Is Royal Dutch Shell Share Price Too Cheap to Ignore?

Summary:

Royal Dutch Shell share price has been struggling recently because of low crude oil price. So, is the stock a bargain or a value trap?

Royal Dutch Shell share price (RDSB) is wavering today as traders wait for a closely-watched report by OPEC. Shell’s class A shares are up by 0.20% while class B are relatively unchanged. The two are trading at 988p and 957p, respectively. On the other hand, BP stock has dropped by ~0.30%.

Shell has been in trouble

Royal Dutch Shell and other energy groups have been under pressure in recent years. This year alone, Shell share price has dropped by ~60% mostly because of the problems associated with the pandemic. The same trend is seen in the five-year chart as the price has fallen by more than 50%. The closely-watched iShares Global Energy ETF (IXIC) has fallen by ~50% in the past five years and by ~44% this year.

Shell’s underperformance is because of low crude oil price, which has led to several other problems. For example, the company has been forced to cut its dividend, write-down assets worth more than $17 billion and stop its buyback program. It is now in the process of cutting down operations and laying-off thousands of workers. It is also attempting to pivot to clean energy.

So, can Shell stock price recover?

In recent weeks, we have seen some of the most unloved stocks soar. For example, Rolls Royce share price has climbed by ~100% in the past week alone as investors remain convinced that the company can bounce back. Now, some analysts believe that Shell share price too can bounce back from its 25-year low.

This could be true. However, the company continues to face significant challenges ahead. For example, crude oil prices are down today and yesterday as investors remain concerned about demand. As the number of Covid-19 cases continue rising, the demand part of the equation will be a source of concern. This is happening even as oil supplies continues to increase. For example, Libya has started increasing its supplies, which could lead to oversupply.

Meanwhile, while Shell is pivoting to clean energy, the process will be relatively expensive. Also, as politics become more progressive, there is a likelihood that Shell and other oil companies will face higher taxes.

Royal Dutch Shell share price technical forecast

The daily chart shows that Shell share price is relatively similar to Lloyds, that I covered earlier today. The price is forming a descending triangle, with the support being at 885p. It is also along the 25-day and 15-day weighted moving averages. The Average True Range (ATR), which is a sign of volatility, has dropped to the lowest since July last year.

Therefore, as you will find in our free online trading course, a descending triangle is usually a bearish sign. This means that in the near term, the stock will continue falling as bears attempt moving below 885p. On the flip side, a volume-backed movement above the falling trendline will invalidate this trend.