After crashing at the start of the pandemic, the price of oil has soared to over $90 per barrel. This is higher than pre-pandemic, and many feel that the price could continue to rise. One company that has profited from this oil price rise is Shell (LSE: SHEL). Indeed, the Shell share price has risen 42% over the past year, and over 100% since its lows in October 2020. Is there more room to rise?
Recent results
Shell’s full-year 2021 results were excellent. In fact, adjusted earnings were able to rise to $19.3bn, up from $4.8bn in 2020. Earnings for the fourth quarter were also able to beat analysts’ estimates, hitting $6.4bn.
These earnings have also been accompanied by extremely large shareholder returns. These include a 4% rise in the quarterly dividend to 25 cents per share, and a commitment to buy back $8.5bn in shares in the first half of 2022. The dividend equates to a yield of nearly 4%, which is slightly over the average of FTSE 100 stocks. The large share buyback programme will also hopefully see the Shell share price rise, as it increases each individual shareholder’s ownership of the company.
Some of the problems
Despite these results, there are both short-term and long-term risks associated with Shell. For example, amid the soaring domestic energy bills, there has been some recent pressure on the government to levy a one-off windfall tax on UK oil and gas operators. This would negatively impact Shell, and profitability would decrease.
There are also some other signs that the Shell share price has reached its peak. For instance, CEO Ben van Beurden recently sold £3.9m worth of his Shell shares. They were sold at an average of 2,040p, very similar to the company’s current price. Although there are several reasons why he may have sold, and it is said to be a “private matter”, it is nonetheless not a good sign.
Finally, I worry about the long-term future of oil. This is due to the environmental consequences caused by using oil, and the subsequent efforts to make everything greener. An example includes electric vehicles, which may mean falling demand for oil one day. Although Shell is attempting to diversify into greener energy, the progress is slow and the company remains reliant on the price of oil. I’m not confident that its recent rise is sustainable in the long term.
Has the Shell share price got further to rise?
Evidently, Shell is currently operating in a very favourable environment, and this seems set to continue for at least the short term. The promise of excellent shareholder returns is also very tempting. This means that for now, I believe the Shell share price can continue to rise. But as a long-term investor, I’m far less confident. Therefore, I’m leaving this stock on the sidelines.
Stuart Blair has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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