Shell shares have plateaued since August last year with the share price trading within a tight range between 2,300p and 2,400p, although there have been brief forays outside of this range.
With the Shell share price offering very little in the way direction, the valuation of the company will be brought into question with upside momentum fading away.
Shell is due to update the market of Q4 performance 2nd February which promises significant movement in the share price, should earnings estimates not be met.
The invasion of Ukraine by Russia sparked a rally in global energy prices and helped lift oil majors, including Shell. Higher oil prices meant higher profits, but this is now largely priced.
To some extent, higher oil prices was a story for 2022 and the more benign environment for oil has been a contributor to the sideways trade in Shell’s equity.
Early in January, Shell provided a ‘teaser’ Q4 update note ahead of their Q4 results. The update included estimated ranges of earnings for each segment. Shell shares rose after the release, but the upper end of these range must be met to support the share price further.
Strong gas trading is expected to support group earnings.
Shell shares
The range-bound nature of Shell shares could come to an abrupt end this Thursday if we receive a worse than expected quarterly deterioration in the company’s upstream and refining segment earnings.
Shell’s Q3 Upstream segment earnings fell to $5.4bn from $6.4bn in Q2. Shell’s Q3 2021 Upstream earnings amounted to $1.3bn.
One would expect Q4 Upstream earnings to retreat further back to 2021 levels after the company indicated so in their update note.
Analysts consensus earnings for 2022’s total Upstream earnings is $17.7bn.
Brent oil is well below recent highs at $86 per barrel and recent rallies have been quickly sold into by traders. The average oil price recorded by Shell in Q4 will almost certainly be lower than Q3.
A lower oil price is bad news for Shell shares. The company is starting to experience a downtrend in refining margins after recording bumper earnings from the unit last summer.
The prospect of lower profitability in this area will be a concern for investors. Couple this with possible softness in the Upstream segment, and 2,300p may start to seem a little expensive.
Holding shares over results always risks short-term volatility, but Thursday’s results are highly anticipated and may represent a turning point in the Shell share price.