Recent trends in the Shell share price 

The main reason for the recent surge in the Shell share price is the rising price of oil. Indeed, at the start of June last year, WTI Crude was priced at under $70 a barrel, whereas it has now reached around $115 per barrel. This rise has been caused by declining supply due to the tragic Ukraine-Russian war, alongside increased demand as global pandemic restrictions have been lifted. 

These high oil prices have led to very strong profits. In fact, in the first quarter, the oil giant reported adjusted earnings of over $9bn, far higher than the $3.2bn reported in the first quarter of last year. 

This has also enabled the group to improve in other areas of the business. For example, net debt now totals around $49bn, over $20bn lower than last year. Shareholder returns have also increased, with the quarterly dividend now totalling 25 cents per share. Although this equates to a slightly lacklustre yield of 3.3% due to the high Shell share price, it’s extremely sustainable considering the current profits the group’s making. Shell has also announced a share buyback programme of $8.5bn, which should also help to boost the share price. 

My concerns

So far, there seems very little wrong with Shell. However, I do have three main concerns about the company. 

Firstly, there’s the recent windfall tax that the government has introduced, to help people deal with high energy prices. Although the impact on Shell isn’t fully known, it may restrict the company’s ability to return cash to shareholders.

Secondly, I don’t think that these high oil prices are sustainable for the long term, especially considering climate change issues. Therefore, Shell may be forced to rely on other parts of its business, such as the renewables sector. This is still in its infancy, however. 

Finally, I have ESG concerns about Shell, due to its role in contributing to global warming. For example, a safety consultant, Caroline Dennett, recently quit the company stating that it was “causing extreme harms”. This provides me with a strong reason to stay away from a company. 

What am I doing now? 

Right now, the Shell share price is soaring, and its recent rise has been understandable. But I’m less confident about its long-term future as I don’t believe that the current oil price is sustainable. Because of this, I don’t see a long-term upward trajectory for the share price. I’ll be observing Shell shares from the sidelines, but I won’t buy. 

The post The Shell share price has more than doubled! Has it got further to rise? appeared first on The Motley Fool UK.

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Stuart Blair 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.

What’s causing this growth? And can it return to its pre-pandemic levels?

The rising GKP share price

As the name suggests, Gulf Keystone is an oil company, and it operates within the Kurdistan region of Iraq. The pandemic forced many factories to close worldwide. Furthermore, due to travel restrictions, cars and planes remained mostly parked. With fuel consumption plummeting within a few weeks, the demand for oil evaporated, taking its price with it. Towards the end of 2019, oil prices stood at around $60/barrel. By March 2020, they had crashed to under $20. So, seeing the GKP share price getting slashed was not that surprising to me.

But, as the Covid-19 vaccine rollout continues to progress worldwide, factories have begun to reopen, and travel restrictions are being eased. Consequently, oil prices are back at around $60/barrel. And the GKP share price is making a rapid recovery.

What’s more, the company has reinstated its production expansion programme. By the first quarter of 2022, the firm aims to increase its production volumes to 55,000 barrels per day. By comparison, the guidance for 2021 estimates is a total of 40,000 to 44,000 barrels. Needless to say, this is good news and suggests that the worst has passed. But there are still some risks to consider.

The risks that lie ahead

The most prominent risk to Gulf Keystone, in my opinion, is oil prices themselves. 2020 demonstrated perfectly what happens to the GKP share price when the value of this commodity decreases. While I don’t believe a similar price crash is imminent, Gulf Keystone is not the only oil company ramping up its production volumes. Should the market become saturated, oil prices would likely suffer, placing additional pressure on its profit margins.

Beyond the commodity exposure, the firm does have some financial problems with the Kurdistan Regional Government (KRG). As it stands, the KRG owes the business $65m for oil produced between November 2019 and February 2020. The payments have been consistently delayed throughout last year due to the depressed oil prices. Recently the KRG issued a new payment plan proposal to the company. This proposal is still under review. But suppose Gulf Keystone rejects it? In that case, it’s unclear how long it will be until it receives the outstanding balance.

The bottom line

Overall this business looks like it’s on the road to recovery. It did suffer a $47.3m loss in 2020. But as previously explained, the loss was attributable to temporarily depressed oil prices. And with $161m of cash on the balance sheet, I’m cautiously optimistic about the GKP share price in 2021. Therefore, providing oil prices don’t begin to decline again, I believe it can make a full recovery this year.

Having said that, the company is staying on my watch list until more information becomes available surrounding the outstanding payments from the KRG.

The post Will the Gulf Keystone (GKP) share price recover in 2021? appeared first on The Motley Fool UK.

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Zaven Boyrazian does not own shares in Gulf Keystone Petroleum. 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.

With its valuation now at its lowest level for over 25 years, is this fallen giant too cheap to ignore? I think it depends greatly on how patient prospective investors are prepared to be.

Shell shares beat expectations

Like it’s similarly-battered FTSE 100 peer BP, Shell shares have been deeply affected by the plunging oil price in 2020. Billions of dollars of assets have needed to be written off by the company. 

