Is the BP share price a brilliant FTSE 100 bargain or a value trap?

Investors scouring the FTSE 100 for dirt-cheap shares may be sorely tempted to splash the cash on fossil fuel goliath BP(LSE: BP).

Driven by the crude price hitting multi-year summits in 2018, the company's recent profits recovery is expected to continue, with a 208% bottom-line improvement this year. And City analysts are predicting that 'black gold' values will remain resilient in 2019, resulting in an anticipated 6% earnings rise at BP then.

Current forecasts leave BP dealing on a very low forward P/E ratio of 13.8 times, comfortably inside the widely-accepted value territory of 15 times, or below. But arguably the driller's dividend prospects are even more spectacular.

Current forecasts suggest that the company is about to crank its progressive dividend policy back into action after keeping shareholder rewards stable at 40 US cents per share for what now seems an age.

A similar payout is predicted for 2018, resulting in a not-too-shoddy 5.3% yield. But a lift to 41 cents is estimated for next year, pushing the yield to a considerable 5.4%.

Global production rising

But why can BP still be picked up for such little cost? Well, the market is somewhat fearful that energy prices have been looking a little frothy in recent months as the long-term fundamental outlook for the oil market remains more than a little worrying.

I've gone on record many times before stressing the impact of surging fossil fuel investment threatens to create a huge supply glut in the years to come. And recent Baker Hughes numbers are fanning the flames that production levels may well outstrip demand in the years ahead -- oilers in the US plugged five more rigs into the ground during the seven days to July 6, taking the total to 863, up by exactly 100 units year-on-year.

And with investment in the shale segment meaning that total spending in the US on oil exploration and production is estimated to rise 9.1% to $132.5bn in 2018 alone, stockpiles in North America look likely to remain jam-packed for long into the future.

Galloping production from the US is not the only problem though. The Canadian Association of Petroleum Producers recently said that it expects output from the country to rise 33% between now and 2035, to 5.4m barrels per day. Meanwhile, Wood Mackenzie recently noted that a relaxation of local content regulations in Brazil could cause production to spike from the Latin American powerhouse in the years ahead.

Trump's tariff talk adds more uncertainty

Reduced output from Venezuela, Libya and Iran in recent weeks has helped push oil prices to their recent heights. Such is the tightness of the market that some Organisation of Petroleum Exporting Countries (OPEC) nations like Saudi Arabia, along with Russia, have felt encouraged to increase output in recent weeks to head off any near-term supply shortages.

Demand may be strong now but there are fears that President Trump's trade dispute could cause off-take to crumble. Some analysts have already cut demand forecasts as trade talk has increased macroeconomic uncertainty. And energy consumption could take a whack if the leader of the free world follows through on his threat to increase trade tariffs.

There is plenty of risk facing crude prices in the near-term and beyond... and with it the earnings outlook of the likes of BP. I remain unconvinced by it profits picture and I'm content to sit on the sidelines.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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