The Shell share price has embarked on a very respectable rally from pandemic lows having gained 128% since October 2020 when the bottom fell out of energy markets due to the destruction of demand caused by COVID.
As energy prices recovered on economic reopening, Shell shares began a recovery from the lowest levels the company has traded at since the 1990’s.
The Shell share price has now retraced almost all of the losses since the beginning of the pandemic and investors will rightly be questioning whether now is a good time to buy Shell?
Indeed the question is particularly pertinent given Shell shares’ correlation to oil prices, that trading at $93 per barrel, are near the highest levels since 2014.
Shell shares and oil
The recovery in energy prices has seen Brent Oil steadily march higher towards the $100 mark and provided Shell with the necessary earnings to support a sustained rally through 2021.
Shell produced an adjusted EBITDA of $55bn in 2021, a sharp increase from 2020’s $36.5bn.
The main driver of this was higher realised oil and gas prices.
Whether Shell shares are worth considering at these levels will ultimately come down to the outlook of oil in the short term. Any significant reduction in the price of oil will likely lead to a pull back in the Shell share price and could quickly make the current price of 1,980p look expensive.
However, with energy prices being supported by the geopolitical tensions in Eastern Europe, and the increased demand of reopening economies, one shouldn’t expect dramatic moves in oil prices in the immediate future.
A potential deal between Iran and the West saw oil prices fall marginally and could be eyed by traders as an entry point.
Underpinning support for oil and gas prices is recent lack of investment in production which has started to exposure supply shortages in some areas of the market.
Although Shell is currently a play on the outlook of oil in the short-term, long term holders should look past how oil is trading to the intrinsic value of the Shell brand, their investments in green energy, and their progressive dividend policy that saw a 4% increase in Q4.