BP is in good company. FTSE 100 oil major, Royal Dutch Shell is also hurting. Its shares are down 38% from its 2020 high. Meanwhile, stocks of smaller peers Tullow Oil and Premier Oil have plummeted 63% and 75% respectively.

The oil price crash was initially caused by the coronavirus-induced slow down in demand for oil. But this happened at the same time as its oversupply. And with OPEC+ refusing to cut production, share prices in oil companies tanked further.

However, OPEC+ signed a US-backed deal on Sunday. The aim is to cut almost 10% of the global oil supply. The hope is this will be enough to raise oil prices, and with them, the shares of oil companies.

However, I am skeptical.

BP share price is helped by its diversity

BP is an integrated oil company. This means it operates in every aspect of the oil and gas business from oil exploration and production (E&P) to refining to trading. It also has a renewable energy division. Therefore, its share price represents the diversity of its operations. 

The oil majors can offset the now lower-margin E&P assets with cheaper oil feedstock into their refining businesses. They are also big oil traders, able to use the market to add value to their positions. Smaller peers based only in E&P are far more exposed to oil market volatility.

This higher exposure is mirrored in the size of their respective share price crashes. Indeed, the market appears to have already accounted for business model differences between oil firms.

OPEC cuts production by 9.7m barrels

Sunday’s deal means that OPEC is going to cut oil production up to 9.7m barrels per day. However, this reduction is from an already raised production level. Some traders doubt this will be enough to boost prices in the short term due to the oil glut.

With no end to the coronavirus pandemic in sight, oil demand is not likely to increase anytime soon. The main buyers of oil are likely to be G20 governments filling up strategic reserves with cheaper oil.

Besides, OPEC countries are likely to cut production of their heaviest crudes first. This is because they already sell for less than lighter grades. Refineries and markets in residuals fuels could see an increase in prices. This may help to steady BP’s share price slightly. But, it won’t likely have a huge effect on the rest of its businesses. 

With market-driven supply already down in the US, it could be that OPEC+ countries try to use this time to increase their market share. This means more cuts may be unlikely anytime soon. And some analysts already believe Sunday’s cuts are too little too late.

Once strategic storage reserves have been maxed out, the market will have to rebalance. And that will mean low oil –and share – prices for the future.  

The post Why I think the OPEC cuts may not be enough to save the BP share price appeared first on The Twelfth Magpie.

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• Back below 500p, is it time to consider BP shares again?
• Just how bad could it get for the BP share price?
• BP shares are falling. But is the oil market actually tighter than investors think?
• How much is needed in a Stocks and Shares ISA for £357 of weekly passive income?
• Oil prices are falling. So why am I still bullish on BP shares?

Rachael FitzGerald-Finch holds shares in BP and Royal Dutch Shell. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The crude colossus saw its share price strike its highest since November 2014 a month ago, but fresh fundamental fears have seen Shell — like many of its London-quoted peers — retrace more recently.

Shale producers returning

Arguably the biggest driver behind Shell’s decline has been a steady build in the US rig count.

With drillers across the Atlantic becoming ever-more-comfortable with oil prices anchored around the $50 per barrel mark, the number of units in operation has been steadily increasing since the autumn.

Indeed, latest Baker Hughes numbers showed the total rig count rise to 591, up eight week-on-week and representing another fresh high since October 2015. And the EIA expects US production to power steadily higher as the country’s oilies return to work — aggregated output of 8.9m barrels in 2016 is expected to rise to 9m this year before powering to 9.5m in 2018, the body said.

OPEC deal ineffective?

And signs of increasing Stateside production is likely to put stress on OPEC keeping the taps switched down after the six-month Doha deal expires in June.

Saudi Arabia has been forced to absorb bigger-than-planned supply reductions to make the accord work, with major producers like Iran, Nigeria and Libya being exempted from taking part and other cartel nations failing to cut as much as required.

While the IEA noted last week that 90% of the pledged oil output reduction has been observed, Iraq has slashed production by less than half of what it pledged to back in November, while other major member Venezuela is also failing to meet its agreed quota by some distance.

