Where next for Shell’s share price as oil demand remains high?

As Britain’s leading commodity firm, Shell’s [SHEL] share price has seen major growth over the past few months. Driving the stock’s gains have been soaring oil prices, with sanctions on Russian oil imports further fuelling supply concerns.

However, earlier this month, Reuters reported that Shell had had to divert cash flows to cover costly margin calls owing to exploding commodity prices — perhaps begging the question of how sustainable high energy prices are for Shell’s share price.

What’s happening with Shell’s share price?

Shell’s share price has gained more than 36% so far this year, closing Friday 22 April at 2,188p.

Having suffered a selloff in 2020, shares in Shell are now trading back at pre-pandemic levels. Rising oil prices was always going to be good news for the oil major, as is the ending of global lockdowns that had hampered production.

Still, there have been some headwinds. Aside from having to divert cash to cover margins, Shell came under huge pressure to sell off its Russian energy assets. For Shell that means walking away from Russia will lead to $5bn in impairments. Last week it emerged that Shell was in talks with Chinese energy giants to sell its position in a Russian gas export initiative.

How long will high oil prices benefit Shell’s shares?

In early March the price of Brent hit $129.02 a barrel; the same period the previous year it was trading at $68 a barrel. While oil prices have cooled off slightly since March, prices are still high and likely to act as a catalyst for increased oil production. Governments looking to increase their short-term energy needs due to geopolitical events will only stoke demand.

In the short term, the higher oil prices are the better for Shell’s stock, especially with the shift towards greener energy sources likely to take decades. However, higher prices should act as further impetus for a move towards cleaner energy as institutions and governments look to reduce their exposure to volatile commodity prices. To get there will take substantial regulation on things like vehicles and power stations and incentives for customers to change to cleaner energy sources.

Is Shell’s stock a good long-term buy?

Shell is investing heavily on moving to renewables and has committed to cutting emissions in half by 2030, something that could weigh on operational costs. In March, the company announced that it would invest £25bn in the UK energy system over the next decade, with the majority of this money earmarked for green energy projects. Reuters has also reported that Shell is preparing a €1.1bn bid to buy renewable energy assets from Spanish fund manager Q-energy.

A more existential problem will become investors turning their noses up at oil companies in the same way as they did to tobacco companies. Anything that Shell can do to burnish its green credentials will go a long way to avoiding the same fate.

The 18 analysts offering 12-month price for Shall have a median price target of 2,606.13p, suggesting a 19.1% upside on Friday’s close, as reported by the FT. Overall analyst consensus seems to be favourable, with five ‘buy’, 15 ‘outperform’, three ‘hold’, one ‘underperform’ and one ‘sell’ rating.

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