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BP and Shell shares: attractive catch-up trade amid energy price rebound?

With vaccines helping to lift crude prices, the likes of BP and Royal Dutch Shell could play catch up after a difficult year.

Oil prices bolstered by vaccine breakthrough

November has been a good month for energy prices, with the Pfizer and Moderna vaccine announcements helping to boost hopes that a return to some semblance of normality course be closer than some had thought. The regional lockdowns necessitated by the coronavirus continue to deal blows to those bulls hoping for a gradual rise in demand for crude products.

That fact has been driven home by the latest environmental impact assessment (EIA) report, which speculated that demand would not return to 2019 levels before the end of 2021. That highlights the fact that despite the swift rollout of a vaccine before the end of 2020, it is likely that the effort to inoculate enough to effectively bring the effect to zero will take the best part of a year.

Nevertheless, with the EIA demand outlook for 2021 coming in just 3% below its pre-crisis level in 2019 (98.8 million bpd (barrels per day) versus 101.5 million bpd), there is certainly the potential for a substantial recovery in the year ahead.

Unfortunately the EIA have sat of the fence when it comes to prices, despite expectations of a major recovery in crude demand. Meanwhile, the Organisation of the Petroleum Exporting Countries (OPEC) looks likely to extend their production cuts by another three to six months to account for short-term shortcomings in demand.

FTSE oil majors have underperformed during the recovery

While crude has seen selling pressure since breaking from its uptrend in September, the likes of BP and Shell have been on the slide well ahead of that move. The decision to cut their dividends has hit those energy majors hard during this crisis, removing a significant reason why people were holding the stock in the first place.

That provides a potential future driver of upside for shareholders when dividends are reinstated once again. Looking at the chart below, we can see the underperformance of those two stocks in comparison to the price of brent crude.

However, with energy prices expected to rise as demand gradually improves, the prospect of a reinstated dividend points towards a potential opportunity for a recovery play.

Royal Dutch Shell share price: technical analysis

Shell has finally broken higher over recent weeks, with the stock pushing through trendline resistance to regain three-months of losses in just three-weeks.

However, despite the recovery, this stock remains 45% below its 2020 peak of £22.26. That highlights the potential for further upside without necessarily needing to get back to pre-crisis levels.


The four-hour chart highlights the recent uptrend, with the stock continuing to create higher highs and higher lows. With that in mind, it makes sense to look for further upside unless we see the stock break back below the £11.45 swing-low established on Friday.

BP share price: technical analysis

BP shares are similarly well down on the year, with the stock 47% below its 2020 high of £4.70. While we are seeing some selling pressure coming into play today, we would only look for a near-term pullback if the price falls below the £2.31 support level.

Should such a break occur, we would likely see the stock fall into wider retracement of the rally from the £1.84 low. Until then, this short-term recovery looks likely to persist.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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