The news will hardly go down well with those nations meeting or even exceeding their allocated quotas given the huge economic and political considerations at play. And with production rising in the US, as well as in other non-OPEC countries like Canada and Brazil, the chances of a deal extension being drawn up stand at around slim-to-none.

Spending slows

Aside from hopes of the oil market being rebalanced later this year, as initially targeted, the scale of spending reductions by Shell casts doubt on when — or indeed if — the business will re-emerge as the earnings powerhouse of yesteryear.

The business forked out $26.9bn in organic capital investment in 2016, down $20bn from what it and the now-integrated BG Group spent in 2014 combined. And the total is expected to fall again, to $25bn, in the current year.

And Shell also has to secure tens of billions of dollars more of divestments over the next few years to soothe the stress on its balance sheet. It is certainly true that the BG acquisition has given a huge boost to the company’s reserve base, but fears still abound that swingeing sales and budget cuts elsewhere could undermine long-term profits growth at the group as exploration activity falls.

The post 3 big questions hanging over Royal Dutch Shell plc appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

According to drill checkers Baker Hughes, the number of oil rigs up and running in the States rose by 29 during the seven days to January 20, taking the total to 551.

This was the largest one-week jump since April 2013 and means that the rig count has risen during 10 of the last 11 weeks. Meanwhile, the number of US rigs in operation now stands at a 14-month peak.

Flowing forth

Producers across the Atlantic are looking to cash-in on the bouncy Brent price in the wake of OPEC’s agreement, the benchmark surpassing the $50 per barrel marker once again. But prices have failed to march on since then as US producers have plugged their devices back into the ground.

News of bubbly supply across the Atlantic takes some of the sheen off hopes that the market will balance later in 2017. Indeed, latest stockpile data showed a further 2.8m barrel build in the States during the week to January 20, according to the EIA.

And recent industry estimates suggest that supply from oil wells should continue to swell higher. The US Energy Information Administration (EIA) for one said earlier this month that it expects crude production from the country to rise by 300,000 barrels per day in 2018, to 9.3m barrels per day.

Sure, this figure is outstripped by expected US demand growth of 370,000 barrels per day next year — at 20.22m barrels per day — but EIA production forecasts could be in for mighty upgrades should Baker Hughes’ latest shocking release mark the beginning of a trend.

And looking further out, President Donald Trump’s plans to invest vast sums into the country’s oil and gas sector could really light a fire under US production. America’s new leader vowed to “take advantage of the estimated $50trn in untapped shale, oil, and natural gas reserves” in the country just hours after taking over the Oval Office.

President Trump has since vowed to resurrect the revive work on the Keystone XL and Dakota Access pipelines this week. This illustrates the importance the new White House administration places on fossil fuel production for the domestic economy — not to mention foreign policy — in the years ahead.

Too risky?

News that US production is rising will surely test OPEC’s desire to keep its supply accord running beyond the initial six-month trial period. Meanwhile Russia and other non-cartel members — some of which also agreed to reduce pumping activity — will also be watching closely, of course.

So the road back to roaring revenues growth is fraught with danger for majors like BP (LSE: BP) and Shell (LSE: RDSB). And when you also factor-in the huge capital drain associated with their operations, not to mention the hit and miss nature of oil exploration, these companies certainly carry their share of risk.

And I believe these dangers aren’t factored-in at current share prices — BP deals on a forward P/E ratio of 15 times, bang on the FTSE 100 prospective average, while its rival changes hands on a reading of 15.3 times. I reckon cautious investors should continue to steer clear of these stocks.

The post 29 MORE reasons to sell BP plc and Royal Dutch Shell plc appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended BP and Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The oil price has made an impressive comeback too, propelled by OPEC’s production cut and forecasts of strong oil demand growth in China and India. Brent crude oil is now selling for near $56 a barrel, around 80% higher than a year ago.

But despite the rally in oil prices, Big Oil continues to face a number of challenges that could hold back further gains in the share prices.

Oil price outlook

The prospect for further oil price gains this year is still unclear. That’s because, despite efforts by OPEC and Russia to cut production, a global supply glut will likely persist. Global oil inventories currently stand at record levels, and higher oil prices could lead to accelerated drawdowns, which could offset the impact of production cuts. In addition, rising commodity prices could encourage higher-cost producers to increase output and take market share.