Today however, Shell surprised on the upside. Adjusted earnings came in at $955m for Q3. While nowhere near the $4.77bn achieved over the same period in 2019, this is still better than the $638m in Q2. It’s also above what the market was expecting. 

Shell shares’ tough outlook

As encouraging as today’s news is, it seems fair to say that Shell still faces an upward struggle. Indeed, things could actually get even worse before they get better.

The ongoing pandemic is clearly the biggest near-term issue Shell shares face. The recent rise in infections around the world (particularly in Europe) has forced governments to re-introduce lockdowns. Although these new restrictions aren’t expected to last as long this time, they will still have an impact on Shell’s business. Put simply, fewer vehicles on the road leads to lower fuel sales and lower demand for oil. This means lower profits at Shell. 

Second, there’s the push away from fossil fuels and towards greener forms of energy. For its part, Shell is planning to focus on commercialising hydrogen and biofuels as well as energy for electric vehicles. It aims to be a “net-zero emissions energy business by 2050 or sooner.“

Nevertheless, turning this £70bn tanker around will cost a lot of money and Shell will need to be ruthless. In September, it announced that up to 9,000 jobs would be cut to make $2bn of savings. I wouldn’t bet against more being let go in the future.

Dividend cut

Up until recently, Shell shares presented as a solid pick for income seekers. Not cutting your dividend since the Second World War has a habit of doing that.  

Since the arrival of Covid-19 however, Shell has been forced to reassess its priorities. Quarterly payouts have been severely chopped. Today’s $0.17 per share compares unfavourably with the $0.47 per share awarded this time last year even if it does represent a 4% increase on that returned for Q2.

Having approved a new ‘cash allocation framework’, Shell now intends to distribute 20-30% of its cash flow from operations to shareholders once it’s brought its debt down to $65bn from $73.5bn. So, dividends could keep rising from here but I don’t think anyone should underestimate the challenges ahead. 

Bottom line

With a tough outlook, Shell shares don’t feel like a compelling buy at the current time. Notwithstanding the fact that (like all stocks) it could rally like the clappers in the event of a vaccine breakthrough, I’d be inclined to look elsewhere in the FTSE 100 for my income fix. Those looking purely for big capital gains could be in for a long wait.

Royal Dutch Shell shares look cheap and yield almost 7%, but today’s gains may prove temporary.

The post Are Royal Dutch Shell shares now too cheap to ignore? appeared first on The Motley Fool UK.

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Paul Summers 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.

Dividend in doubt?

BP may have been the third most popular buy last week but I’m not inclined to join the queue. Make no mistake, the £42bn-cap is in a tricky spot.

A struggling oil price in the aftermath of the global lockdowns has seen the FTSE 100 giant fall to its lowest valuation in 26 years. With Covid-19 cases continuing to rise around the world (particularly in Europe and the US), it looks unlikely things will change anytime soon.

Unfortunately, the coronavirus isn’t BP’s only problem. Talk about the ‘death of oil’ may be premature, but the push towards cleaner forms of energy shows no signs of slowing down. Indeed, this could accelerate further if renewables fan Joe Biden secures the keys to the White House early next month. 

BP must reinvent itself. But this will take time and barrels of cash. As such, I suspect the company may be forced to cut its dividend once again. So, while some investors may be buying for the post-virus rally, I suggest anyone looking at BP for income should look elsewhere.

Still risky

Having soared from 14p in January to a staggering 1,194p by the end of last week, it’s fair to say Novacyt has been one of the best investments anyone could have made in 2020. Based on last week’s buying activity, there could be more to come. 

As a supplier of Covid-19 tests, Novacyt has seen its revenue go through the roof. As long as we’re without a vaccine, demand for the company’s products looks likely to continue far into 2021. Even if a medical breakthrough is made before the end of the year, it’ll still take time for sufficient amounts of a vaccine to be produced and distributed.

The problem is ascertaining how much of this positive outlook is already priced in. I’d say quite a lot. Another concern is the possibility of a rival producing a quicker test and pinching contracts from under Novacyt’s nose.

For me, the shares remain a high-risk pick. Like BP, anyone thinking of buying now should ensure they’re sufficiently diversified elsewhere first.

Director buying

Taking top spot on the list of most popular stocks with Hargreaves Lansdown clients last week was Boohoo.

Perhaps this shouldn’t come as a surprise. News that auditor PricewaterhouseCoopers had resigned over concerns about the company’s reputation caused the shares to fall heavily earlier in the month. It was surely only a matter of time before the contrarians piled in. 

Among those buying was co-founder Mahmud Kamani. The fact he snapped up 300,000 shares for a cool £729,000 no doubt motivated others in the market to buy as well.

As a holder of Boohoo, I’m content to ask just one question right now. Will the online retailer’s recent woes still matter in a few years? I think it very unlikely. After all, Boohoo remains a brilliant business based purely on how it’s trading.

So long as the company does address concerns relating to its corporate governance, I’m confident this period of share price weakness will prove temporary.

The post Hargreaves Lansdown investors are buying BP, Novacyt and Boohoo shares. Should I? appeared first on The Motley Fool UK.

