BP and Shell shares could slump with oil prices steady as renewables grab market share

Shares in BP and Royal Dutch Shell are trading flat on Thursday and look likely to trend lower as oil prices find footing above the psychological $40 mark and renewables capture a record share of the global energy market amid the Covid-19 downturn.

Brent crude is 36 cents lower at $43.93 a barrel at the time of publication, with the US West Texas Intermediate (WTI) down 38 cents to $41.52 a barrel.

BP is trading marginally lower at 301p per share at the time of publication, while Shell is a touch higher at £12.58.

Renewable energy grabs record share of global electricity demand

The coronavirus pandemic forced OPEC+ to agree to record production cuts in an attempt to support oil prices amid weakening demand as a result of government-imposed lockdown restrictions aimed at curbing the spread of the virus.

As a consequence, interest in renewables has surged in recent months, helping to accelerate the energy transition away from fossil fuels, with oil and gas majors like BP and Shell opting to write-off billions in oil and gas assets. In fact, BP and Shell have slashed the value of their assets by a combined total of $39.5 billion.

Both companies admitted that the accounting moves were not only the result of weakening demand amid the Covid-19 crisis but also part of an acceleration in global efforts to tackle climate change, with carbon neutrality required by 2050.

However, the rapid pace of change has led to fears of a ‘disorderly transition’ from the likes of Shell CEO Ben van Beurden, who is concerned it will leave oil companies with stranded assets and investors robbed of expected returns.

This disorderly transition has seen renewables make up around 44% of power generation in the European Union in the second quarter of 2020, up from 37.2% in the same period last year, according to a report by Reuters.

‘We are seeing figures we weren’t expecting to see for another 10 years,’ Matti Rautkivi, director of strategy and business development at Finnish energy tech group Wartsila, told Reuters.

Brent pushing higher after retracement into recent resistance

As expected, the recent pullback in Brent crude did manage to respect the breakout level of $43.91 to break higher once more, with the recent high of $45.01 now looking to come into play as resistance, according to Josh Mahony, senior market analyst at IG.

‘A break through that level continues the uptrend, pointing towards further upside to come from here,’ he added. ‘To the downside, a decline below $44.31 would raise questions over another potential short-term retracement starting to emerge.’