That said, Big Oil companies have made significant changes to adapt to current market conditions. Shell and BP have cut operating costs, scrapped expensive projects in risky oil frontiers, slashed capital expenditure and sold non-core assets to survive in a lower-for-longer price environment.

Going forward, Shell expects to balance cash flow with asset sales throughout the cycle, while BP goes even further, by promising to cover capital spending and dividends from organic cash flow if the oil price remains above $50-$55 per barrel this year.

Refining headwinds

The biggest threat to Big Oil earnings is, of course, oil price volatility. However, it’s not the only threat. Falling refining margins is almost as troublesome right now, as falling downstream profits could offset much of the gain in upstream profits from rising oil prices. Already, refining margins are beginning to weigh on their results, and further falls seem likely given excess supply and growing inventories in North America and Europe.

Dividend appeal

With both stocks currently yielding more than 6%, it’s clear that Shell and BP’s big dividends are a big draw for income seekers. But, are they really good income investments?

Personally, I think there are better dividend shares available for investors to buy today. Although Shell and BP offer tempting dividend yields, there’s little prospect of dividend growth for either stock. Over the past two years, dividend cuts have only been avoided by asset sales, and even with the improved earnings outlook, dividend cover is forecast to remain well below the widely-regarded safety benchmark of one for some time. So, while a dividend cut seems far more remote with the recent oil price gains, the longer-term dividend outlook isn’t very appealing.

The post With Big Oil stocks riding high, is it time to take profits? appeared first on The Twelfth Magpie.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has recommended BP and Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Last week’s OPEC production accord continues to drive the share price of the world’s oil majors to the stars. Just today Shell struck fresh 22-month highs above £22.45p per share. And the firm’s FTSE 100 rival has recently ascended to fresh six-week peaks, taking it to spitting distance of October’s highs of around 495p, the best since July 2014.

Cut questions

Now don’t get me wrong: like the rest of the market, I believe that OPEC’s move to shave 1.2m barrels off its daily production quota could prove a gamechanger. But it is far too early to laud the success of the Saudi-led deal.

First of all, latest OPEC production data indicates that the group will have to cut more than the original target to meet its quota of 32.5m barrels per day. The International Energy Agency reported on Thursday that the cartel pumped a fresh record of 34.2m barrels of the black stuff in November.

Concerns already abound over how seriously the cartel will monitor the output of each individual member, particularly as some nations have to suck up swingeing cuts while others such as Iran and Nigeria receive a free pass. And it could be said that November’s production numbers reveal OPEC’s true commitment to reducing production.

Stateside struggles

And looking elsewhere, supply-side news from the US also threatens to lessen the impact of last month’s Doha deal.

Producers in the country have become increasingly adept at tackling crude prices around the $50 per barrel marker, reflected in a steady build in the US rig count. And the latest hardware count from Baker Hughes showed 21 rigs plugged back into the ground, taking the total to 498. This is the biggest weekly rise for more than a year.

Clearly OPEC’s output cut is encouraging North American drillers to get back to work, and this trend looks to worsen in the months ahead, undermining the possibility of further strides in the oil price.

These moves, allied with still-patchy energy demand, threaten to keep inventories locked at bloated. Latest data on Thursday from the American Petroleum Institute showed US stockpiles added an extra 4.9m barrels in the week to December 9.

Too dear?

So there’s still plenty of reason to remain cautious over any hopes of an imminent earnings bounceback at the likes of Shell and BP, in my opinion.

The City expects earnings at BP to more than double year-on-year in 2017, resulting in a P/E ratio of 15.4 times. And an anticipated 73% bottom-line jump at Shell creates an earnings multiple of 19.5 times, some way above the London blue-chip average of 15 times.

But with demand threatening to remain subdued through next year, and supply indicators remaining less-than-reassuring, I believe hopes of sustained strength in the oil price — and with it a robust bottom-line recovery at BP and Shell — are built on shaky foundations. I reckon the risks continue to outweigh the potential rewards at current prices.

