Donald Trump has decided to remove all exemptions to Iran’s oil export sanctions as of 2 May. Naturally, this has caused the cost of oil to increase along with the share prices of many companies in the sector.
The dramatic rise in Royal Dutch Shell (LSE: RDSB) and BP (LSE: BP) caused the FTSE 100 to rise to a six-month high. Shell rose 2.2% whilst BP gained 2.6% as oil prices rose in anticipation of the tightened supply.
This has left many investors questioning whether these shares are worth their money or if they should wait for the prices to go down. Let’s take a look at our options…
Is Shell worth it?
I believe that Shell is still a brilliant investment despite the price increase. The forecast dividend yield, if you were to buy today, is 5.7%, which is certainly not a bad figure at all.
On top of this, Shell is also looking to the future. When considering environmental factors, the demand for oil and gas will eventually decrease. Thankfully, Shell is already thinking of alternatives and is working on renewable energies as we speak! This demonstrates how the company is evolving, meaning that your investment could evolve too.
We don’t know if the price will come down any time soon, considering that Trump’s changes could affect oil supply in the long term. I think that oil prices will only keep going up until we are certain about supply. With Shell offering such attractive dividends, I would say it’s worth your money.
Could BP be a safe bet?
BP has already hugely benefited from a stellar 2018, with profits doubling to hit a five-year high. However, the company is sitting on a rather intimidating £80.44 billion debt pile, which is a shocking 79% of the company’s net worth. Having said this, BP is definitely one of the world’s largest oil companies and I would say that it’s a pretty safe investment.
BP is a long-term investment that will eventually pay dividends. I think that there is very little chance of you losing all of your money as it’s such a large company. Oil shares are very much a double-edged sword and it’s tough investing in a market that relies very much on the current price of oil. I believe that BP is worth the investment but that debt pile is worth taking into account, especially considering that it has no sustainable plans for the future.
I will be watching the oil sector closely as the impact of the rise settles down. Airlines have suffered greatly with easyJet falling a whole 4% after the news broke on Tuesday. May will be an interesting month to see exactly what impact Trump’s decision has had on oil shares and whether they are truly worth the investment.
Neither Fiona nor The Motley Fool UK hold a 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.