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Paul Summers owns shares in boohoo group. The Motley Fool UK has recommended boohoo group and Hargreaves Lansdown. 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.

Likewise, the coronavirus shutdown makes life difficult for many FTSE-listed firms. The plummeting demand for products and services encourages investors to sell shares. Many flock to ‘safer’ assets such as cash. With bond yields now so low, a Cash ISA is an attractive alternative.

However, Cash ISA rates are not much higher than the current UK rate of inflation of 1.2%. So, while cash shouldn’t lose you money, it won’t make you much either. Unlike, potentially, oil share prices.

Oil share prices

By oil share prices, I’m referring to the shares of companies based in the oil industry. Companies like integrated oil major, Royal Dutch Shell (LSE: RDSB), and smaller E&P companies, Premier Oil (LSE: PMO) and Tullow Oil (LSE: TLW).

The share prices of all three companies plummeted with the rest of the FTSE near the end of March. However, by the time the Brent Crude oil price reached its bottom on 21 April, shares in all three companies were up between 40% and 115%.

The smaller E&P companies experienced an immediate small dip in price, likely as a result of the oil price drop. Shell’s share price, in contrast, kept climbing. And the overall trend for all three companies since this date is a very positive one.

Demand shock beginning to lift

This shows that the demand shock created by the government’s coronavirus-induced shutdown affected share prices of oil companies far more than the declining oil price.

The good news is that the lockdown is beginning to lift globally, which should increase demand once again. Great news for oil firms and their shareholders.

Royal Dutch Shell is currently trading at a price-to-earnings ratio (P/E) of around 15. This is below the oil and gas industry average of 17, meaning its shares are still relatively cheap.

In addition, despite its dividend cut, Shell offers an estimated forward dividend yield of around 3.7%. This is far in excess of a good Cash ISA rate, around 1.5%. And if demand does increase, as I think likely, then there is also the prospect of capital gains to look forward to.

Premier Oil and Tullow Oil are trading at P/Es of 2.9 and 2.5, respectively. Premier isn’t paying a dividend currently, but Tullow’s is around 6%. Again, a rate far in excess of even the best Cash ISA. However, with reward comes risk – both these smaller companies are heavily debt-laden.

Shell, in contrast, is integrated and it can use cheaper oil prices to improve margins at its refineries. It can also use its trading arm to create value. This makes it a far better investment, in my view, so it’s unsurprising its share price has been climbing.

So, for now, I’m forgetting my Cash ISA. There are higher returns to be made on the oil share prices, and on the majors in particular.

The post Forget a Cash ISA! Why I think oil share prices are back appeared first on The Motley Fool UK.

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Rachael FitzGerald-Finch owns shares in Royal Dutch Shell. 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.

Should the oil price recover, I would expect shares in BP and Royal Dutch Shell to recover too. But there’s a catch. I only expect this recovery to be short-lived and to be volatile long into the future. 

Oil price, what next?

Predicting what the oil price will do in the short run is a mug’s game. But I do think that in the medium term, let’s say over the next half a decade, the price will go up. Yet longer term, I have my doubts.

The oil cycle moves slowly. When the oil price is high, we gradually change habits. As our car ages, we may replace it with a more fuel-efficient model. Simultaneously, we may insulate our loft or buy solar panels. Industry will change habits too, but slowly. As for oil supply, under these conditions, the oil industry typically invests more in exploration.

Human nature being what it is, a narrative then emerges that the elevated levels of that period will become permanent. However, as a consequence of the slow changes I described above, eventually oil supply rises just as oil demand falls. The price then crashes.

When oil is cheap, we see the reverse conditions occurring, gradual changes in demand and supply happen, until the oil price increases.

These slow-moving changes in demand and supply is why we have an oil market cycle.

Post-Covid

Once the Covid-19 crisis finally ends, there will still be a massive oil inventory. I expect the economy to recover slowly, but eventually, demand for oil will rise and the oil inventory will disappear.

For that reason I expect the oil price to surge again later this decade. In theory, shares in oil companies will recover at that point, perhaps a little before.

The end of the cycle

I also suspect that cheap oil will slow the advance of renewable energies and electric vehicles. But I don’t expect this to be significant. The economics of electric vehicles are becoming ever more compelling, not least because they have fewer moving parts and can be cheaper to maintain. The cost per unit of energy of renewables is constantly falling, as is energy storage costs.

And let’s not forget the one extremely important factor missing from the above narrative — climate change.

Just as the world has reacted to the threat posed by Covid-19 with a lockdown, irrespective of the economic costs, I suspect that in the second half of this decade, when the reality of the true costs of climate change finally sink in, we will rapidly move away from oil, and adopt alternatives regardless of the costs.

Fortunately, by then I expect the cost of energy generated by renewables to be so cheap that the economic damage caused by a switch away from oil will be modest.

Oil companies will be hit hard by this move away from their core product. I still think the oil giants looks interesting as they’re investing in oil alternatives. But I’d need to see more proof of how these investments will boost their businesses before I buy.

The post Is it a good time to invest in oil companies? I think long-term investors should look elsewhere appeared first on The Motley Fool UK.

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Michael Baxter 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.