Shell stock forecast: Can the price maintain its rebound?
Oil giant Shell’s (RDS) second-quarter earnings more than doubled from the prior-year period as the firm is riding high oil and gas prices. The record performance had lifted the RDSa stock price, which has been sliding since reaching this year’s highest point in early June.
With analysts forecasting oil and gas prices to soften – though remain elevated – for this year, what’s the outlook for the oil giant? Here we take a look at what factors will influence Shell stock forecast for the remainder of this year and beyond.
What is Shell?
Claimed to be one of the “largest and most innovative energy” companies in the world, Shell began its business in oil transportation around 140 years ago in the 1880s.
It started when Marcus Samuel, 1st Viscount Bersted, and his brother Samuel Samuel took interest in oil along with other exporting-importing businesses after their father’s death. Marcus Samuel, their father, imported shells from the far East. Shell later became the company’s name.
At the time, transporting oil in barrels was expensive and chaotic. To reduce costs Marcus and Samuel commissioned a fleet of steamers to carry oil in bulk and the company’s vessel Murex became the first oil tanker to pass through the Suez Canal.
In 1897, the brothers renamed their company the Shell Transport and Trading Company and launched their first oil refinery at Balikpapan in Dutch Borneo, now Indonesia's East Kalimantan Province.
The Royal Dutch Shell Group was created in 1907 with the merger of Shell Transport and Trading Company and Royal Dutch. During World War II, the firm served as the primary gasoline supply for the British army and provided the Admiralty access to all of its ships.
Fast forward to the 21st century, the company dissolved the partnership between Royal Dutch Petroleum and Shell Transport and Trading as part of its reorganisation in 2005. Shell unified its corporate structure under a single new holding company, Royal Dutch Shell.
In 2021, the company dropped the 'Royal Dutch' from its name and has decided to "proceed with its proposal to simplify the company's share structure and align its tax residence with its country of incorporation in the UK" as of 20 December 2021. It moved its headquarter from Amsterdam to London and it is now known simply as Shell.
Shell stock price history
Shell’s Class B stock is listed on the Euronext Amsterdam and the London Stock Exchange (LSE), with the ticker symbol RDSB and as RDS-B on the New York Stock Exchange (NYSE).
Two years prior to the Covid-19 pandemic, RDSa stock price had fluctuated but ended lower in 2018 and 2019, partly in line with crude oil prices movement. In 2018, crude oil prices traded in the range of $60 to $70 per barrel (bbl) in most part of the year on supply worries after a political crisis cut Venezuela’s oil output and the US reimposed sanctions on Iran.
In December 2018, oil prices plunged to $40 on rising US shale output. The following year, rising trade tension between the US and China knocked stock markets and Shell’s slumping oil and gas business only heightened bearish sentiment on the stock. Shell’s stock value dropped around 7% and 3% in 2018 and 2019.
And then came the Covid-19 pandemic that crushed energy demand with its travel and activity restrictions, sending oil prices to briefly below zero in March. Energy stocks were one of the casualties with Shell stock plummeting nearly 42% in 2020 hitting the lowest price of £8.7 in October.
Shell’s share price started to climb its way back up in 2021, hitting several highs throughout the year and closing strong with 25% gain amid a wider boom in commodity prices. The stock continued its bull run until the first half of 2022, hitting as high as £24.44 on 8 June, up from £17 in early January.
However, the stock has been dropping since then amid mounting recession fears and softening commodity prices. RDS briefly recovered to £22 level in early July before sliding again. Despite the setback, Shell pleased investors with 35.40% gain this year and 52.32% in 2021.
Exit from Russia
The main news impacting Shell’s share price has been revolved on the impact of Russia's invasion of Ukraine.
In February and March, Shell joined other major oil companies in exiting or reducing their businesses in Russia to protest the invasion that happened on 24 February. The plan includes exiting from a joint venture with Russia’s Gazprom and its related entities, including Sakhalin-II LNG facility and in the Salym Petroleum Development, as well as halting purchase of Russian crude oil.
In May, Shell sold Shell Neft LLC, which owned Shell’s retail and lubricant business in Russia, to PJSC Lukoil as part of its plan to withdraw from Russia.
The oil giant is also boosting investment in natural gas – particularly for LNG, as demand for the super-chilled gas has been surging. This is in part because buyers were seeking alternatives to Russian supply following the invasion and post-pandemic demand rebound. Russia has been squeezing its gas supply to several European countries in retaliation for sanctions.
In its 2022 LNG outlook, Shell forecast global LNG demand to cross 700 million tonnes by 2040 in which Asia is expected to absorb 70% of the demand.
At the end of May, Shell and its joint venture partner SGH Energy made a final investment decision for the development of the Crux natural gas field, off the coast of Western Australia. Crux will supply its gas to the existing Prelude floating liquefied natural gas (FLNG) facility.
In July, QatarEnergy selected Shell as a partner in the North Field East expansion project in Qatar, which Shell touted as the single largest project in the history of the LNG industry. Shell will hold a 25% stake in the joint venture company, which will own a 25% stake in the project. The North Field East expansion project includes four mega LNG trains with installed LNG capacity of 32 million tonnes per year.
Q2 bumper earnings
The oil giant booked a fresh record of adjusted earnings of $11.5bn in the second quarter of 2022, up from $9.1bn in the first quarter. It was more than double the $5.5bn for the same period a year ago, the company announced on 29 July.
