Iraq war helps BP gush to record £2.3bn profit

BP announced its biggest ever profit bonanza yesterday, making $3.7bn (£2.3bn) in the first quarter of the year, or $41m a day.

The figure – more than double the $1.6bn made for the period last year – was the highest for any quarter and was driven by higher gas and oil prices. During the first three months of the year, the oil price averaged $29.8 a barrel, as the market worried about the Iraq war and disruptions in supply from Nigeria and Venezuela.

Analysts warned however that the outlook was not as rosy and the company also conceded that trading conditions had deteriorated since the end of the quarter.

Peter Hitchens, an analyst at Crédit Agricole, said: "The first quarter was a windfall quarter. Now it's back down to reality."

Underlining the point, the fall in the world price of oil continued to gather pace, amid speculation that it could fall through the $20 a barrel mark. Crude prices fell to their lowest level in five months, with Brent crude in London falling as low as $23.05, its lowest since November and down from a recent peak of $34. Analysts believe Opec, the oil producers' cartel, did not cut production enough last week to prevent a sharp rise in stock levels.

Lord Browne of Madingley, BP's chief executive, said: "The prospect for prices depends upon a particularly wide range of uncertainties, which include the timing and level of the return of Iraqi oil exports and the extent to which Opec's earlier production increases are reversed."

He defended the level of profits made by BP, which he said was good for the whole of the UK. The company stressed that it makes little money through petrol retailing in the UK, which has recently seen an outcry over pump prices. "Increased profits at BP pretty much flow directly into pensions funds [from dividend payments].... We are in the business of making money in a very responsible way, in the service of our shareholders," Lord Browne said.

Turning to Iraq, he said BP's strategy was not dependent on working there, and that the company would only look at opportunities presented by a "future legitimate Iraqi government".

Analysts believe the continued economic weakness combined with the impact of the deadly Sars virus on demand for air travel will continue to knock the oil price. Meanwhile, as the world moves into the second quarter of the year and the cold winter weather fades, the need for Opec oil is swiftly declining. Oil stocks in the US, the world's largest consumer, have risen for two weeks in a row and figures out today will show another rise. The situation could turn out to be like 1997 when Opec watched from the sidelines as the oil price fell below $10 as the unexpected Asian financial crisis sapped demand.

Opec ministers met last week to tackle the sharp fall in the oil price since the swift end to hostilities in the Gulf, which saw oil on New York markets slump from $39.99 a barrel to $25.38. The cartel had been expected to order a definitive cut in output but instead, in effect, legitimised a large portion of the extra supply its members pumped out in the run up to the war.