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Warning! Royal Dutch Shell is a FTSE 100 dividend stock that could sink in 2019

It would take a braver man than me to pile into Royal Dutch Shell (LSE: RDSB) at the current time.

In a little less than two months the value of Brent crude has toppled from the multi-year peaks above $86 per barrel to current levels around $60. Consequently the market value of the FTSE 100 oil driller has dropped to its cheapest since early spring.

And the chances of more heavy weakness in the weeks and months to come are very high, in my opinion.

Supply shudders

I’ve long been warning of such a sharp reversal ever since the threat of fresh political turmoil in the Middle East drove black gold prices to their 2018 peaks printed in October. In fact, ever since OPEC-led production cuts kicked in two years ago I, like many others, have been warning that the threat of chronic oversupply in the market remained a very real threat in the medium term and probably beyond.

And with the market waking up to these threats, I believe the price of crude, as well as that of the oil majors, could continue to crumble into 2019.

Evidence of rising US stockpiles has been the chief driver of investor pessimism in recent weeks, the Energy Information Administration recently reporting nine straight weeks of inventory build and its latest statement scheduled for later today tipped to show another weekly increase.

The American Petroleum Institute has already upped the gloom ahead of the release, its own report of yesterday showing a weekly build of 3.45m barrels to November 23, more than four times the size of the build that brokers had anticipated.

And all the time production from the US shale gas sector continues to pick up. Latest data from Baker Hughes showed the number of operating oil rigs falling by three in the week to November 21, but the trend has still remained broadly upwards in recent months and the rig count currently remains around three-year peaks at 885.

More weakness in 2019

The market will be hoping that OPEC and its allies will agree to a fresh set of supply curbs to stop an oil price washout when they meet in Vienna next week. However, even if they do indeed strike an accord, any buoyancy in the crude market threatens to prove short-lived as production from the US, as well as from other major producing non-OPEC members, clicks through the gears.

Extra pressure on energy prices could spring up as well should the signs grow that global economic growth is beginning to power down, caused in part by the impact of trade tariff disputes between the US and China and the possibility of escalating action between the superpowers.

So where does this leave Shell? Well, at the moment City analysts are predicting a 23% earnings improvement next year, a figure that leaves it dealing on a forward P/E ratio of 9.3 times. In my book this low, low valuation isn’t worth much given the strong likelihood that this profits forecast will be cut down in the coming weeks and possibly further as we move through 2019.

I’m not moved by Shell’s low valuation nor its huge 6% dividend yield. Its earnings outlook in the near term and beyond is far too uncertain right now, and I believe that there are many better, and safer, dividend stocks that can be found on the Footsie right now.

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Royston Wild 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.