A Fool asks: is this 6%-yielding FTSE 100 dividend stock a risk too far?

If City forecasts are to be believed, Royal Dutch Shell (LSE: RDSB) is a share that appears too good to be true.

Looking for strong and sustained profits growth? Tick. The FTSE 100 oilie is expected to keep its recent run of annual bottom-line rises going with chubby gains of 5% in 2019 and 18% next year.

How about decent value? You bet. At current prices, Shell carries a forward P/E ratio of 11.3 times, a figure that sits comfortably inside the widely-regarded value region of 15 times and below.

And what about market-beating dividend yields? Well, City analysts are forecasting the long-maintained yearly payout of 188 US cents per share will continue through to 2020, meaning a gigantic 6.2% yield can be savoured.

US output primed to boom

Then why am I not investing today? Put simply, the prospect of dreadful oversupply stretching long into the future as producers across the world ramp up production.

While additional output restraints from OPEC nations and Russia have buoyed Brent prices over the past 12 months or so, all of this hard work threatens to be undone by the injections of capital major producers across The Americas are giving their domestic fossil fuel industries.

The extent of the problem was underlined by a fresh report from the International Energy Agency (IEA) this week. In it, the body predicted “the second wave of the US shale revolution is coming” and production from the country will rise by 4.1m barrels per day over the next five years.

The IEA consequently expects US exports of the black stuff to detonate over the period, from 4.5m barrels per day to 8.3m barrels in 2021, levels which the boffins will push the country into the role of net oil exporter. And by 2024, US exports are estimated to reach 8.5m barrels, by which time it will have replaced Russia as the planet’s second-biggest oil shipper and moved to within a whisker of Saudi Arabia at the top of the pile.

Non-American supply climbs too

Surging Stateside production isn’t the only thing for investors to be worried about though, with the IEA also commenting: “Important contributions will also come from other non-OPEC countries, including Brazil, Canada, a resurgent Norway, and newcomer Guyana, which together add another 2.6m barrels per day in the next five years.”

This is particularly worrying as the energy association is also predicting easing demand growth resulting from the cooling Chinese economy. As it stands, global demand is expected to rise by 1.2m barrels per day in the five years to 2024.

There’s plenty out there who don’t downplay the impact of surging oil production across the globe, but argue that the issue and the consequent prospect of depressed crude prices are baked into Shell’s low valuation.

I disagree, however. The firm’s cheapness is a reflection of the worsening supply/demand imbalance in the oil market. And the recent data showing surging US inventories, as well as slowing economic momentum in China and Europe, raises the possibility that a sharp share price fall could be just around the corner. For this reason I’d avoid Shell at all costs.