Can the Shell share price push higher?

Dr James Fox explores whether the Shell share price has peaked. The stock has gone from strength to strength, but can it really go higher?

| 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.

White female supervisor working at an oil rig

Image source: Getty Images

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.

The Shell (LSE:SHEL) share price has soared over the past year. It’s up 34% over 12 months and 63% over two years. Profits have swelled and demand isn’t slowing as much as expected.

So, can the Shell continue its bull run? I certainly think it can, but this industry is so heavily impacted by geopolitics, I’m not sure I want to take the risk.

Let’s take a closer look.

Black gold

Benchmark oil prices has fallen since the summer. The Brent crude spot price is now $84, down from over $120 seven months ago. But even at $84, Shell remains highly profitable.

The upstream division, which includes oil exploration, is the largest contributor of revenue for the business. For example, in the Q3 results, it contributed $5.9bn of total adjusted earnings of $9.4bn.

However, Shell is vertically integrated, it deals with both oil and gas from exploration phases all the way through to the pumping station.

In fact, margins have been pretty good in the downstream and retail parts of the business too. But it’s not just oil. Natural gas prices remain higher, on average, than we’ve seen in previous years.

So, everything looks great, and it’s clear that commodity prices are an important part of profitability.

Volatility

However, commodity prices can fluctuate massively. And that’s concerning as an investor. Going forward, oil price forecasts vary greatly and that reflects the uncertainty. Much of this uncertainty can be linked to geopolitics.

Aggregated forecasts are positive for energy companies.

World Bank analysts contend that oil prices will average $92 in 2023 and $80 in 2024, down from a projected $100 in 2022. This is well above their recent five-year average of $60. Meanwhile, IEA analysts forecast that Brent crude prices will average $83 in 2023 and $78 in 2024.

However, it’s broadly accepted that geopolitical events could see prices surge or crash. Forecasts vary according to geopolitical events. China’s reopening has pushed forecasts up. But what if the government tracks back?

Windfall taxes

Last week, the oil giant said it expects to pay $2bn in windfall tax for the final quarter of 2022. I’m delighted to hear that some of these taxes will be paid in the UK — the first time the firm has paid UK taxes in five years.

Shell claims that these taxes won’t affect adjusted earnings for the quarter and will have limited cash impact given the expected timing of payments. However, they’ll undoubtedly impact annualised profits.

Can the bull run continue?

I’m anticipating increased competition for resources over the next decade and energy behemoths like Shell will benefit from this.

But right now, although under many circumstances the share price could continue pushing upwards, I just think there’s too much risk around energy for me to invest in Shell.

So, do I want to put my money in a stock that has been on a two-year bull run? No. I’m concerned about further windfall taxes, slowing global growth and maybe even more virus-related restrictions.

Let’s not forget, it wasn’t too long ago that Saudi Arabia ramped up production and pushed prices right down, squeezing competition out of the market.

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 Fox has no 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

Investing Articles

How much does an investor need in a Stocks and Shares ISA to earn £1,000 a month in passive income?

A Stocks and Shares ISA's a valuable asset for investors. Not having to pay dividend tax can be a big…

Read more »

Investing Articles

9% dividend yield! Could buying this FTSE 250 stock earn me massive passive income?

Assura looks like an outstanding stock for dividend investors to consider. But is the 9% dividend yield the passive income…

Read more »

Man putting his card into an ATM machine while his son sits in a stroller beside him.
Investing Articles

Why I think this month could be critical for the Lloyds share price!

Our writer explains why he thinks the bank's 2024 results will have a significant impact on the short-term direction of…

Read more »

British Pennies on a Pound Note
Investing Articles

This former penny share has soared 168%. Is the best yet to come?

When Christopher Ruane saw a penny share as a potential bargain last year, he was spot on. So having not…

Read more »

Mature couple at the beach
Investing Articles

£20k in an ISA? Here’s how it could generate £1 of passive income every hour — forever

With a long-term approach, Christopher Ruane explains how an investor could aim to earn a pound per hour in passive…

Read more »

One English pound placed on a graph to represent an economic down turn
Investing Articles

FTSE shares: overpriced or still a bargain?

Christopher Ruane reckons a storming FTSE 100 performance of late doesn't tell us much about whether there are still possible…

Read more »

Blue NIO sports car in Oslo showroom
Investing Articles

Would an investor have made money investing £2k in NIO stock 5 years ago?

Our writer looks at how NIO stock has performed over recent years and weighs the bull and bear cases as…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

5 steps to start buying shares with £5 a day

In a handful of steps, our writer explains how someone new to the stock market could start buying shares for…

Read more »