As the Royal Dutch Shell (RDSA) share price rises past 1650, inflation is now back to the forefront of investor concerns. During the summer, Natural Gas spiked to four-year highs on tightening supplies (see chart). More worryingly, crude oil prices are rising too. Brent Crude soared to $80 per barrel while West Texas Intermediate touched seven-year highs.
Modern societies function on energy. Without energy and fuel, the transport system breaks down. The result is chaos.
While the sustained rise in energy prices is bad for a huge swath of industries, some companies are doing rather well out of this crisis. Oil majors, in particular, appreciate in value as investors anticipate a rise in their income.
Royal Dutch is one of the oldest oil majors in the world and until recently, a favourite of pension funds and institutional investors. This is because Shell is a solid dividend payer (3.2% yield).
The energy crisis is luring investors back to the energy equity sector.
Royal Dutch Shell B is a favourite oil major owned by many pension funds and institutional investors over the years.
But the energy revolution is denting this institutional support. As late as May 2021, a District Court in the Hague ordered Shell to reduce its global net carbon emissions by 45 percent in 2030. This Hague ruling forced Shell to sell its business in Permian Basin for $9.5 billion. While Shell has appealed the decision, over the long term investors will shy away from hydrocarbon companies.
And then, we have the pandemic. Last year, most oil stocks plunged to their multi-decade lows. Shell slumped below the psychological £10 level for the first time in twenty years.
Investors were shocked.
However, Royal Dutch share price analysis shows that prices rebounded quickly from that oversold position – simply because the market saw value in the company. Moreover, the introduction of the covid vaccine led to a normalisation of transport. Shell rose further and completed a base formation.
The recent breakout from its sideways position is the second upwave from the 2020 lows. A major breakout like this usually last for weeks. The medium-term ceiling is at £20.
Royal Dutch Shell Forecast
Against the current macro turbulence, how will oil stocks perform and what is the Royal Dutch Shell share price forecast?
On one hand, inflationary pressure will continue to lift energy prices. China, for example, is now rumoured to be fighting for energy supplies. The manufacturing-intensive country experienced rolling blackouts recently and would need more energy to resolve this issue.
On the other hand, the energy revolution is continuing apace. More electric cars are being sold. But this is a secular trend.
Over the medium term, investors are factoring in better earnings report later this year from oil companies, including Shell. The recent consensus from brokers is that Shell will outperform the market (see below).
Source: Financial Times
Jackson has over 15 years experience as a financial analyst. Previously a director of Stockcube Research as head of Investors Intelligence providing market timing advice and research to some of the world’s largest institutions and hedge funds.
Expertise: Global macroeconomic investment strategy, statistical backtesting, asset allocation, and cross-asset research.
Jackson has a PhD in Finance from Durham University.