Record-low oil prices triggering questions: Is it a favorable time to invest in stocks like Shell and other major oil companies?
Oil Prices Plummeting: How's Big Oil Faring?
With global trade tensions escalating and economic uncertainties looming, oil prices are taking a dive. But how are major players like Shell, BP, and TotalEnergies navigating this storm?
The latest U.S. trade policies are making waves in the industry. Over the weekend, both North Sea and U.S. oil prices dipped to their lowest levels since 2021. The downtrend continued into the new week. On Monday, a barrel of North Sea Brent crude for June delivery started the day at $64.07, down $1.50 or 2.3% from its previous close. The price of a barrel of U.S. WTI crude for May delivery fell by nearly 2.5% or $1.50 to $60.49. With more drops on the horizon, oil prices might continue to plummet in the coming weeks.
In the midst of this turbulence, U.S. investment bank Goldman Sachs has remained optimistic about certain oil stocks. As recently as Wednesday, the bank recommended buying stocks like Shell, maintaining a price target of 44 euros on "buy". Michele della Vigna, an analyst at Goldman Sachs, wrote in an industry outlook that the growth, balance sheets, and cash inflows of major European oil companies are expected to differ significantly amid the first quarter. He pointed out several project starts and Shell's focus on capital discipline with room for further cost cuts.
However, the last few days have presented new challenges for Shell, TotalEnergies, and BP. On Friday alone, their shares fell by up to 12%. The situation on the stock exchange is volatile for oil stocks, and investors need a long-term perspective to stay viable.
Shell (WKN: A3C99G): Is it worth the risk?
Investors should proceed cautiously with Shell. While Shell's financial performance remains relatively stable, the ongoing trade tensions are weighing heavily on the stock market. The trade situation remains uncertain; however, an easing of tensions could lead to an increase in oil prices.
Despite the turbulence, Shell has been cautious with its finances, committing to buybacks even if Brent falls to $50. Goldman Sachs views Shell as the "most financially resilient" European major.
BP: A Buyout Opportunity?
BP's stock has been on a downward spiral, with its value plummeting (-15% YTD)[1]. The company's Q1 profits halved to $1.38B[2], and its strategic shifts and weaker margins have negatively impacted its performance. Despite this, BP might be a target for acquisitions due to its undervalued status[1]. Goldman Sachs is skeptical about BP's transition strategy, but a successful reallocation of resources could reverse the trend.
TotalEnergies: Hanging in There
TotalEnergies has demonstrated a steady approach amid the downturn, adhering to its capital spending plans[3]. However, the company is facing similar margin pressures as its peers, and a prolonged sub-$70 Brent could strain its dividend capacity.
In conclusion, the oil market is a rollercoaster ride, and the performance and outlook of these major players will continue to evolve based on trade policies, oil prices, and strategic decisions. The key lies in investors' ability to navigate this turbulent landscape with a long-term perspective.
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This article contains material from dpa-AFX.
Disclosure: The publisher's majority shareholder, Mr. Bernd Förtsch, has positions in the financial instruments mentioned in this publication or related derivatives, which may benefit from the content's price movements. This article does not constitute financial advice. Always consult a professional investment advisor before making any investment decisions.
- The outlook for oil stocks, such as Shell, BP, and TotalEnergies, remains uncertain due to ongoing global trade tensions and the downtrend in oil prices. However, U.S. investment bank Goldman Sachs has remained optimistic about certain oil stocks, like Shell, maintaining a price target of 44 euros on "buy."
- Despite the ongoing turbulence, Shell has been cautious with its finances, committing to buybacks even if Brent falls to $50. Goldman Sachs views Shell as the "most financially resilient" European major.
- With its stock value plummeting (-15% YTD), BP might be a target for acquisitions due to its undervalued status. However, Goldman Sachs is skeptical about BP's transition strategy, but a successful reallocation of resources could reverse the trend.