The post Are investors becoming too giddy for Royal Dutch Shell plc and BP plc? appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended BP and Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

A drop in the ocean

The oil sector’s major players breathed a huge sigh of relief last week after OPEC — responsible for four-tenths of the world’s oil supply — confounded the expectations of many and agreed to cut its output.

Saudi Arabia brokered a deal that will see production fall by 1.2m barrels per day, to 32.5m barrels beginning in January. The news prompted Brent oil to top the $55 per barrel marker for the first time since the summer of 2016.

While a step in the right direction, there are doubts as to whether these cuts are swingeing enough to make a marked difference in eroding the oil market’s hulking supply/demand balance. Indeed, brokers at Marex Spectron believe a cut of around 2m barrels per day is required to improve the market’s poor fundamentals.

The huge political and economic considerations of last week’s agreed cuts are already casting a shadow over the current deal being extended beyond the middle of next year. Clearly it’s too early to claim that OPEC’s latest move will prove a game changer for the oil industry’s earnings outlook.

US plugging in

But the future of OPEC’s current agreement isn’t the only supply-side worry hanging over the oil market, with US producers already returning to work with gusto.

Baker Hughes data last week showed another three rigs being plugged back into the ground in the last week, taking the total to 477 units. This is now the highest level since January.

North American producers have been growing increasingly accustomed to operating in the sub-$50 per barrel environment. And the recent oil price bump is likely to see even more drillers getting back to work, putting hopes of a rebalancing of the oil market in 2017 under some stress.

Demand set to drag?

At the same time, predictions of a significant improvement in energy demand could also be considered on shaky ground.

The International Energy Agency (IEA), for one, has said that it expects global oil off-take to grow by 1.2m barrels per day in 2017, matching levels punched in the current year. This is down from 1.8m barrels in 2015.

The IEA commented that “there is currently little evidence to suggest that economic activity is sufficiently robust to deliver higher oil demand growth, and any stimulus that might have been provided at the end of 2015 and in the early part of 2016 when crude oil prices fell below $30 a barrel is now in the past.”

Too pricey

But in my opinion Shell’s share price fails to fairly reflect the colossal risks posed by a weak global economy and murky supply picture.

Last week’s fresh surge leaves Shell dealing on a forward P/E ratio of 25.8 times, sailing well above the FTSE 100 average of 15 times.

And while a 7.2% dividend yield blasts those of its big-cap rivals, I reckon the oil leviathan’s shaky earnings outlook and exploding debt pile could put hopes of another 188 US cents-per-share reward on the block.

I reckon the troubles facing Shell are too great to justify investment at the present time.

The post 4 great reasons to sell Royal Dutch Shell plc appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Unilever set the klaxon off in October by playing hardball with Tesco and Morrisons, the Marmite maker hiking the prices of its premier products to offset the impact of a declining pound on its manufacturing costs. Since then Walkers and Birds Eye have also attempted to hike the cost of their blue ribbon goods, and more are expected to get on board in the coming weeks and months as Brexit issues intensify.

This comes as a particular problem to J Sainsbury (LSE: SBRY) which, unlike its FTSE 100 rivals, is still witnessing an exodus of its loyal customers to the likes of Aldi and Lidl. The grocer has canned ‘multibuy’ offers in recent months to bolster the bottom line, but this measure is merely driving more of its shoppers elsewhere.

While Sainsbury’s is to be applauded for adopting  such steps and attempting to build margins, the company’s failure to mitigate this programme through heavy brand  investment and product quality improvements is failing to resonate with customers.

Indeed, Sainsbury’s announced last week that like-for-like sales dipped 1% during the 28 weeks to September 24, a result that prompted underlying pre-tax profits to slump 10.1% to £277m.

The London-based chain announced plans to strip even more costs out of the system to combat its flailing top line, the firm earmarking another £500m of cost savings during the three years from fiscal 2018. But much of this hard work threatens to be undone by the rising price of stocking its stores.

I reckon the company’s poor revenues picture and uncertain cost profile makes it an unsuitable pick for cautious investors.

Black gold bothers

Hopes of a much-needed supply reduction from OPEC saw investors plough back into BP (LSE: BP) and its fossil fuel peers in recent months.

