I think the BP and Royal Dutch Shell share prices can rally now. Here’s why

After a disastrous 2020, both the BP and Royal Dutch Shell share price can see sharp recovery in 2021 for a range of reasons. 

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

FTSE 100 oil giants BP (LSE: BP) and Royal Dutch Shell (LSE: RDSB) had a 2020 that’s best forgotten. But they may well now be set up for high growth in 2021, if not beyond.

Both companies’ share prices regained some lost ground from 2020 as investor confidence returned late last year. In the past couple of weeks, however, both BP and Royal Dutch Shell saw a fall in their share prices. But I think that this is more likely to be the exception than the rule for the foreseeable future. Here’s why.

#1. Demand bounceback

With vaccinations under way, lockdowns on their way to being lifted and global travel poised to return later in the year, oil demand is making a comeback. According to the International Energy Agency (IEA), it’s now back to 95% of its pre-pandemic highs. This is a positive for both BP and Royal Dutch Shell.

#2. Oil price increase

With demand returning, oil prices have rebounded in 2021. According to the International Monetary Fund (IMF), on average, oil prices this year will be 21% higher than those last year. 

Besides demand increases, short-term supply disruptions can also increase oil prices, like the recent Suez Canal blockage. However, this supply disruption is likely to be a short-term phenomenon that doesn’t have a long-term impact after a brief spike in the oil price. As a side note, other supply shocks may not be that benign however, so supply blocks do not always work in favour of oil companies.

But for now, both BP and Shell are in a place to make gains, price-wise.

#3. BP and Royal Dutch Shell pay dividends

With an increasing number of FTSE 100 companies reinstating dividends now that the outlook has improved, I reckon investors will once again be considering the best investments to generate a passive income. 

Historically, both BP and Royal Dutch Shell have been dependable dividend-payers. I do not think that is about to change, even considering last year’s dividend cuts. BP’s dividend yield is already at a healthy 5% and Royal Dutch Shell is at 3.5%.  

#4. Going green

While higher demand and oil prices, as well as dividend payouts, bode well for the near future, the long-term future of big oil is in question. To that extent, I like the recent forays of both into green energy. 

BP, for instance, is building the UK’s biggest hydrogen power plant. Shell is exploring opportunities in Australia to develop its hydrogen business too. 

Risks to both

Of course, there’s no guarantee that the oil companies will be able to make a success of the green transition. Further, even in the short term, there are risks to the pace of recovery. We’ve seen reports of a rise in coronavirus cases again and in some countries, the vaccination process is going slower than anticipated.

The takeaway

On balance though, I think both the BP share price and the Royal Dutch Shell share price can increase in the foreseeable future, especially since they’re still way below their pre-pandemic levels. But the longer term is a wait-and-watch, I feel. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Manika Premsingh owns shares of BP and Royal Dutch Shell B. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

These FTSE 100 stocks are making a joke of the S&P 500 — but I’m eyeing more ‘rational’ options

Many FTSE 100 stocks are soaring ahead of their S&P 500 rivals in 2025 but Mark Hartley’s looking for some…

Read more »

Santa Clara offices of NVIDIA
Investing Articles

The Nvidia share price hit an all-time high this week. But could it still be a bargain?

The Nvidia share price has soared 1,466% in just five years. This writer reckons the best may yet be to…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

How much does someone need to invest to target a second income of £15k – or £150k?

A second income from dividend shares? It's a well-worn path -- and this writer sees some attractions to the approach.…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

Could the stock market crash in the second half of 2025?

As the FTSE 100 hits a new high, could a stock market crash be coming? Our writer thinks there's a…

Read more »

Man hanging in the balance over a log at seaside in Scotland
Investing Articles

Start investing this summer with a spare £250? Here’s how!

Christopher Ruane explains how an investor with a few hundred pounds to spare and no prior experience could look to…

Read more »

Young female analyst working at her desk in the office
Investing Articles

Is Palantir stock the new Nvidia? Why UK investors should (or shouldn’t) care

Palantir stock’s the top performer on the S&P 500 this year. Should UK investors consider it amid a blistering AI-fuelled…

Read more »

Investing Articles

3 FTSE 100 shares I think look undervalued

The FTSE 100 may be hitting record highs but there are still bargains to be had on the index. I…

Read more »

Close-up image depicting a woman in her 70s taking British bank notes from her colourful leather wallet.
Investing Articles

£20,000 in savings? Here’s how to target £841 of passive income each month

Passive income plans don't need to be complicated. Our writer explains how someone could target a sizeable second income buying…

Read more »