The Shell (LSE: SHEL) share price has plunged 6.5% so far this morning. Fellow oil and gas giant BP (LSE: BP) has fallen 7.5%. They’re easily the worst two performers on the FTSE 100 today (8 April). Yet BP and Shell investors have one consolation. The rest of the index is having a ball.
US president Donald Trump primed markets for a major escalation in Iran yesterday, then announced a 14-day ceasefire. UK blue-chips have soared in a huge relief rally. Mining stocks Antofagasta and Anglo American are both up more than 10%, with Rolls-Royce Holdings is close behind. Just six FTSE 100 stocks have fallen.
My own SIPP has taken a knock over the last month, with BP a rare bright spot. Today that’s flipped, as my recent laggards turn into leaders. What now?
The FTSE 100 is flying!
I’m not chasing this morning’s surge. Barclays was at the top of my buy list, but after this morning’s 8% jump I’ve decided to wait a little longer and see how prices settle. Instead, I’m wondering whether this is the moment to add to my stake in BP or diversify by buying Shell. The ability to disrupt roughly a fifth of global supply via the Strait of Hormuz has given Iran a chokehold on the global economy. It also shows that the world is heavily dependent on fossil fuels. Which reinforces the importance of the oil majors.
Companies like BP and Shell remain central to our energy security, with vast infrastructure, global distribution networks and the financial strength to sustain supply through volatile conditions. Even as the energy mix evolves, these companies retain scale and expertise that are difficult to replicate. Also, oil and gas extend far beyond fuel. They’re essential for feedstocks and fertilisers, as well as plastics, rubber and pharmaceuticals, driving demand across multiple industries.
At The Motley Fool, we focus on long-term investing rather than reacting to sharp daily moves like today. Over time, BP and Shell are still likely to play a significant role in the global economy. What today’s drop does do is make both cheaper to buy. Investors who missed the recent oil price rally may see value here. BP trades on a modest forward price-to-earnings ratio of 11.4 and is expected to yield 4.3% this year. Shell has a forecast P/E of 12.5 and a yield of 3.2%.
Despite today’s drop, both have delivered strong returns. BP is up 70% over the past year, while Shell has gained 50%.
There are risks. Heightened geopolitical tension could accelerate the shift towards renewables as governments seek greater energy independence. Policy pressure, carbon regulation and the climate change concerns could all hit valuations over time.
The situation in Iran is impossible to predict, and the short-term path for markets remains uncertain. Even so, this could be a moment to consider buying the dip. Investors must take the long-term view though. In the short term, BP and Shell shares could go anywhere. As could the rest of the FTSE 100.
