BP has recently been at the centre of the Gulf oil spill and the reaction of the markets has been severe, $30 billion has been wiped off its shares.  When people consider how much BP is on the hook for then that sounds about right.  After all a billion here and a billion there and quite soon we are talking about real money.

It is time for a reality check with BP.  The maximum that they have worked out as the damage that the damage will cause is $12 billion.  That is the maximum.  Not the average.  And there are other parties in play here, with more direct liability than BP.  Some of these are small companies with small pockets, but one of them is Halliburton.  BP suffers with the Obama administration because B stands for “British” (get over it, he doesn’t like us) while Halliburton is associated with the Bush family and Dick Cheney.  So perhaps BP won’t be the only company with the Obama regime’s “foot on its neck”.

BP frankly is a screaming long term buy.  It is not just that the market has over-reacted, but if inflation is round the corner (at least outside Europe, where deleveraging has yet to start outside the UK, Ireland and Germany) then it will start to reflect in the oil price.   Added to that BP has actually become a strategically focussed company again – after years of buying up anything in sight, as well as stressing that it was “Beyond Petroleum” it is once again a boots on the ground operation.  And they’re making money.

A contract for difference for a high price should be a bargain at the moment.  If it’s not widows and orphans money, we’d strongly recommend this contrarian bet.