Oil price outlook: what next for BP and Shell as oil prices soar? | City & Business | Finance

BP and Shell have both seen stock prices soar over the past month, with both companies posting increases of more than 10%. A big factor in this has been the surge in oil prices, with Brent Crude rising above £64.96 ($88) a barrel this week. Forecasts have pointed to higher prices ahead, with Goldman Sachs suggesting it could break the $100 (£73.42) mark this year. Some analysts have even suggested prices as high as £110.72 ($150) a barrel in 2023.

Victoria Scholar, head of investments at Interactive Investor, suggested that if those expectations turn into reality, BP and Shell would “appreciate the upside, in line with what we’ve already seen in the first few weeks of the year.”

Danni Hewson, financial analyst at AJ Bell, said while there is “a lot of money to be made in the medium term”, there are still “massive headwinds for oil companies to consider”.

She explained: “The long-term outlook for oil companies depends entirely on how they navigate the transition to renewables.

“At the moment, companies like BP and Shell still depend on oil and gas for the lion’s share of their revenue.

“The money they make from these deals steadily funds their investment in cleaner, greener technology, but many investors are concerned that change is simply taking too long.”

Although oil companies have seen a recent rally in stock prices, they remain well below historic levels, with Shell and BP posting significant declines following the pandemic.

Oil inventories also fell slightly today on news from the United States that inventories had risen, with the White House hinting that it may again release reserve barrels to help boost supply.

Ms Hewson commented: “When you look at the share price of these two companies, the investor sentiment speaks volumes and both have suffered declines of over 20% since that time 5 years ago.

In its latest business update this month, Shell said it would return £4.06 billion ($5.5 billion) to shareholders via a share buyback, whereby the company buys its own shares, increasing the value for the remaining holders.

There are also signs that high oil prices could persist for some time.

Although geopolitical events such as a recent drone attack in Abu Dhabi have had some impact on prices, a key underlying driver has been underproduction in the Organization of the Petroleum Exporting Countries ( OPEC).

OPEC cut production during the pandemic due to a drop in demand, but has since pledged to reverse the cuts by increasing production by 400,000 barrels a day.

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However, in recent months it has not reached the quota, with some of its members falling short due to lack of investment and a backlog of maintenance work since the pandemic.

Meanwhile, the slow return to production has not kept pace with the reopening of global economies.

Ms Hewson commented: “While it may not sit well with environmental activists, politicians or the public, post-Covid energy demand is increasing and at the moment renewables and other forms of alternative energy are everything. simply unable to take over.”


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Felix J. Dixon