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Sell Shell?


Royston Wild | Monday, 2nd January, 2017

Sell Shell?

It comes as little surprise that Royal Dutch Shell (LSE: RDSB) has rocketed during the fourth quarter, the stock reaching 13-month peaks just last week on the back of the successful OPEC production accord. Shell gained 18% in total during October-December.

The Doha deal has been heralded as a game-changer in addressing the supply/demand imbalance washing over the oil market. And with no little reason. After all, OPEC is responsible for around 40% of global crude output.

But those believing in an immediate eradication of the supply overhang may end up disappointed as output rises elsewhere. The latest Baker Hughes rig survey showed another 13 rigs added in the US during the week to December 23, taking the total to 523. This is the eighth weekly rise in a row, and the count is likely to keep rising thanks to Brent’s move back above $50 per barrel.

And this isn’t the only barrier to additional oil price strength, and with it a solid earnings rebound at the likes of Shell, as a surging US dollar could see already-patchy crude demand come under further strain.

With many also casting doubts on the robustness of OPEC’s November production cut, I believe investor appetite for Shell could moderate again. Indeed, a forward P/E rating of 15.7 times fails to reflect the fossil fuel leviathan’s huge risk profile, in my opinion, particularly as industry data remains less-than-reassuring. I reckon recent share price strength leaves Shell in peril of a heavy correction.

Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Royal Dutch Shell B. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.


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