Royal Dutch Shell share price is one of the worst-performers in the FTSE 100 this year. It has dropped by more than 43%. Only three companies, BP, Rolls-Royce, and IAG have fared worse. Is Shell a good investment in 2021?
What happened: 2020 was a mixed year for Royal Dutch Shell and other oil groups around the world. Demand dried as more countries ordered their residents to stay indoors. Indeed, at some point, the price of oil turned negative.
Shell share price (B) first dropped to a low of 890p at the height of the pandemic. It then pared some of those losses and reached a high of 1,546p and then crashed to an YTD low of 846p.
This performance was due to the lower oil prices that pushed the firm to slash its dividend for the first time in decades. The firm also slashed the value of its assets by more than $20 billion. This month, it did the same, when it slashed the value by an additional $6 billion.
What else: Shell share price also crumbled because of the overall shift to clean energy. Most investors embraced ESG investing, pulling billions of dollars from oil and gas firms. Subsequently, this had an impact on the stock prices of Shell, ExxonMobil, Chevron, and other energy companies.
What next for Shell: Shell will possibly have a tough year in 2021. Demand will possibly rise as more people embrace local and global travel. However, this will possibly lead to more production by American companies, which will possibly put the price of crude oil under pressure.
The weekly chart shows that Shell share price has been on a steady increase from its YTD low. However, recently, it has come under pressure at the 23.6% Fibonacci retracement level. It has also struggled to move above the 50-day exponential moving average.
Therefore, in 2021, I expect that the shares will rebound to the 50% retracement at 1,800 and then pull back. This price is 40% above the current price.
On the flip side, this thesis will be invalidated if the price falls back below the psychological level of 1,000p.