Shell and BP: diverging paths amid energy industry turmoil
Shell and BP are taking contrasting approaches in a challenging market environment, with Shell outperforming its rival as merger speculation grows in the UK energy sector.
Shell and BP’s diverging paths
Shell and BP, two of the UK's energy giants, are navigating contrasting trajectories in a volatile global energy landscape.
Shell reported a net income of $4.78 billion for quarter one (Q1) 2025, surpassing analyst expectations despite a 35% year-over-year (YoY) decline due to lower oil prices and refining margins. The company announced a $3.5 billion share buyback, marking its 14th consecutive quarter of significant repurchases.
In contrast, BP reported a 49% drop in Q1 2025 profits to $1.38 billion, down from $2.72 billion the previous year. The company reduced its share buyback programme to $750 million and saw its net debt rise to nearly $27 billion.
The divergence in financial performance has been reflected in the companies' share prices, with Shell outperforming BP by approximately 7% year-to-date. This gap has widened since the recent earnings announcements, highlighting investors' preference for Shell's more robust performance.
Shell versus BP year-to-date share price performance
Strategic direction and investment focus
Shell's strategic focus includes modest growth in its upstream and integrated gas segments, aiming for a 1% annual increase through 2030. The company has also revised its carbon reduction targets, drawing criticism from environmental groups.
Under CEO Wael Sawan, Shell has maintained a disciplined approach to capital expenditure while prioritising returns to shareholders. This balanced strategy has resonated with investors seeking both growth and income in an uncertain market environment.
Under CEO Murray Auchincloss, BP is shifting back towards fossil fuels, planning a 20% increase in oil and gas investments while cutting renewable energy funding by over £5 billion. This pivot has raised concerns about the company's commitment to climate goals.
BP's strategic U-turn represents a significant departure from its previous "Beyond Petroleum" positioning. The company argues that this realignment is necessary to ensure financial sustainability, but critics suggest it may leave BP vulnerable to future energy transition challenges.
Merger speculation shakes the market
Speculation has emerged that Shell is considering a takeover of BP, a move that would be one of the largest in the oil industry's history. Analysts suggest that such a merger could help BP overcome years of underperformance and provide Shell with additional assets.
However, investors express concerns about execution risks and potential dilution of Shell's stock. The market has reacted cautiously, with Shell's shares experiencing volatility amid the speculation.
A combined Shell-BP entity would create an energy behemoth with significant market power across the global oil and gas landscape. The merged company would control approximately 20% of the UK North Sea production and would become a dominant player in several key international markets.
Regulatory hurdles would be substantial, with competition authorities in multiple jurisdictions likely to scrutinise any proposed deal closely. Analysts suggest potential remedies might include divesting overlapping assets, particularly in retail operations and certain production regions.
Sustainability approaches and energy transition strategies
Both companies have made commitments to sustainability, yet their approaches differ. Shell aims to become a net-zero emissions energy business by 2050, though recent strategy shifts have drawn criticism.
BP, once a leader in green initiatives, has scaled back its climate targets and increased fossil fuel investments, leading to accusations of abandoning its "Beyond Petroleum" vision.
The retreat from renewable investments by BP marks a significant shift in the industry's approach to the energy transition. After years of messaging about diversification beyond oil and gas, the pendulum appears to be swinging back toward traditional hydrocarbon business models.
Shell's approach maintains greater balance, continuing investments in low-carbon technologies while maximising returns from existing oil and gas assets. This "dual-track" strategy aims to satisfy both traditional energy investors and those concerned with environmental, social, and governance (ESG) credentials.
Market challenges and the broader energy landscape
The global energy market continues to face significant challenges, with ample supply, weakening demand, and strategic output decisions by major oil producers such as Saudi Arabia weighing on the oil price.
Key factors driving the decline in the oil price:
Increased supply: OPEC+, led by Saudi Arabia and Russia, has decided to increase oil production by 411,000 barrels per day starting in June 2025, continuing a trend of unwinding previous production cuts.
Demand uncertainty presents another challenge, with economic growth showing uneven patterns across different regions. Concerns about potential recession in key markets have dampened consumption forecasts, affecting the outlook for oil prices.
Strategic shifts: Saudi Arabia has signalled a willingness to tolerate lower oil prices to expand its market share, moving away from its traditional role of stabilising prices through production cuts.
