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BP PLC's (BP) U.S. shares popped above $40 on Wednesday for the first time since May after the oil giant said its "static kill" effort was successful.
The level was a psychologically important milestone for investors of the embattled company, whose shares traded under $27 in late June as the spill gushed millions of barrels of oil into the Gulf of Mexico. But, the jump in shares proved to be short-lived, with the stock falling 1.2% to $39.43 by early afternoon trading.
Investors were hesitant to get too excited about BP before the Macondo well is permanently plugged. Analysts are also responding with a cautious tone on the stock as BP and the government determine in the coming days how to permanently end the disaster.
"The right answer is to wait for relief well," Tudor Pickering told clients in a Wednesday note. BP plans to intersect a relief well at the bottom of Macondo, enabling the final cement job that would kill the source of the spill. The company is targeting mid-August for the relief well.
Sentiment toward BP improved in other markets. London shares closed 1.4% higher.
In the options market, there was nearly twice as much volume in calls as in puts, according to Track Data. Calls are considered bullish because they convey the right to buy shares, while puts convey the right to sell shares. Meanwhile, the annual cost of buying protection against default on $10 million in BP debt over a five-year period fell to $260,000, from $307,000 on Tuesday, according to Markit.
Oswald Clint, an analyst for BernsteinResearch, told clients that he believes the stock is "now fairly valued." He listed factors including "the uncertainty surrounding the final cost of the spill and the less easily quantifiable damage to BP's brand ... there does remain the potential for some upside in the near term, however, as the leak is finally capped."
But, once the well is permanently plugged, that could launch BP shares significantly higher, according to J.P. Morgan Cazenove. The firm said in a report that shares have a potential upside of 20%, with a successful relief well among near-term triggers to boost the stock.
-By Donna Kardos Yesalavich, Dow Jones Newswires; 212-416-2188; firstname.lastname@example.org