Unsurprisingly, many of the Footsie’s oil and gas producers have been caught in the updraft. Shell (LSE: RDSB), for example, has seen its share price stomp 24% higher during the period. And while appetite for BP (LSE: BP) has been more volatile, the stock has still gained 4% in value from late January.

However, I believe this buying frenzy leaves both stocks looking seriously overbought.

Capex cuts illustrate patchy confidence

The muddy outlook for the fossil fuels industry was again laid bare by BP’s first-quarter results released yesterday.

Sure, the company may have seen underlying replacement cost profit improve to $532m during January-March, up from $196m in the final quarter of 2015. But BP warned that operational budgets could be cut again should an environment of low oil prices persist.

The London-listed firm — like most of its peers — has embarked on aggressive cost-cutting and asset shedding to mend their battered balance sheets. So news that BP could now slash organic capital expenditure to as low as $15bn in 2017, down from an anticipated $17bn for this year, shows that the industry remains braced for further pain.

Stockpiles growing

And BP is quite right to be concerned, in my opinion, as the recent ascent in crude prices continues to defy the broader fundamental picture.

A failure by OPEC members Saudi Arabia, Qatar and Venezuela to freeze production along with Russia earlier this month is likely to keep the market swimming in excess oil.

The political and economic fault-lines fracturing the cartel mean that an agreement to reduce capacity is as far away as ever, with Iran, for one, determined to keep ramping up production until it hits pre-sanction levels. As a consequence Tehran’s output is expected to continue rising until the middle of next year.

Global stockpiles are in desperate need of relief, latest data from the Energy Information Administration showing levels at US storage tanks hit a fresh record of 540.6m barrels last week. And insipid aggregate demand is hardly helping the situation, either.

Shockingly poor value

Against this backcloth, I believe the resurgent oil price — and with it the share prices of Shell and BP — is in danger of suffering an extreme reversal.

Indeed, BP currently changes hands on a P/E rating of 39 times for 2016, sailing way above the threshold of 10 times that is indicative of stocks with higher risk profiles. And Shell deals on an earnings multiple of 25.9 times.

This leaves plenty of room for a correction, in my opinion, a scenario that could very easily transpire, should industry newsflow continue to disappoint and Federal Reserve rate hikes bolster the US dollar.

The post Don’t be a fossil! Why I’d still sell BP plc & Royal Dutch Shell plc appeared first on The Motley Fool UK.

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• A £20,000 ISA invested in red-hot BP and Shell shares 1 year ago is now worth…
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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended BP and Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Financial fears

Battered banking play Standard Chartered (LSE: STAN) has managed to defy gravity in recent times, the stock galloping higher despite escalating fears over economic cooling in Asia.

Indeed, the firm has gained 20% in value during the past three months, the company’s value surging in lockstep with a strong uptick in commodity prices. One source of revenues troubles at Standard Chartered has been the steady erosion in metals and energy prices. But the Brent benchmark’s surge back towards $50 per barrel has led many to speculate that these troubles may finally be behind the bank

Shares in Standard Chartered leapt yesterday following results that showed the bank swing to profits of $589m during January-March, improving from losses of $4.1bn in the prior quarter.

But Standard Chartered warned that “depressed commodity prices, volatility in Chinese markets, weak emerging market sentiment and concerns around interest rate and other policy actions” continue to circulate, providing plenty of red flags that could significantly hamper the bank’s recovery.

A huge decline in impairments is of course a welcome step in the right direction — these fell to $471m in the first quarter from $1.1bn between October and December. And massive restructuring that will see 15,000 roles slashed during the next few years is also raising hopes of a marked turnaround at the bank.

However, the scale of financial turbulence in Asia may significantly hamper any revenues recovery at Standard Chartered further down the line, particularly as the firm drastically reduces its presence in these growth regions. And of course the chronic supply/demand balances washing across the commodities sector casts a huge shadow over the bank’s turnaround story, too.

The City expects the financial giant to flip from losses of 6.6 US cents per share in 2015 to earnings of 27.9 cents this year. But this figure creates a huge P/E rating of 43.4 times. Considering the numerous challenges Standard Chartered still faces, I believe such a reading is ridiculously high, and reckon that now is the time for savvy investors to cash out.

On shaky ground

Like Standard Chartered, fossil fuel giant Tullow Oil (LSE: TLW) has seen its share price explode despite its dodgy revenues outlook. The firm’s share price has rocketed 66% since the end of January, with Tullow Oil unsurprisingly also fuelled by the impressive recovery in fossil fuel values.

But crude’s ascent has been underpinned by fragile hopes of an output freeze by Russia and the OPEC cartel, speculation that is yet to come to fruition. Meanwhile, global crude inventories continue to tick steadily higher as patchy demand persists.

Tullow Oil saw net debt balloon 30% in 2015 to stand at a colossal $4bn by December, the result of colossal capex costs in a low oil price environment. So while recent oil price rises may provide some respite, Tullow Oil remains on shaky ground in my opinion.  

The number crunchers may expect the oil producer to snap from losses of 113.6 US cents per share in 2015 to earnings of 8.6 cents this year as its TEN project in Ghana comes online. However, I believe a consequent P/E rating of 84.1 times is far too high given Tullow Oil’s muddy earnings outlook, leaving in danger of a harsh share price retracement.

The post Why now is the perfect time to sell Standard Chartered plc & Tullow Oil plc appeared first on The Motley Fool UK.

More reading

• As Standard Chartered shares jump on impressive Q1, is this a FTSE 100 banking bargain?
• 47% under ‘fair’ value, with 9% annual forecast earnings growth! 1 FTSE 100 gem to buy today?

Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Tullow Oil. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.