What next for Shell’s share price as oil demand remains high?

As Britain’s leading commodities company, Shell’s [SHEL] the share price has seen significant growth in recent months. The stock’s gains were fueled by soaring oil prices, with sanctions on Russian oil imports further fueling supply concerns.

However, earlier this month, Reuters reported that Shell had to divert cash flow to cover costly margin calls due to soaring commodity prices – perhaps raising the question of how high energy prices are sustainable for Shell’s share price.

What’s going on with Shell’s share price?

Shell’s share price has gained more than 36% so far this year, closing Friday April 22 at 2,188p.

After suffering a sell-off in 2020, Shell shares are now trading at pre-pandemic levels. Rising oil prices were always going to be good news for the oil major, as was an end to the global lockdowns that had hampered production.

Still, there were headwinds. In addition to having to divert cash to cover its margins, Shell has come under enormous pressure to sell its Russian energy assets. For Shell, that means moving away from Russia will result in $5 billion in write-downs. Last week it emerged that Shell was in talks with Chinese energy giants to sell its position in a Russian gas export initiative.

How long will high oil prices benefit Shell shares?

In early March, the price of Brent reached $129.02 per barrel; at the same time a year earlier, it was trading at $68 a barrel. While oil prices have cooled slightly since March, prices are still high and likely to act as a catalyst for increased oil production. Governments looking to increase their short-term energy needs due to geopolitical events will only fuel demand.

In the short term, higher oil prices are better for Shell shares, especially with the transition to greener energy sources likely to take decades. However, rising prices should provide further impetus to a move towards cleaner energy as institutions and governments seek to reduce their exposure to commodity price volatility. Getting there will require substantial regulation of things like vehicles and power plants and incentives for customers to switch to cleaner energy sources.

Is Shell stock a good long-term buy?

Shell is investing heavily in switching to renewables and has pledged to halve its emissions by 2030, which could weigh on operating costs. In March, the company announced it would invest £25 billion in Britain’s energy system over the next decade, with the majority of that money going to green energy projects. Reuters also reported that Shell is preparing a €1.1 billion bid to buy renewable energy assets from Spanish fund manager Q-energy.

A more existential problem will be that investors turn their backs on the oil companies the same way they did on the tobacco companies. Anything Shell can do to improve its environmental credentials will go a long way to avoiding the same fate.

The 18 analysts offering a 12-month price for Shall have a median price target of 2,606.13p, suggesting a 19.1% upside at Friday’s close, as reported by the FT. The general analyst consensus seems to be favourable, with five “buy” ratings, 15 “outperform” ratings, three “hold” ratings, one “underperform” rating and one “sell” rating.

Warning Past performance is not a reliable indicator of future results.

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Felix J. Dixon