Shares in FTSE 100 oil major Royal Dutch Shell (LSE:RDSB) have staged a big recovery over the last few months. Back in July, Shell’s share price was near 1,300p. Today, however, it’s near 1,630p.
Here, I’m going to look at why the share price is rising and whether it can keep climbing. I’ll also discuss whether I’d buy RDSB shares now.
Why has Shell’s share price risen?
There are a couple of reasons Shell’s share price has climbed recently.
One is higher oil prices. Recently, the price of oil has risen above $80 per barrel for the first time in three years. This price rise is the result of a supply and demand imbalance in the oil market. With the impact of the Covid Delta variant diminishing, demand for oil is rising. At the same time, supply is tight. Higher oil prices are obviously good for a company like Shell because they increase revenues.
Another is the shift back into cyclical stocks. In recent weeks, a lot of money has come out of the technology sector and gone into ‘reopening stocks’ such as banks, airlines, and energy companies. It seems the great reopening trade is back on (for now) and Shell shares are benefitting.
Can RDSB keep rising?
As for whether Shell’s share price can continue to climb, I think it’s certainly possible, although much will depend on oil prices.
It’s worth noting that recently, analysts at investment bank Goldman Sachs raised their short-term price target for oil to $90 per barrel. “While we have long held a bullish oil view, the current global supply-demand deficit is larger than we expected, with the recovery in global demand from the Delta impact even faster than our above-consensus forecast and with global supply remaining short of our below consensus forecasts,” they wrote.
If the price of oil does keep climbing (and there’s no guarantee it will, of course) Shell’s share price could get an extra boost.
Should I buy Shell shares today?
I actually sold my Shell shares earlier this year. And while the share price has risen since I sold, I don’t have any regrets.
I sold RDSB for several reasons. One is that, in the long run, I think the company is likely to face structural challenges as the world transitions towards clean energy.
Another is that, with so many big investors now investing with more of an ethical/ESG focus and avoiding oil stocks, future share price gains could be limited.
A third is that Shell cut its dividend (by nearly 70%) last year. With the company’s long-term dividend track record gone, there’s more uncertainty over future dividend payments.
No recent developments change my view on Shell so I won’t be buying the shares today. The share price could keep rising in the near term, but I think there are better stocks for a long-term investor like myself to buy right now.
