Shell Stock Price Climbs as War Premium Lifts the Oil Major

The way the share price of Shell continues to defy expectations is almost theatrical. Two years ago, discussions about big oil were eerie: stranded assets, the impending energy transition, and European majors subtly lagging behind their American competitors. With the market capitalization surpassing £173 billion and the stock currently trading at around 3,099 pence on the London exchange, traders in the City are once again checking the Brent crude ticker before lunch as if it were 2008.

A 23% jump in adjusted earnings, $6.9 billion for a single quarter, and a buyback programme freshly announced. These are not the figures of a retreating company. These are the figures of a business that unintentionally ended up on the right side of a geopolitical storm.

The math was altered by the Iranian conflict. The price of oil spiked when the Strait of Hormuz practically closed earlier this year, as it does in times of emergency. At one point, Brent ran over $120, then fell below $100 before rising once more. Except for the large trading desks at companies like Shell and BP, where wide bid-ask spreads are essentially a license to print money, investors seem to think that volatility is a problem for everyone. That seems to be about what took place. Almost no one outside the industry discusses Shell’s trading business, but it did very well.

You wouldn’t be aware of any of this from the outside if you were to stroll past Shell’s offices on London’s South Bank. The same employees leaving for coffee at the kiosk near Blackfriars Bridge, the same silent revolving doors, and the same security guards. The spreadsheets contain all the drama.

Since taking over as CEO at the beginning of 2023, Wael Sawan has been pursuing what insiders refer to as a discipline-first strategy: fewer ostentatious renewable acquisitions, tighter capital, and a greater focus on the companies that actually make money. That pattern is evident in the recent $16.4 billion acquisition of Canadian shale producer ARC Resources. It’s a wager that the value of hydrocarbons will last longer than the more pessimistic transition predictions indicate. It remains to be seen if that wager will hold up over time. However, Sawan seems to have read the room more precisely than his predecessor.

The dividend, which is currently yielding about 3.49%, keeps doing what Shell has always done, which is to anchor the stock for retail investors and pension funds that view it as infrastructure. Although the quarterly payout of 26.96 pence per share isn’t particularly noteworthy, it is dependable, which is uncommon in this industry. Price targets have been gradually raised by analysts at companies such as Scotiabank; some are currently above $122 on the New York-listed ADR.

Nevertheless, it’s difficult to ignore the other side of this tale. Friends of the Earth was already advocating for a more robust windfall tax in the UK when Shell announced its windfall. The share price has changed more than the political climate in Britain. Families are anticipating a £200 increase in the energy price cap in July. Signs at the petrol forecourt continue to rise. In that situation, the optics of a £5 billion quarterly profit are unsettling.

The same conflict that drove up prices also caused a 4% quarterly decline in production. Operations in Qatar continue to be disrupted. Damage has been done to the Pearl GTL plant. In other words, the good news is precarious and contingent upon circumstances that could swiftly change if the Strait reopens.

What transpires between Tehran, Tel Aviv, and Washington over the coming months will likely have a greater impact on whether Shell’s stock can maintain these levels than its own management. Whether this is a temporary spike with a windfall-tax tail risk or a structural rerating is still unknown. Anyone who owns the stock, as well as most likely the entire FTSE 100, should pay attention to the response.

The rally has its own momentum for the time being. As you watch it happen, you get the impression that investors are secretly relishing a tale they believed was finished.