases. According to Keep (2022), "the main rate of corporation tax will remain at 19%. It was due to increase to 25% in April 2023" (Para 3). B.P will save millions of dollars in corporate tax when the British Parliament decided to cut the corporate tax increase.
A fiscal policy that can hurt B.P is a household energy price guarantee. The energy price guarantee caps "caps the unit cost of energy for households, while the Energy Bill Relief Scheme does similar for businesses and other non-domestic energy users" (Keep, 2022, para 4). The price guarantee incentives B.P to scrap all other energy sources except crude oil, their highest producing product.
Fiscal Policies in the U.S
Covid-19 had significant effects on the U.S and the world's economy. Many citizens were forced to stay home, and some even got laid off. Many individuals and businesses were struggling to stay afloat. To aid the citizens and help boost spending, the U.S issued stimulus checks to force people to spend money and jump-start the economy. In hindsight, this was a mistake and helped cause some of the economic issues we have today, but in the present time, many businesses benefited from boast in spending. B.P was a beneficiary of this boost to the economy. Many citizens could get back on the road and, in turn, back to the pump. Moreover, B.P is still benefiting from the increase in demand for oil in the present day.
Conclusion
British Petroleum is based in the U.K and has a key market in the U.S. Many factors affect B.P's profit margin in both countries, including the central bank and both nation’s fiscal policies. British Petroleum has done an outstanding job remaining profitable through the changes in economic status and fiscal policy in their home and key markets.
Reference:
About Us. (2022). Bankofengland. https://www.bankofengland.co.uk/about
bp global. (n.d.). bp’s second quarter 2022 results | News and insights | Home. Bp Global. Retrieved September 28, 2022, from https://www.bp.com/en/global/corporate/news-and-insights/press-releases/second-quarter-2022-results.html
Cowen, T., & Tabarrok, A. (2020b, September 2). Modern Principles: Microeconomics (5th ed.). Worth Publishers.
The Fed - H.15 - Selected Interest Rates (Daily) - September 28, 2022. (n.d.). Retrieved September 28, 2022, from https://www.federalreserve.gov/releases/h15/
Federal Reserve Board - About the Fed. (n.d.). Retrieved September 28, 2022, from https://www.federalreserve.gov/aboutthefed.htm
FRED Economic Data. (2022, September 1). Retrieved September 28, 2022, from https://fred.stlouisfed.org/series/FEDFUNDS
Interest rates and Bank Rate. (2022, September 22). Bank of England. Retrieved September 28, 2022, from https://www.bankofengland.co.uk/monetary-policy/the-interest-rate-bank-rate
Keep, M. (2022). September 2022 fiscal statement: A summary. commonslibrary.parliament.uk. https://commonslibrary.parliament.uk/research-briefings/cbp-9624/
Meredith, S. (2022, August 2). Oil major BP boosts dividend as quarterly profits jump on high commodity prices. CNBC. Retrieved September 30, 2022, from https://www.cnbc.com/2022/08/02/oil-major-bp-earnings-q2-2022.html
Hi,
Interesting post. BP has been one of the largest companies due to their revenue and profits for many years. BP became the first to announce that they will focus their energy sources other than fossil fuels. Due to the response of Russia invading Ukraine, BP announced that they will sell its 19.75% stake in Rosneft. During this time, Rosneft accounted for half of BP's oil and gas reserves and a third of its production. This decision was made after the British government became concern about BP's involvement in Russia.
Hi Delano,
I found your choice of business fascinating as I have a distant relative who works in the corporate office for British Petroleum and grew up hearing from my English relatives about it and how the company was doing. I think it is interesting that the US is B.P's biggest customer as the rest of Europe is much closer locationally but I guess they do not use as much gas as we do here in the US. Growing up, my family used B.P gas pretty much exclusively as there was a test done in the early 2000s that showed that B.P gas was the purest and best quality gas for your car and its health. I do not think that it is currently the case, but they still are one of the best. Thanks for sharing!
Delano,
Based on your findings, it appears that the United Kingdom’s banking system, the Central Bank of England, is extremely similar to the United States banking system, the Federal Reserve System. You did well with incorporating relevant data into your discussion of the home country’s banking system.
I would be interested in researching how British Petroleum appears to be unaffected by changes in inflation rates in its home country and key market.
The specific fiscal policy you discussed was interesting. The cancelation of corporation tax increases would greatly benefit this company's economic growth as it is such a big corporation. I appreciated that you also discussed a harmful fiscal policy. Is it harmful in that it requires British Petroleum to minimize its product portfolio?
I, too, examined stimulus checks as an example of impactful fiscal policies in the United States. I hadn’t realized the negative nature and repercussions of this policy, such as contributing to a higher inflation rate, until I completed this assignment (GOBankingRates, 2022). It is surprising that the company is still able to benefit from this policy. Overall, great job on your discussion. You examined several key components of a company’s economic growth.
References
GOBankingRates. (2022, June 19). Pandemic Stimulus Checks: The Good, the Bad, and the TBD. Retrieved September 30, 2022, from https://www.gobankingrates.com/money/economy/pandemic-stimulus-checks-good-bad-tbd/