I haven’t bought Shell (LSE:SHEL) shares this year, and there were several reasons for this. In fact, I actually sold Shell shares at the beginning of the year, thinking that oil stocks wouldn’t go any higher. I was wrong.
Shell stock is now up 35% over the past 12 months, but it has actually fallen 15% over the last 30 days as oil weakened.
A big reason behind this is the price of oil. While the spot price has fluctuated considerably, analysts just can’t work out where oil will go next.
So with Brent Crude trading for just over $100 a barrel, down from over $120 last month, should I be looking to buy Shell stock as the sector dips? Or is this the beginning of a downward cycle for the industry?
Where will oil go next?
Oil gained a little on Wednesday having dipped again on Tuesday. But the big news is around the predictions. Analysts at Citi Group said oil could collapse to $65 a barrel by the end of this year and slump to $45 by end-2023 if the global economy is hit by demand-crippling recessions. The latter figure is going to be below the breakeven point of many oil companies.
But that’s just one forecast, although others do see it going lower over the next 12 months.
Meanwhile, JP Morgan analysts have warned that crude oil prices could reach a $380 a barrel if Russia were to introduce its own sanctions against G7 countries by cutting its oil output. Former Russian president Dmitry Medvedev has concurred, forecasting that oil could settle between $300-$400 a barrel in the near future.
To complicate matters further, OPEC secretary general, Mohammad Barkindo, sadly passed away on Tuesday night. The cartel is responsible for controlling output among some of the world’s largest oil producers. He famously oversaw the creation of the OPEC+ deal, which brought Russia into the organisation’s arrangements.
For me, the big question for oil is whether recession forecasts and Chinese lockdowns will pull demand for oil down. If this doesn’t happen, the next question is whether oil producers have enough spare capacity to keep up with demand.
Personally, I see oil dipping lower towards the end of the year as economies go into reverse, but in the long run, higher oil prices will be the norm in an era defined by scarcity of supply.
Should I buy Shell now?
Will I be buying Shell stock? Actually, no. I’m concerned about near term disruption and I think there will better points to buy later in the year.
I appreciate the company is going from strength to strength right now. Q1 earnings ($9.13bn) were nearly 300% greater than the $3.13bn reported a year earlier. Adjusted earnings in Q1 were 43% higher than that achieved in the final quarter of 2021.
But the oil price can fall even quicker than it went up. And that’s what concerns me right now.