The Royal Dutch Shell (LSE: RDSB) share price has jumped 23% over the past six months. Over the past 12 months, the stock’s performance is even more impressive. Shares in the oil major have rallied by more than 80% from their October 2020 levels. Both of these figures exclude dividends paid to investors.
Shares in the company have charged higher as oil prices have recovered from their pandemic lows. The price recently hit $80 a barrel, a three-year high. And it’s not just the price of oil that’s been pushing higher. The price of gas has also jumped.
These rises are causing havoc within the UK energy market. Several suppliers have failed lately, unable to pass these costs onto consumers.
But for Shell, these price rises could produce windfall profits for the group.
Royal Dutch Shell share price outlook
We can get some idea as to the impact higher commodity prices are having on the group’s finances from its second-quarter results. The company reported adjusted earnings of $5.5bn for the three months through to the end of June. That was compared to a profit of $638m for the same period a year earlier.
With profits surging, Shell was able to boost its dividend for the second consecutive quarter. It also launched a $2bn share repurchase programme. The stock currently yields 3%.
Based on the recent commodity price action, I reckon the company could be on track to report another bumper set of results for the third quarter. It may even see this favourable environment continue into the fourth quarter.
I realise some investors might not be celebrating the impact higher oil prices are having on the Royal Dutch Shell share price. In recent years, investors and asset managers have been selling the stock to try and put pressure on the business to reduce emissions as well as oil and gas output. Rising prices may reverse this trend. As such, the stock may not be suitable for all investors.
The shift to renewables
Still, I think the current boom in oil prices shows that the world’s not yet ready to move away from fossil fuels. At the same time, rising profits will provide a cash infusion for Shell to invest in renewable projects. I think this is important because management needs to think about the future.
The group cannot rely on high oil prices forever. As the past two years have shown, oil prices can be incredibly volatile. With extra cash to spend, Shell may be able to accelerate its shift towards cleaner energy.
Overall, I think the Royal Dutch Shell share price still offers value. The stock’s recent performance reflects its booming profits, which could help the group secure its future. With these factors in mind, I’d be happy to add the shares to my portfolio.
Rupert Hargreaves 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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