The impact on the oil price hasn’t just been it hitting a four-year low but the rapid decline in the black gold’s price has also led to increased market volatility, with daily price swings of 2-3% becoming common which both companies must navigate.
The regulatory landscape continues to evolve, with many jurisdictions implementing stricter emissions standards and carbon pricing mechanisms. The UK's commitment to net-zero by 2050 places additional pressure on domestic energy companies to adapt their business models.
Oil traders are watching these developments closely, with potential implications for both short-term price action and longer-term structural trends in energy markets. The divergent strategies of Shell and BP provide contrasting case studies in how major energy companies are responding to these challenges.
Investor implications and market outlook
In summary, Shell and BP are charting divergent courses amid industry challenges. Shell's strong financial performance and strategic acquisitions position it for growth, while BP faces scrutiny over its strategic pivot and financial health. The potential merger between the two could reshape the energy sector, but it carries significant risks and uncertainties.
For investors, the contrast between the two companies presents a clear choice. Shell offers greater financial stability, consistent shareholder returns, and a more balanced approach to the energy transition. BP presents a higher-risk proposition with potential for recovery if its renewed focus on oil and gas pays off in a favourable price environment.
Dividend yields remain a critical factor for many energy sector investors, with both companies currently offering above-market returns. Shell's dividend appears more secure based on recent financial performance, while BP's higher yield comes with greater uncertainty about long-term sustainability.
The outcome of merger speculation will be a key factor to watch in coming months. Even if a full acquisition does not materialise, the pressure for consolidation in the industry remains strong, potentially leading to asset sales or joint ventures between the major players.
Shell and BP analyst ratings
According to LSEG Data & analytics, 4 analysts have a ‘strong buy’ recommendation for Shell, 15 a ‘buy’, 4 a ‘hold’ and 4 analysts a ‘strong buy’ recommendation for BP, 2 a ‘buy’, 17 a ‘hold’ and 2 a ‘sell’ (as of 06/05/2025).
Shell and BP LSEG Data & analytics chart
Shell has a TipRanks Smart Score of ‘5 Neutral’ but is rated as a ‘strong buy’ with 12 ’buy’ and 1 ‘hold’ whereas BP has a TipRanks Smart Score of ‘9 Outperform’ and is rated as a ‘buy’ with 5 ’buy’ and 11 ‘hold’ recommendations (as of 06/05/2025).
Shell TipRanks Smart Score chart
Both the Shell and BP share prices, are down year-to-date, which is not surprising, given the sharp fall in the oil price. It dropped by close to 30% to its April and current May four-year lows when compared to the around $80.00 per barrel mid-January high.
The Shell share price fell by close to 20% from its late March high at 2,843p to its 7 April 2,271p low. While it remains below its 200-day simple moving average (SMA) at 2,596p and its 2,642p October 2024 high, the recent downtrend remains entrenched.
Shell daily candlestick chart
For the BP share price the recent decline from its 472.25p February high has been even more excessive with a close to 30% fall to its 9 April low at 329.20p.
BP daily candlestick chart
For BP, the medium-term downtrend will remain intact while the December high at 400p and the 200-day simple moving average (SMA) at 409.10p cap.
How to trade Shell and BP shares
For traders looking to capitalise on the contrasting fortunes of these energy giants, several approaches are available:
- Research both companies thoroughly, examining financial performance, strategic direction, and market positioning to inform your trading decisions.
- Choose whether you want to trade or invest based on your outlook for the energy sector and these specific companies.
- Open an account with IG by visiting our website and completing the application process.
- Search for 'Shell' or 'BP' on our trading platform or app to access these markets.
- Place your trade, ensuring you have appropriate risk management measures in place, particularly important given the volatility in energy markets.
Spread betting and CFD trading offer ways to potentially profit from both rising and falling share prices, allowing you to take positions based on your view of the companies' relative performance.
For those with a longer-term outlook, share dealing provides a more traditional investment approach. This allows you to build positions in either or both companies while potentially benefiting from their substantial dividend yields.
The ongoing transformation of the global energy landscape presents both challenges and opportunities for these traditional oil majors. Whether through direct competition or potential merger, Shell and BP will remain central players in the UK energy sector, with their strategic decisions having far-reaching implications for markets, investors, and the broader energy transition.
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