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BP plc And Royal Dutch Shell Plc Perilous Investment Traps?

Screen Shot 2014-10-28 at 11.51.59From an article by Royston Wild published 18 Feb 2015 by The Motley Fool under the headline:

“BP plc And Royal Dutch Shell Plc Are Perilous Investment Traps”


Needless to say, the effect of an eroding oil price has proved catastrophic for the world’s fossil fuel specialists in recent months.

Indeed, a 47% decline in the Brent benchmark since June has been followed by heavy share price declines at both BP and Royal Dutch Shell during this period.

Earnings picture does not merit premium prices

Prices in the oil producers have regained much ground since mid-December’s troughs, however, when reports first emerged that US shale producers have begun aggressively scaling back output in response to nosediving black gold prices. But this strong share price recovery has again cast doubt on whether the scale of the risks facing the two oil majors are not baked into the price.

Shell’s stock has flipped 13% higher from December’s three-year lows of 1,989p per share, while BP has advanced 21% from the winter nadir of 373.25p, the cheapest since autumn 2011.

I believe that investment in either of the oil plays remains perilous business despite the impact of reduced shale output from North America. With major producing nations like those of OPEC continuing to pump with a vengeance, and global economic growth in the doldrums, I reckon that the oil price could be set for fresh turmoil.

Shell’s assertion last month that “nearterm oil prices will dictate the buyback pace” has raised doubts that the firm’s balance sheet could support generous shareholder rewards should the bottom line come under pressure. And significant investment scalebacks at both firms has also raised doubts over their capital strength. In light of a fragile outlook for the oil market, I believe that both growth and income hunters could be left sorely disappointed.


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