Back in October 2020, the Royal Dutch Shell (LSE: RDSB) share price was trading at its lowest level in more than two decades. The Anglo-Dutch FTSE 100 company was hit hard last year by the Covid-19 pandemic that slashed demand for oil and gas products. But with the market recovery in the second half of 2020, Shell’s share price has been on a steady increase, rising over 60% from low levels of 900p in late October to around 1,450p at the time of writing.
With that in mind, I think Shell shares could be a great buy-and-hold investment opportunity for 2021. So, let’s take a closer look at some of the reasons why I’m bullish on this stock.
Demand for oil is expected to remain high
At present, the price of Brent crude oil is still way below 2020’s opening price of $67 per barrel. But this year, Brent crude posted its biggest weekly gain of the past five months amid Saudi Arabia’s plan to cut output and investor optimism over the rollout of Covid-19 vaccines globally.
Even if oil prices don’t make a strong recovery in 2021, demand for oil and gas products is expected to remain high. And, while the IEA has slightly reduced 2021’s oil demand forecast, it still predicts a significant increase of 5.7 million barrels per day in the upcoming year. Moreover, if the vaccine rollout goes well and the aviation industry stages a comeback, the oil sector could get the biggest boost in the market. So, overall I think oil and gas demand projections are in favor of Shell’s share price in 2021.
Aside from the positive projections for oil-related companies, there’s another reason for optimism here. Broadly speaking, 2020 was a year of a shift to cleaner and renewable energy. Despite the pandemic, many renewables energy companies have seen a big rise in profitability over the past year. And Shell is moving in this direction.
It isn’t there yet though — in late 2020 it has announced its failure to meet its green energy targets. And I’m not sure Shell will become an entirely renewable energy company in the near future. However, I like the fact that Shell is building a lower-carbon power business and is embracing the need for clean and renewable energy. At present, it’s well ahead of its major oil competitors in terms of renewable energy projects and deals. With the ever-rising demand for clean energy, this might be a crucial factor in Shell’s share price in the next few years.
Shell share price — the bottom line
All in all, I like the idea of buying a stock like Shell that recently crashed to 25-year lows. Last year was tough for it, and as a result, it slashed its dividend for the first time since the Second World War. But I’m a fan of the Warren Buffett philosophy that says to buy stocks in companies that exhibit strong fundamentals and trade at a fairly low valuation. In my view, this is the case now with oil companies like Petrofac and Shell.
With a dividend yield of nearly 4% and a good projection for the next year, I think it still trades at an attractive discount right now and it’s on my watchlist.
Tom Chen 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.