In the second quarter, adjusted EBITDA (Earnings Before Interest and Taxes) rose to $23.1bn from $19bn in the first quarter. The firm recorded revenue of $83.16bn in the period, up from $61.76bn in the prior-year period.
Shell also announced that it’s rolling out a $6bn share buyback, which is expected to be completed by the third quarter 2022 results announcement. However, it maintained a dividend of $0.25 a share.
On the production side, the company’s oil and gas production in the second quarter dropped 2% to 2.89 million barrels of oil equivalent per day (boepd), from the previous quarter at 2.96 million boepd.
The company’s LNG (liquefied natural gas) liquefaction volumes fell to 7.66 million tonnes in the second quarter, from 8 million in the previous quarter. It expects volumes to drop between 6.9 million and 7.5 million tonnes in the third quarter due to planned maintenance and industrial action at its Prelude LNG in Australia.
On the refining operation, Shell’s refining margin nearly tripled to $28 per barrel compared to $10 in the previous three months. It expected refinery utilisation to reach 90-98% in the third quarter, up from 84% in the second quarter.
Third-quarter guidance
For the third quarter of 2022, Shell expected corporate adjusted earnings to be a net expense of approximately $450 – $650m in and a net expense of $2,000m – $2,400m for full year 2022.
While Shell recently announced an investment at the Jackdaw gas field in the UK North Sea, it expected capital expenditure for this year to be in line with the $23bn to $27bn range.
Upstream production is expected to be at a range of 1,750-1,950 thousand boe/d in the third quarter 2022.
In March, Shell announced it planned to withdraw from all Russian hydrocarbons, including crude oil, petroleum products, gas and LNG.
Shell stock predictions: Analysts views
Shell is one of the major oil companies that profit from the rise in oil and gas prices since this year. Following the Russian invasion of Ukraine, international benchmark Brent soared as high as $139 a barrel earlier this year, while gas prices are at all-time highs. How do analysts view the outlook for Shell?
Allen Good, Morningstar’s sector strategist, wrote on 28 July that Shell, with its large LNG portfolio and trading operations, remains an appealing option for capitalising on the strong environment, particularly gas prices. In its RDSa stock forecast, Morningstar maintained its fair value estimate at £24 a share, but assigned no economic moat.
Morningstar gave the oil giant a low rating of no economic moat due to an expected low excess returns from changing its business composition and anticipated softening in commodity price. Like many of its peers, Shell has started to increase investment in renewable energy, such as hydrogen and electric vehicles, to meet its net zero emission target by 2050.
According to Good, Morningstar had initially forecast that Shell could earn adequate excess returns at oil price assumption of $60 per barrel (bbl) after the company managed to reduce costs.
Laura Hoy, equity analyst at Hargreaves Lansdown, praised Shell’s energy transition strategy to renewables as oil prices, which strongly influence Shell’s stock price, are expected to soften.
Hoy said Shell’s energy transition strategy, which focuses more on managing lower-impact power solutions for customers rather than ramping up renewable power generation capacity, is a wise strategy from the financial standpoint.
This is because returns from renewables are yet unproven and demand for oil is likely to remain elevated in the medium term, she said.
Shell stock forecast: Price target 2022-2025
A consensus rating of eight analysts polled by MarketBeat, rated Shell as a ‘buy’, with a 12-month price target at £28.01 at the time of writing (1 August). The analysts offered a high estimate of £32 and a low of £20.25
TipRanks also had a bullish outlook on Shell stock forecast. Based on the issued ratings of 15 analysts, the consensus rating for Shell was a strong buy with 14 analysts putting a ‘buy’ call and one rating the stock as a ‘hold’.
The analysts polled by TipRanks offered a price target of £27.26 for a 12-month period, with a high forecast of £32 and a low estimate of £20.25.
Wall Street analysts usually do not provide long-term Shell stock predictions. But algorithm-based forecasting services can do, basing their predictions on the stock’s historical price movement.
Wallet Investor was bearish on its Shell share price forecast, at the time of writing. Based on its live forecast system, the site suggested that Shell was “a bad long-term investment”.
In its Shell stock forecast for 2022, Wallet Investor predicted the stock could trade at $51.598 (£42.36) in December 2022 and drop to $32.008 (£26.28) in December 2025, according to the service’s Shell stock forecast for 2025. In March 2027, the stock was forecast to trade lower at $22.176 (£18.20).
When looking for the RDSa stock forecast, remember that analysts’ and algorithm-based price predictions can be wrong. Always conduct your research before investing or trading. Remember that your decision to trade should be based on your attitude to risk, expertise in the market and the goals of your portfolio. Never invest or trade money you cannot afford to lose.
FAQs
Is Shell a good stock to buy?
Analysts tracked by MarketBeat and TipRanks recommended a ‘buy’ for Shell’s stock as of 1 August. However, remember that analyst predictions can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own diligence. And never invest or trade money that you cannot afford to lose.
Will Shell stock go up or down?
Analysts polled by MarketBeat and TipRanks at the time of writing expected Shell’s stock price to go up in the next 12 months. On the contrary, algorithm-based forecasting service WalletInvestor projected the price to drop in the long term. However, remember that analyst predictions can be wrong. Forecasts shouldn’t be used as a substitute for your own research.
Always conduct your own diligence. And never invest or trade money that you cannot afford to lose.
Should I invest in Shell?
Your decision to invest in Shell (RDS) should depend on your risk tolerance, investment objectives, portfolio composition and experience in the markets. You should conduct your own research, and never trade with money you cannot afford to lose.
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