BP vs Shell share prices: is now the time to buy?

BP and Royal Dutch Shell have both seen their stocks return to levels only marginally higher than where they started at the beginning of the year.

On year-to-date basis, BP’s share price is up just 1.7% at 518p compared to the 507p a share it started at in January. Equally, Shell saw its gains start to erode at the end of July, with it currently trading at £24.06 levels, just 1.8% higher than where it began at the start of2019.

Start trading BP and Shell shares with an IG demo or live account

How to trade on the BP and Shell share prices

Despite BP’s relatively flat performance this year, analysts remain optimistic about the stock, with RBC Capital Markets and Berenberg giving it an overperform and buy rating. However, they did downgrade their target price for the stock in September to 575p and 600p respectively.

As it stands, BP is beyond the midpoint of its five-year plan, with the oil and gas major focused on delivering disciplined growth and stronger earnings, cash flow and returns to shareholders across its businesses.

As part of its new strategy, the company is looking to make a ‘significant contribution in the energy transition, helping deliver the energy the world needs with lower carbon,’ BP Group CEO Bob Dudley said.

Analysts also remain optimistic about performance of Shell’s stock too, with JP Morgan Cazenove and Berenberg reiterating their overweight and hold ratings in September, issuing a target price of £29.00 and £27.50 respectively.

So far this year, Shell has delivered good cash flow performance, despite earnings volatility in the first six months of trading driven by a myriad of macroeconomic headwinds that have impacted oil and gas prices.

Declining natural gas prices could hurt BP and Shell share prices

Natural gas prices have fallen by more than 20%, as forecasted supplies outpace expected demand. Over the long-term, Shell and BP are committed to reducing their dependency on gas, but if prices continue to fall it could apply downward pressure on their respective share prices.

‘The proportion of production linked to international gas prices should decline over time as a result of natural declines and increasing liquids production from the Gulf of Mexico, Brazil, and Permian basins,’ Cowen analyst Jason Gabelman said in a note to investors in September.

‘We estimate exposure will fall from 30% to 24% in 2021 and 20% in 2025, more in line with peers. However, it will remain elevated over the next few years during the period we expect gas prices to be weak,’ he added.