Such a move is clearly a huge gamble, particularly as previous rhetoric earlier in 20106 had failed to materialise. And while an accord is still a possibility at OPEC’s meeting on November 30, the fissures running through the cartel are becoming increasingly apparent — Iraq joined Iran, Libya and Nigeria late last month in calling for exemption from any output reduction, putting further onus on other nations to take the pain.

Besides, news that OPEC production hit a fresh record of 33.64m barrels per day in October — up 240,000 barrels per day from September — arguably reveals the group’s true appetite for implementing such a deal.

With US producers also plugging their apparatus back into the ground — latest Baker Hughes data showed the rig count up by two last week, to 452 — the oil market’s weighty surplus looks set to persist long into the future.

And aside from US President-elect Donald Trump, most of the world’s political leaders remain committed to introducing ambitious decarbonisation initiatives, threatening the long-term earnings potential of oil majors like BP.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended BP. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Shell saw its value gallop 28% higher during the third quarter, and the firm’s meteoric ascent may not be finished yet — indeed, the stock is within striking distance of July’s quarterly peak of £21.48 per share, the loftiest level since May 2015.

But while many momentum investors may be tempted to plough in, I reckon now could provide a terrific opportunity for investors to cash out.

Shocking supplies

Shell’s stock value has received an extra push in recent days after OPEC members had agreed to put a cap on production at between 32.5m and 33m barrels per day. This is down from current record levels around 33.24m barrels per day.

And the cartel hopes to rope Russia into also cutting supply, at least according to the Wall Street Journal. The paper quotes sources close to discussions, who say that secretary general Mohammed Senusi Barkindo hopes to meet Russian energy minister Alexander Novak for “consultations.”

But quite how the group will get its own house in order — and officially agree to supply reductions in November — remains a colossal challenge in itself. Saudi Arabia has already been told by fellow power player Iran that it will ratchet up output to a minimum of 4m barrels per day, and in the longer term still hopes to pull 5.7m barrels worth of oil out of the ground by 2020. And Nigeria, Libya and Iraq are also seeking to boost production.

At the same time Russia keeps on raising its own output, while US oilfield operators are learning to cope in the sub-$50 per barrel environment and are plugging their rigs back into the ground with great gusto.

As a consequence global stockpiles remain stubbornly high, which isn’t good news for Shell. Despite recent drawdowns, stockpiles clocked in at seasonally-bloated levels of 499.7m barrels as of 30 September, the US Energy Information Administration (EIA) reported this week.

Brace yourselves!

And those expecting a significant pick-up in crude off-take to suck up this excess supply look set to be disappointed. Latest EIA demand data showed total US consumption in July come in at 19.712m barrels per day in July, down from 20.126m barrels during the same month last year.

Against this backcloth, I reckon Royal Dutch Shell will struggle to get back into the black any time soon. The black gold digger saw profits on a current cost of supplies (or CCS) basis slide 65% during January-June, to $2.6bn. And the firm’s next set of results scheduled for 1 November is quite likely to prove another horror show.

This could prove the catalyst for a catastrophic share price dive, in my opinion, particularly as Shell currently deals on a huge forward P/E ratio of 29.6 times. I believe that the risks facing the driller far outweigh the potential rewards, certainly at current share prices.

The post Now could be the perfect time to sell Royal Dutch Shell plc appeared first on The Twelfth Magpie.

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Market appetite for oil colossus BP (LSE: BP) and copper giant Antofagasta (LSE: ANTO) has exploded in recent weeks, the stocks advancing 26% and 22% during the third quarter.

Investor sentiment has been buoyed by Brent crude hurtling back, the black commodity this week striding back above $52 per barrel to reach its loftiest since June. And bellwether metal copper has touched $4,850 per tonne in recent sessions to hit its own multi-week peaks.

On the plus side…

But a recent rise in commodity prices isn’t the whole story, of course. Indeed, stock pickers have been enticed by the fact raw materials plays like Antofagasta and BP source almost all of their earnings from abroad, mitigating the negative impact of Brexit on their investment portfolios.

On top of this, demand for the companies is also benefitting from steady sterling depreciation as their earnings are reported in US dollars. Just today the UK currency fell to fresh 31-lows below $1.27.

