Europe's largest oil company has had a rocky year. After the initial excitement of Q1, Shell shares were hit by the US-China trade war and industry-wide low margins. Now is a good time to analyse the recent Royal Dutch Shell share price history – and make some predictions about 2020.
Royal Dutch Shell share prices in 2018: quick facts
Oil prices fluctuated between $60 and $70 in 2018, with an average closing price of $64.9 for WTI Crude as opposed to $50.84 in 2017. Production in Venezuela declined due to the political crisis, and the US reimposed sanctions on Iran, leading the market to believe that the supply would contract. Then, shale production in the US suddenly rose, and the oil price plummeted to $40 in December.
These factors explain a lot of what happened to the price of Shell stocks. RDSB started the year at $70, then fell to $63 as oil prices dipped. April and May were marked by a sharp rise to $75.8. Next, the global output increased and RDSB price began its long decline, finishing the year at $60. Here’s a Royal Dutch Shell share price history graph for 2019:
Q1 2019: good reasons for optimism
On January 31, Shell published extremely good results for 2018. Its full-year profits amounted to $21.4 billion – a 30 per cent year-to-year increase on 2017. The performance was buoyed by strong oil and gas prices, as well as by the sale of an asset in Ireland. On this news, the share price quickly rose from $59.98 to $65.31 on February 6. The stock kept growing (with some local setbacks) throughout Q1, reaching $64.64 on April 1 – an overall increase of 6.3 per cent for the quarter.
CEO Ben Van Beurden optimistically said: “We will continue with a strong delivery focus in 2019, (...) growing both our cash flow and returns.” But while Q2 turned out to be good, things went downhill from there.
Q2 2019: slow growth
When the Q1 results came in on May 2, Shell once again had a good reason to celebrate. The company started the year much stronger than other oil majors. The company generated $6bn in net income as opposed to $5.59bn in Q4 2018. Luckily for Shell, most of its refining happens outside of the US and Canada, where the refining margins are particularly weak.
Another positive factor was a major discovery of oil on Shell's Blacktip site in the Gulf of Mexico. On June 26, RDSB price reached $66.97 – this would turn out to be its highest point for the whole 2019.
At the same time, May 2019 was a bad month for stocks, with the trade tensions between the US and China fuelling anxiety in the market. For this reason, RDSB grew by only 1.7 per cent between April and June.
Q3 2019: dismal results
On August 1, bad news broke: Shell's 2nd quarter earnings were 50 per cent lower than both in Q1 2019 and Q2 2018. The net profit came in at only $3.46 billion. (It’s worth pointing out that Shell doesn't use the term “net profit”, but rather “net income attributable to shareholders based on a current cost of supplies”.)
According to CEO Ben Van Beurden, “lower realised oil, gas and LNG prices”, as well as “weaker realised chemical and refining margins” were to blame. As a result, RDSB price fell 13 per cent in August, from $64.19 on July 30 to $55.76 on August 30. Overall in Q3 the price of RDSB fell almost 10 per cent from $65.8 on July 1 to $59.3 on October 1, as seen in this Shell share price history chart:
Q4 2019: a further slump
Things didn't improve much in Q4, either. On October 31, 2019 Shell announced a 15 per cent fall in net profits for Q3. The figure was $4.77bn, compared to $5.62bn in Q3 2018. Unlike BP, Shell didn't have good enough refining margins to compensate for the slump in the oil and gas production business. Unsurprisingly, the share price tumbled 3 per cent on this news, from $60.64 to $58.29.
The value of Royal Dutch Shell shares took a further 1 per cent dip from $59.74 to $59.09 on December 20, when the company announced it would book an impairment charge of circa $2 billion. An impairment charge is a reduction in a company’s balance sheet to adjust the value of its goodwill – an intangible asset that represents the brand’s strength, trademarks, etc.
On the whole in Q4, the share price rose by 2.3 per cent, from 59.3 on October 1 to $60.68 on January 1.
Early 2020: more difficulties ahead
The ongoing coronavirus crisis wreaked havoc among energy stocks, causing a sharp reduction in oil prices. Shell stock price followed, falling almost 12 per cent from $61.98 on January 6 to $54.85 on January 30 – a drop almost as bad as in August 2019.
On January 30, 2020 Shell published its Q4 report. It confirmed that the oil giant is going through a difficult period. Shell's overall net profit for 2019 amounted to $16.46 billion – 13 per cent lower than in 2018 ($21.40bn). The company's executives cited low oil and gas prices and reducing refining margins as the key reasons. The market didn't take the news well: RDSB price fell from $56.32 to $54.85.
Beyond Royal Dutch Shell share price history: what’s the outlook for 2020?
In spite of the very rough 2019, in late December most analysts still considered Royal Dutch Shell a good buy for 2020.
The coronavirus has now been declared a global health emergency by the WHO, and it will take some time to bring the outbreak under control. However, the current energy price slump is driven more by panic than by objective facts. The oil ministry of Saudi Arabia, in particular, insists that the virus won't have a serious or lasting effect on the global oil demand.
Once the coronavirus is contained, the energy market is likely to rebound sharply, just like it did in 2003 after the SARS epidemic. Add to this the recently signed Phase 1 trade deal between China and the US, and you get favourable conditions for the RDSB price to grow in 2020.
From our Royal Dutch Shell stock analysis, we have to conclude that the price could go both ways in 2020. For long-term investors, the stock remains attractive anyway due to Shell's commitment to paying dividends. As a short-term investment, RDSB has now become very risky. As for the mid-term, it could still be a great buying opportunity – as long as you believe in the authorities' ability to contain the coronavirus.
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Contributor: Alisa Orlova