The “Big Oil” companies will deliver their Q2 results over the next two weeks. This Thursday (July 30), Anglo-Dutch company Shell is set to report its earnings and second interim dividend announcement for 2020 at 06:00 GMT.
With no exception, market participants expect to witness Shell, together with the other energy behemoths, report a massive quarterly loss following global energy demand destruction induced by lockdowns and travel bans, which subsequently resulted in lower fuel sales and reduced margins. Deteriorating oil demand has led Shell to cut its refining business activity by up to 40%. According to Zacks, “the energy sector as a whole is expected to record a decline in earnings by 149% y-o-y in the second quarter”.
In April 2020, Shell announced it would cut its dividend for the first time since World War II, with an approximately two-thirds reduction from 47 cents to 16 cents. In addition, the company has also announced cancellation of share buybacks as a means to “bolster resilience” and “underpin the strength of balance sheet”. According to Zacks Consensus Estimate, the company is expected to record a massive plunge in earnings by 133.7% y-o-y to a loss of 29 cents per share in Q2 2020. Nevertheless, the company is currently being ranked #2 in Zacks Ranking System which indicates “BUY”.
As oil exploration requires monumental investment, which is often regarded as an expensive and risky business (and is now facing even less incentive to operate as oil price declines), Shell has taken the initiative to diversify its projects into renewables and various green energy supply. Such a move is viewed to be in line with Joe Biden’s vision, a Democratic presidential candidate (also a huge threat to President Trump) who has proposed spending $2 trillion (initially $1.7 trillion) over four years (initially ten years) to achieve net-zero emissions before 2050.
According to analyst estimates, an OVERWEIGHT rating is given on the company’s stock price, in which they believe the company should perform better in the future. The average target price is set at 39.63.
Technically, the #Shell-NL share price has plunged massively since the beginning of 2020, from the recorded high of 27.380 in January to a historical low at 10.346 in March. There have been attempts for the price to break above 61.8 FE level, but all have been unsuccessful. In the Monthly chart the price remains pressured below the three moving averages of the Alligator indicator. Both MACD lines hover below the zero line, with the “fast line” residing at -3.245 while OsMA bearish histogram has been slowly diminishing. On the other hand, Stochastics Oscillator in all three timeframes (Monthly, Weekly and Daily) remains at the Oversold range. The FE 61.8 level (15.680) is seen as the nearest resistance while the March 2020 low (10.350) will be the nearest support level.
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Larince Zhang
Market analyst
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