The RDSB (LSE: RDSB) share price has increased in value rapidly over the past few weeks. Shares in the oil company have risen 10% since the beginning of 2021.
Unfortunately, the company’s longer-term performance is much less impressive. Over the past 12 months, the stock has lost 29%. Including dividends paid to investors during this time, the RDSB share price has returned a total of 26.5%, underperforming FTSE 100 by 20%.
However, past performance should never be used as a guide to future returns. With that in mind, considering the improving outlook for the business, I’ve been taking a closer look at the enterprise recently to see if it’s worth adding to my portfolio.
RDSB share price outlook
There’s one main reason why the value of the company’s shares have been rising recently. That’s the oil price. Even though RDSB recently laid out plans to significantly reduce its dependence on hydrocarbon production over the next few decades, the business is still one of the world’s largest oil producers. This means its fortunes are tied to the oil price, whether it likes it or not.
Over the past 12 months, the price of oil has been highly volatile. At one point last year, some investors were paying less than $0 per barrel for the commodity. Throughout this period, the RDSB share price has been a difficult investment to hold.
This started to change in November. Over the past four months, the price of crude oil has increased from $40 a barrel to around $63. That’s only slightly below the $70 a barrel traders were accepting before the pandemic struck.
I think this has dramatically improved the outlook for the RDSB share price. City analysts seem to agree. They’ve increased their earnings estimates for the business in 2021 by 21% since November. The oil company is now expected to produce a net income of nearly $11bn in 2021. That’s a significant shift from the $21bn loss reported for 2020.
All of the above indicates the RDSB share price outlook is bright. However, investors should keep in mind that the price of oil is highly volatile. In the first four months of 2020 it dropped by around 90%. That could happen again and, if it does, current analyst growth expectations would suddenly become irrelevant.
If the oil price suddenly lurches lower, the group may even have to cut its dividend yet again. After cutting it last year for the first time since the end of the Second World War, another cut wouldn’t go down well with investors. At the time of writing, the stock supports a dividend yield of 3.8%.
Overall, as the price of oil rises, the RDSB share price outlook is improving. As long as this trend continues, I’d buy shares in the company. Nevertheless, I’d also keep a close eye on oil prices as the firm’s future is tied to this crucial commodity’s cost.
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Rupert Hargreaves 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.