However, this isn’t to say that the earnings outlook for either BP or Antofagasta appears to be plain sailing in the years ahead. Indeed, the hulking imbalances washing across all major commodity markets make me worried that the sector’s major players could be in for tough times.

… but still plenty of negatives

Optimism surrounding the oil sector has swelled in recent weeks after OPEC members agreed to a conditional deal that will see the export bloc curtail aggregate production to around 32.5m-33m barrels per day.

However, a formal accord remains far from a done deal, as individual country quotas are yet to be formally agreed to. Besides, a steady increase in output from the US and Russia threatens to undo much of OPEC’s hard work by keeping global inventories at full-to-bursting.

And for copper, sustained price strength can’t be considered a given as the jury remains out on Chinese demand ahead. The raw materials glutton is responsible for the lion’s share of global consumption, meaning that a combination of bulky red metal imports and still-ropey factory floor data could see copper values slide again.

Caixin manufacturing PMI data for September came in on the expansionary/contractionary precipice, at 50.1. This followed news that exports from China have continued to slide, with outbound shipments in August slipping 2.8% in dollar terms, according to latest data.

Recent price strength leaves Antofagasta dealing on a forward P/E rating of 36.2 times, shooting well above the FTSE 100 average of 15 times. And BP’s prospective figure of 37.5 times is even worse.

I reckon these elevated valuations are greatly at odds with the poor state of the crude and copper markets, leaving both firms under threat of a painful correction.

The post Does disaster loom for these FTSE 100 stocks? appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended BP. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Ministers of the oil rich nations met in Vienna today, but once again disappointed the market by failing to hammer out a deal. This follows on from a Saudi-led initiative earlier in the year to freeze OPEC output with Russia to soothe the chronic supply imbalance denting the crude market.

Output curbs appear as far away as ever, particularly as several members look to turn the pumps up. Iran for one has said that it plans to keep hiking its own production until total output hits pre-sanction levels, a programme not expected to end until well into 2017.

All eyes will now turn to OPEC’s next meeting scheduled for the end of November. But I expect the colossal commercial and political considerations to keep a group-wide accord firmly on the back-burner.

Soaring supply

Indeed, today’s news comes as little surprise, the political and economic fault lines crossing OPEC as pronounced as ever. However, I believe the market is still failing to fully digest the impact of the ongoing inertia by the world’s major producers to tackle the oil supply glut.

Despite the positive impact of recent supply disruptions in Nigeria and Canada, global crude inventories still stand around record levels. And a co-ordinated rowing back of production across the world is needed given the slow pace of demand growth.

And crude prices could receive a hefty shock should China’s economic ‘hard landing’ intensify in the months ahead, casting a further cloud over future consumption levels.

Battening down the hatches

Naturally, OPEC’s latest failure does oil majors like BP (LSE: BP) and Shell (LSE: RDSB) few favours.

Despite Brent’s remarkable recovery from January’s troughs, the prospect of fresh oil price pain has forced both firms to introduce further cost reductions in recent months. Indeed, BP and Shell are stepping up plans to streamline their workforces, while also significantly scaling back their capital expenditure budgets and hiving-off assets.

These measures are of course a wise decision in the current climate. But these moves seriously undermine BP or Shell’s long-term earnings prospects when the supply/demand imbalance eventually eases and crude prices march solidly higher again.

Risks outweigh rewards

In the meantime, Shell is anticipated to endure a 37% earnings slide in 2016, resulting in a P/E rating of 22.3 times.

And although BP is expected to bounce back into the black with earnings of 18.6 US cents per share, the fossil fuel leviathan still deals on an elevated P/E rating of 28.6 times for this year.

Given the danger of a fresh slide in crude values in the near-term — not to mention both operators’ worrisome long-term earnings outlooks — I reckon investors should steer well clear of the black gold specialists at the current time.

The post Should you buy BP plc and Royal Dutch Shell plc following OPEC’s latest meeting? appeared first on The Twelfth Magpie.

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• How much is needed in a Stocks and Shares ISA for £357 of weekly passive income?
• Oil prices are falling. So why am I still bullish on BP shares?

Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended BP and Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.