The oil and gas shortage boosts the Shell and BP share prices. But I won’t be buying

James Reynolds discusses how Royal Dutch Shell and BP have both benefited from the recent oil and gas shortage and how these companies plan to use their new influx of capital.

| 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.

All around the world, oil and gas shortages are causing some serious headaches. Oil and gas companies are struggling to meet the increase in demand following the reopening of western economies. This has pushed the share prices of both Royal Dutch Shell (LSE: RDSB) and BP (LSE: BP) up over recent months and resulted in a massive influx of capital for both companies. But I fear that this share price surge will be short-lived. Here’s why I think the shares would be bad additions to my portfolio.

Shell

Despite reduced demand, Shell made over $200bn in revenue in the last 12 months. The Anglo-Dutch company recently announced a $2bn share buyback and made a commitment to invest further in the production of hydrogen fuel and carbon capture technology.

Personally, I’m a big believer in the future of hydrogen. But Shell is producing blue hydrogen, which is made by extracting the hydrogen from natural gas. This is a carbon-heavy process that needs expensive carbon capture facilities to make it viable.

The share buyback also worries me. It’s good for shareholders in the short term, but doesn’t bode well for the future. Prices will fall as the oil and gas shortage ends. Carbon taxes are also certainly going to be implemented at some point in the future. To me, Shell doesn’t seem to be taking the need to change its business seriously enough.

BP

Last year, BP announced a commitment to reduce its oil and gas production by 40%. It plans to do this by investing directly in wind and solar power. In the meantime, BP has also committed to producing more blue hydrogen and developing carbon capture technology. Blue hydrogen makes sense for BP. It has already has invested several billions of dollars into the infrastructure to find, extract, and refine natural gas from its wells around the world. But this shortfall still needs carbon capture technology to catch up if it’s going to be effective. BP has also benefited greatly from the oil and gas shortage, bringing in more than $7bn in the first half of 2021. Unfortunately, this seems to have gone to its head. It has also announced a stock buyback in the region of $1.4bn.

Conclusion

The oil and gas shortage will eventually subside and the COP26 climate summit is less than a month away. US Climate Envoy John Kerry believes that the world is ready to tackle climate change and we can expect some sweeping changes.

Both BP and Shell have managed to build investor confidence by promising to develop low-carbon technologies. But neither of them seems willing to utilise the cash brought in by the gas shortage to achieve this. I think this will harm both companies in the long term, and I won’t be adding either to my portfolio.

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.

James Reynolds does not have a position in any of the shares mentioned. 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

Young black female footballer training on stadium pitch
Investing Articles

My JD Sports Fashion share price prediction for the second half of 2024

The JD Sports Fashion share price hasn't yet recovered from January’s slump. So will the retailer's stock bounce back in…

Read more »

Investing Articles

Up 47% in a week! Can the Capita share price continue to rocket?

The Capita share price has smashed the market in the last week, and Harvey Jones wonders whether it has the…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

What could the second half of 2024 have in store for the BAE Systems share price?

After a strong first six months of the year, what could be coming next for the BAE Systems share price?…

Read more »

Growth Shares

2 FTSE 100 stocks that are outperforming these MAG7 members

Jon Smith reveals some FTSE 100 stocks that offer him a viable alternative to the Magnificent 7, based on recent…

Read more »

Investing Articles

My Scottish Mortgage shares just paid me £14.88. It’s another step towards making a million

Harvey Jones has just received a measly dividend from his Scottish Mortgage shares, but he's got big, big plans for…

Read more »

Investing Articles

FTSE 100 shares: is Barclays a standout buy?

Barclays shares are among the FTSE 100's top performers and this Fool thinks they have further to go. He explains…

Read more »

Black woman using loudspeaker to be heard
Investing For Beginners

At 52-week highs, here’s what may be next for the Lloyds share price

Jon Smith notes the strong rally in the Lloyds share price in the recent past and explains why the good…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

These UK shares are stinking out my ISA. Time to sell?

Paul Summers has been reviewing some of the worst-performing UK shares in his portfolio. Has the time finally come to…

Read more »