A rocky road for Royal Dutch Shell (LSE: RDSB) shareholders in 2019 has really come to a head in recent sessions, spurred by a quite disastrous trading update at the top of the month and energy prices falling to their cheapest since January.
The oily lost 10% in value in the following fortnight, and despite rising from recent lows, buyer interest has been really quite modest, reflecting that recent slide in Brent values to below $60 per barrel and the prospect of this sharp slide extending into 2020.
Prices in freefall
It’s quite possible that the diplomatic and military conflict between Iran and the US could really blow up in the months ahead, providing oil prices — and with them the share values of producers like Shell — with the kind of boost that we saw in the spring.
All things considered, though, the odds are stacked firmly against the oil drillers. The probability of frosty US-Chinese trade talks seeping into 2020 spell disaster for a global economy already in the throes of a slowdown, and with it the profits outlook for the likes of Shell in the medium term, at least as energy demand slumps.
Latest news surrounding the International Energy Agency certainly provides plenty more to worry about. The body hacked back its demand estimates through to the end of next year following reports that worldwide oil demand grew at its slowest rate since 2008 between January and May. And this is particularly worrying as production from major producers like the US continues to grow, swamping the market with more unwanted material.
That 25% first-half profits drop that Shell announced at the start of the month, a result caused by slumping prices across the business, is unlikely to be the last awful update to come from the firm as the supply/demand situation worsens.
So just how low could the share price go next year? Well, Shell shed almost 50% of its value in the 18 months from June 2014, a period in which Brent values slipped from $115 per barrel to below $30. It’s time to fear the worst, I think.
A better investment tactic for 2020?
The clouds might be swirling for Shell but not all commodity markets look set to sink in 2020. Indeed, with the global economy sinking and increasingly dovish central bank policy fanning inflationary concerns, the most obvious resource to get exposure to now and in the months ahead is gold.
City analysts had been cautiously optimistic over metal prices in the medium term, but they’ve gone positively giddy more recently. Goldman Sachs was the latest to jack its forecasts up late last week, predicting $1,575 per ounce within three months (up from $1,530 at present) and $1,600 inside the next six.
There are many London stocks with which to play the precious metal, though dividend chasers might be most interested in Centamin. Its 3.7% forward yield makes it one of the biggest payers among the gold-diggers right now. And with profits expected to detonate through the next couple of years on the back of a bright commodity price and booming production levels, dividends are expected to rocket as well (resulting in a giant 5% yield for next year).
So forget about Shell, I say, and its 6.4% yield for 2019. I reckon Centamin’s a much safer income share for tough times like these. Â