What's going on?

BP, the UK-based oil giant, reported financial results on Tuesday that fell a little short of investors� expectations � and the stock sold off 3.5%.

What does this mean?

BP�s most recent quarter was an improvement, but it wasn�t enough to stop its profits for the full year of 2016 from slumping to their lowest level in at least ten years! All oil companies have been hit by the huge decline in the price of oil that began in 2014, although their prospects improved when prices began to trend upwards in the latter half of 2016.

Why should I care?

For the stock: BP is feeling confident enough to increase its spending.

Oil companies, including BP, have spent years cutting their spending on new projects in order to scale back their overall costs. This has lowered oil companies� �break-even� price, i.e. the oil price that allows them to pay their bills. But BP announced on Tuesday that it will increase spending in 2017, which will push up its break-even price from $55 to $60 per barrel. Its new investments might pay off nicely in the years ahead, but they could be a problem for BP if the oil price doesn�t rise (a barrel of oil now costs around $55).

The bigger picture: Some oil companies are also impacted by the production cuts agreed by the cartel of oil-producing countries, OPEC.

BP also warned on Tuesday that OPEC�s production cuts might limit the amount of oil it can produce this year (e.g. OPEC�s quotas could affect BP�s operations in some OPEC countries). While the OPEC agreement has helped push up the price of oil (since a reduced supply will typically increase the price), the trade-off for some oil companies, like BP, is that they�ll sell fewer barrels (meanwhile, the agreement doesn�t affect, for example, American oil companies that operate predominantly in the US).