crude oil prices
Royal Dutch Shell share price is in the red for the fourth consecutive day as investors remain concerned about crude oil prices. The firm’s class A shares are down by 0.78% to 1,140p while its class B shares are down by 0.90%. BP, the biggest Shell peer in the FTSE 100 is also down by 0.86%. The stock is trading at 1142p.
Royal Dutch Shell share price has been under pressure this year. The stock has dropped by more than 50% year to date and by 15% in the past three months. The shares have underperformed the FTSE 100 and the iShares Global Energy ETF (IXC), which has dropped by about 36% this year.
There are several reasons why Royal Dutch Shell stock price has dropped this much. First, crude oil price has fallen substantially this year. However, it has recovered by more than 100% in the past few months, which has provided some support to BP and Shell share prices.
Second, the coronavirus pandemic affected global demand for oil in the first and second quarter as countries implemented strict stay-at-home orders. Like all companies, this had a direct impact on revenue. Indeed, in the second quarter, the company had a revenue of $32.5 billion, down 64% from the same quarter in 2019. The firm also recorded a big loss because of the write downs it had made earlier.
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Third, Royal Dutch Shell share price has underperformed because many income investors have moved away from the stock. That is mostly because the firm slashed its divided for the first time in a decade. It did this in a bid to preserve cash as it faces significant challenges.
Royal Dutch Shell share price has had a troubled past because of the problems mentioned above. Other key reasons for the underperformance are the ongoing trend in ESG investing and the likelihood of tax increases, especially in Europe. Still, the firm’s shares will perform depending on how fast the world economy recovers and how high oil prices can climb.
Analysts remain optimistic about Shell’s share price. For example, in a recent note, analysts at Credit Suisse lowered their target by 100p to 1,6000. Even after lowering the target, the target is still higher than the current price of 1,140p. Analysts at Jefferies expect the stock will climb to 1,360p while those at JP Morgan expect it to climb to 1,700. The average target for Royal Dutch Shell share price is about 1,660p.
The weekly chart below shows that Royal Dutch Shell share price dropped to a low of 970.2p at the height of the pandemic. It then attempted to recover and found great resistance at 1,600p. Since then, the price has been in a downward trend. The price remains below the 50-day and 100-day exponential moving averages.
Also, it does not seem to be forming a reversal pattern. Therefore, I suspect that the price will likely continue falling as bears target the support at 970p. On the flip side, a move above the resistance at 1,600p will invalidate this trend