We recently compiled a list of the Top 10 Oil and Gas Stocks To Buy According to Analysts. In this article, we are going to take a look at where Shell plc (NYSE:SHEL) stands against the other oil and gas stocks to buy.
While renewable energy sources garner increasing attention, the demand for oil and gas remains strong, fueled by the growing energy needs of developed and developing nations. However, the industry is highly volatile, with profits and losses often hinging on minor demand shifts or strategic actions by petrostates like Saudi Arabia and Russia, whose agendas may conflict with those of public oil companies. Supply-demand imbalances frequently trigger significant price swings, as evidenced in early 2022 when Russia’s invasion of Ukraine drove crude prices into triple digits for the first time in years.
The State of the Oil and Gas Market
Global oil prices have retreated from their early-October highs, with market focus shifting from supply risks to concerns about global economic health, sluggish demand, and ample supply. After surpassing $80 per barrel in early October, Brent crude futures dropped to approximately $72 per barrel by mid-November as fears of an Israeli attack on Iran’s energy infrastructure subsided. Meanwhile, the global oil supply is steadily increasing. Following the early November U.S. elections, the United States is expected to lead non-OPEC+ supply growth, contributing 1.5 million barrels per day (mb/d) in both 2024 and 2025, alongside higher output from Canada, Guyana, and Argentina. Brazil, which faced operational challenges and outages this year, is projected to add 210,000 barrels per day (kb/d) by 2025, reaching 3.7 mb/d as new capacity exceeding 800 kb/d comes online.
In another vein, the International Energy Agency (IEA)’s World Energy Outlook 2024 predicts that global oil demand will increase by about 2.6 million b/d from 2023 to 2030 before peaking, driven by rising EV adoption and improved fuel efficiency. Petrochemicals are expected to overtake road transport as the primary driver of oil demand growth. By 2050, the IEA projects global oil demand to average 93.1 million b/d, 4.3 million b/d lower than its prior estimate under the Stated Energy Policies Scenario (STEPS). The most significant declines are expected in aviation and shipping, with demand dropping by 2.7 million b/d as sustainable aviation fuels gain traction and hydrogen-based alternative fuels are increasingly adopted in maritime transport.
U.S. – China Oil Politics
China’s oil refiners processed 4.6% less crude in October compared to the same period last year, attributed to plant closures and reduced operating rates among smaller independent refiners, according to data from the National Bureau of Statistics released on November 15. Simultaneously, China’s factory output growth slowed, and persistent weakness in its property sector added to investor concerns about the economic health of the world’s largest crude importer.
Compounding these challenges, U.S. President-elect Donald Trump advocates for reducing regulations on the oil sector to boost U.S. production, a move that could exert downward pressure on oil prices. However, with U.S. crude output already near record highs, questions arise about the industry’s capacity to increase production further. Even if they could, companies may hesitate, as ramping up output could drive prices down, potentially impacting profits and shareholder returns. Most notably, however, Trump has vowed to revoke China’s most-favored-nation trading status and impose tariffs exceeding 60% on Chinese imports—far surpassing the levels enacted during his first term. If crude oil is included, it could squeeze the margins of U.S. refiners reliant on imported oil. Additionally, it may harm U.S. exports of crude and refined products if other nations respond with retaliatory tariffs. In light of this, Goldman Sachs Research economists have modestly lowered their 2025 growth forecast for China, attributing the adjustment to anticipated tariff increases under a Trump administration. Chief economist Jan Hatzius further cautioned that more substantial downgrades could follow if the trade conflict intensifies.
Our Methodology
In this article, we analyzed screeners and ETFs to pinpoint oil and gas industry stocks with an average share price upside potential of 15% or more as of market close on November 18, 2024. We ranked the top 10 stocks in ascending order based on their average share price upside potential. Additionally, we included hedge fund sentiment for each stock, as of Q3 2024, to offer readers deeper insights.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Shell plc (NYSE:SHEL)
Average Analyst Price Target: $63.65
Upside Potential: 25.02%
Number of Hedge Fund Holders as of Q3: 48
Shell plc (NYSE:SHEL) is a global energy leader, engaged in the exploration, production, refining, and sale of oil, gas, chemicals, and renewable energy products. Its operations span both upstream and downstream markets, reinforcing its diverse energy portfolio.
On October 23, Shell Energy North America, a subsidiary of Shell plc (NYSE:SHEL), announced an agreement to acquire a 100% equity stake in RISEC Holdings, LLC. RISEC owns a 609-megawatt (MW) two-unit combined-cycle gas turbine power plant in Rhode Island, USA. This acquisition secures long-term supply and capacity offtake for Shell in the deregulated Independent System Operator New England (ISO New England) power market.
For the third quarter, Shell plc (NYSE:SHEL) reported adjusted earnings of $6 billion, surpassing analyst estimates of $5.3 billion, while free cash flow increased to $10.83 billion, compared to $7.5 billion in the same period last year. Meanwhile, cash capital expenditure fell to $4.95 billion, down from $5.65 billion in Q3 2023. The company also announced plans to repurchase $3.5 billion in shares over the next three months while maintaining its dividend at 34 cents per share.
Piper Sandler reaffirmed its Overweight rating on Shell plc (NYSE:SHEL) with a price target of $82 on October 8. The firm highlighted Shell’s strong operational performance, noting LNG liquefaction volumes of 7.5 million tonnes (MT), exceeding the 7.1 MT estimate. Additionally, Shell’s exploration and production (E&P) output remained steady sequentially, defying expectations of a decline.
Overall SHEL ranks 8th on our list of the oil and gas stocks to buy according to analysts. While we acknowledge the potential of SHEL as an investment, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SHEL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.