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Have You Seen the Price at the Pumps? A Rosy Outlook for Shell and BP

By Malcolm Stacey | Wednesday 13 June 2018

Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Hello Share Trackers. I’ve heard on Radio Four just now that petrol stations are being urged to cut prices by two pence a litre. According to the BBC, this is because the price of Brent Crude has fallen. Talk about an exaggeration! The price has only dropped a few points after skyrocketing in the last six months.

There is an encouraging environment here for those of us who invest a lot in the black stuff. When the price of a barrel was a whopping $140, the price at British pumps was £1.31 a litre. Now that oil is about $70 a barrel, the garages are charging £1.35 a litre - even more on the motorways.

Therefore, the big oilers, like Shell (RDSA) and BP (BP.) must be raking it in. Just watch their profits jump when next they report. And yet it was before the recent huge hike in share prices that Barclays’ analysts had a target of 2800p for Shell. And the share price is still only around 2600p.

My point is that there is a big opportunity here. Those share prices for big oilers are lagging behind the cost of crude. I read somewhere that big producers only have to see $30 a barrel to break even. The current price is much more than twice that level.

Encouragingly, the oil companies, and not just the giants, have all been cutting out the wasteful practices they adopted when oil was really valuable. And now they can make more profit even when oil prices hit the skids, as they are definitely not doing now.

As Big Donald has collected a lot of respect for his peculiar foreign policy over North Korea, he can afford to be even tougher with Iran. If he tightens sanctions, oil from that country will start to dry up. And as it is one of the world’s biggest producers of the amber nectar, then we can expect that currently dithering oil price to rise again. After all, what was $140 a barrel all those years ago could see that price again. Not very likely, but possible.

Now let’s oil our gullets in the Punter’s Return.

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