November has been a good month for many oil companies. Buoyed by vaccine optimism, most have seen their stock prices rise significantly. Three vaccines have shown very encouraging results in the final stages of the trials.
Meanwhile, the price of, the international benchmark, was also firm this month. It is currently only $ 48 shy. Since the end of October, the Index is also up about 34%. However, the index is still down more than 32% year-to-date (YTD).
Dow Jones U.S. Oil & Gas Index Chart.
So, as we prepare to close the penultimate month of the year, we will discuss Royal Dutch Shell (LON 🙂 (NYSE 🙂 to see if the oil company should find a place in long-term portfolios.
Interlinked Fortunes
Shell is one of the largest oil and gas companies in the world, in terms of both revenue and market capitalization. Other major players include the British oil company BP (LON 🙂 (NYSE: ) San Ramon, Chevron headquartered in California (NYSE :), Irving, Exxon Mobil (NYSE :), Russia Gazprom (OTC) 🙂 headquartered, Saudi Aramco (SE 🙂 in Saudi Arabia, Sinopec Shanghai Petrochemical (NYSE 🙂 headquartered in China and Total (NYSE 🙂 in France.
The fortunes of these companies are significantly tied to the price of. For example, so far in November, the stock of RDSa has increased by about 50%. Plus, it's up about 70% since the 52-week lows we saw in mid-March. Nevertheless, YTD, shares are down about 40%. On Nov. 25, the stock closed at 1,339.5p (the current price is $ 34.89 for US stocks).
The US Energy Information Administration (EIA) released its most recent Oil Market Report in November. It does not expect prices or oil production to recover significantly in the coming weeks. EIA said:
“It is far too early to know how and when vaccines can return to normal life. For the time being, our forecasts do not foresee a significant impact in the first half of 2021. "
In fact, "EIA expects annual crude oil production in the US from 12.2 million barrels per day in 2019 to 11.4 million barrels per day in 2020 and 11.1 million barrels per day in 2021."
Similarly, the Organization of Petroleum Exporting Countries (OPEC) also lowered its forecasts for global oil for 2020 and 2021 on Nov. 11, citing increasing pandemics worldwide and also government blocking. However, the risk appetite in the commodities market is increasing.
How Quarterly Results Came
Shell released profits at the end of October. Revenues were $ 44.7 billion, a 50% year-over-year decline from $ 89.5 billion. Despite the decline from last year, the figures were better than expected.
Shareholders were pleased that the board of directors increased the dividend to "16.65 cents for the third quarter."
CEO Ben van Beurden stated:
"Our industry-leading cash flows will allow us to grow our businesses of the future while increasing shareholder distribution, making us a compelling investment case."
Forward P / E and P / S ratios for Shell are 15.58 and 0.62, respectively. These numbers add to the positive shareholder feeling that the shares provide value, even after the impressive price increase since early spring.
Finally, potential investors may be interested to know that the group is reviewing its assets and operations to become a "net zero-emission energy company" by 2050 or earlier. Management will also focus on commercializing hydrogen and biofuels.
Bottom Line
In the medium to long term, prices in the global oil market are mainly a result of the available supply capacity and demand demand. However, short-term prices are often volatile for a variety of reasons, including the tug of war between short-term traders and long-term investors.
We encourage our readers to conduct proper due diligence with potential oil companies for their long-term portfolios. We believe that Royal Dutch Shell, whose history dates back to 1907, is likely to emerge from the current pandemic crisis as a robust company and create more value for shareholders. The fossil fuel giant could still emerge as an alternative energy player in the coming years.
Investors unwilling to invest capital in a single oil or energy stock might also consider buying exchange-traded funds (ETFs). Some examples are:
Energy Select Sector SPDR® Fund (NYSE :),
iShares Global Energy ETF (NYSE :),
iShares MSCI Global Energy Producers ETF (NYSE :),
SPDR® S&P Oil & Gas Exploration & Production ETF (NYSE 🙂
or Vanguard Energy Index Fund ETF Shares (NYSE :).
