Can Shell's share price return to its previous level?

Can Shell's share price return to its previous level?

07 January 2021Reading time: 3 minutes

Royal Dutch Shell looks back on a difficult year. The Dutch-British oil company, traditionally seen by many investors as a safe haven, saw its share price fall sharply over the whole of 2020. An oil dispute at the beginning of 2020 between Saudi Arabia and Russia, put the oil price under considerable pressure and the subsequent corona crisis did not do Royal Dutch Shell any good either. Will there be better times for the oil company in 2021?

At the end of December we wrote that Royal Dutch Shell was one of the biggest losers within the AEX index over the past year. The Dutch-British oil company faced several setbacks in 2020, with the result that the share price fell to its lowest level in years during the stock market crash in March. These developments even forced Royal Dutch Shell to adjust the dividend downwards.

Development oil price

In early 2020, an oil dispute arose between Russia and Saudi Arabia over oil production agreements. Tempers were so high that Saudi Arabia decided to significantly increase production and lower the prices of its oil. On March 9, these developments led to panic on the stock markets and the Royal Dutch Shell share lost 22 percent of its market value that day.

In the meantime, around the same period, the corona virus took hold on the world and the demand for oil fell. In combination with Saudi Arabia's overproduction, the oil price came under further pressure. By now, the price for a barrel of Brent oil has recovered to USD 51.92 (January 5, 2021). The global launch of vaccination programs appears to be cautiously supporting demand for oil.

According to the International Energy Agency (IEA), demand from China for oil appears to be increasing again. The IEA is expecting a demand recovery of 5.7 million barrels per day by 2021. However, it remains uncertain whether this recovery will indeed happen this year and how this recovery will translate into the results of Royal Dutch Shell.

Transition towards green energy

In October last year, Royal Dutch Shell announced that it would invest more in green energy. The oil company wants to double its investments in renewable energy from 11 percent to 25 percent with immediate effect. For the current year, this amounts to an investment of approximately EUR 5 billion. The investments will include the development of offshore wind farms, hydrogen projects and biofuels. In the following years, Shell wants to invest at least EUR 20 billion annually in the development of sustainable energy.

Royal Dutch Shell has long been criticized for the slow transition to sustainable energy. Investors, including large pension funds, also indicate that they want to invest less in fossil fuels. In January this year, the oil company will announce more details about its sustainability plans.

Share price development

To become more attractive as a stock for investors again, Royal Dutch Shell announced in October that the dividend would increase by 4 percent to USD 0.1665 per share. In addition, the oil company expects the dividend to increase further in the coming years. Earlier this year, the dividend was cut for the first time since World War II. Investors responded positively to this report, after which the share price rose 4 percent on October 29. Despite this, the current share price of EUR 14.93 (05.01.2021), is still 45 percent lower than a year ago.

The future price of the stock is subject to several political, industrial and sector specific as well as economic factors. Investors should consider these risks when making their investment decisions. Developments can be different at any time than investors anticipated on, which could result in capital losses.

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23/10/2021 20:06:03