Education Series: Single-Stock ETPs

Energy Stock ETPs: Go Long or Short?

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Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at

Lockdowns and movement restrictions brought oil consumption levels down in virtually every part of the world. Now with restrictions being lifted and normality returning, oil prices have begun soaring again.

But fossil fuel consumption is at the edge of a paradigm shift: alternative fuel sources such as electricity and hydrogen fuel cells (HFCs) are becoming increasingly viable while personal vehicle ownership continues to trend downwards in the West. All over the world, mass transit systems are becoming increasingly viable as well. In the context of all that’s happening, this article will take a look at the conventional energy landscape as it pertains to the two energy companies – Royal Dutch Shell (ticker: RDS.A) and British Petroleum (ticker: BP).


Conventional Energy Landscape: Oil

In September 2020, BP’s statisticians had summarised in the company’s official Annual Outlook that the year’s oil demand was the “peak” of the forecasted oil demand curve over the next several decades. In the prior year’s Outlook, this was forecasted as being 15 years away.

Sources: BP Energy Outlooks 2011-2020, BP Statistical Review 2020 and International Energy Agency forecasts for 2020


Interestingly, this statement was held true under all three scenarios, namely:

  1. “Business as Usual” (BAU) Scenario, where government policies, technologies and social ‎preferences continue to evolve in a manner and speed seen over the recent past;

  2. “Rapid Transition” (Rapid) Scenario, where policy measures to limit the rise in global temperatures by 2100 to well ‎below 2-degrees Celsius above pre-industrial levels are implemented along with significant ‎increase in carbon prices leading to carbon emissions from energy use to fall by around 70% by 2050;

  3. “Net Zero” (Netzero) Scenario, where policy measures in “Rapid” are implemented along with significant shifts in societal behaviour and preferences leading to carbon emissions from energy use fall by ‎over 95% by 2050.

An interesting argument being made by BP is that developing nations as well as Asian powerhouses China and India will flatten their demand in the forthcoming years while renewable energy sources, electric vehicles, HFC vehicles et al will begin to dominate the landscape as the years go by.

Shell, on the other hand, predicts a more interesting series of events in its studies – known as Shell Scenarios. It asserts that the 2020s will not find suitable political will to push for alternatives to fossil fuels until the effects of climate change are felt at the end of the decade. The 2030s will find energy from renewable sources becoming cost-competitive and demand for energy from non-renewable sources falling, despite rising energy demand. This will be attributable to public perception and preferences as well as government policies all over the world.

Source: “The Energy Transformation Scenarios”, Shell, June 2021


Shell also predicts that economic recovery will take precedence over costly low-energy transformation protocols in the developed world, which means that fossil fuels will hold sway in the near term.

Bearing out this assertion is the Crude Oil Forecast released by the U.S. Energy Information Administration (EIA) – a U.S. government think-tank – which indicates a rise in consumption in the near term.

However, the EIA expects continuing growth in oil production to outpace decelerating growth in global oil consumption and contribute to declining oil prices by 2022. Based on these factors, the EIA expects oil prices to average $60/barrel in 2022, as compared to $72+ right now.


Shell and BP: Green Energy Push

The need to diversify revenue sources out from non-renewable energy by incorporating green energy production measures is not lost on either BP or Shell. However, the degree of preparedness is markedly different. BP has proclaimed its intention to increase green investments by 1,000% before 2030 and divesting itself of £20 billion worth of oil assets by 2025. The company is selling off its stake in North Sea oil assets and is potentially preparing for a fire sale of its Iraqi oil facilities.

In terms of green energy investments, the company joined a multi-national consortium to develop a 2,591 square-km wind farm off the coast of Norway, with additional investments in wind farm sites in the UK, US, and Denmark in the works. Additionally, it has made over £1 billion worth of investments in solar farms in 12 U.S. states and in Portugal.

Meanwhile, Shell is building up an electric vehicle charging business around the globe and developing hydrogen fuelling stations in California in anticipation of strong trends in shifting customer preferences. Shell – through its subsidiary Linejump – is currently buying green energy from 675 wind farms, solar farms and other mostly renewable generators scattered across the U.K. and selling it to businesses while also building Europe’s largest battery – required to offset fluctuations in renewable energy production due to weather production – in the town of Minety, 90 miles west of London.

However, it bears noting that Shell is being relatively wary and less-invested in green energy when compared to BP, given that consumption of its main offering – oil – is forecasted to grow for the next few years.


Shell and BP versus Brent

Since both companies’ current mainstay is crude oil – the benchmark for which is referred to as “Brent” – an examination of Brent prices versus the companies’ share prices would be in order.

Over the years, the companies’ share prices have shown increasingly higher correlation with the price of Brent, suggesting improvements in market consolidation particularly from 2015 onwards.

However, it bears noting that all of the information regarding these companies could not be captured in correlations alone. The act of acquiring energy-producing assets such as oilfields is a costly process, often requiring years to realize gains (if any; sometimes a purchased field will not produce as much as estimated).

A more intuitive visual comparison for the purposes of making an investment in 2021 can be accomplished via comparing the performance of Brent versus the share prices of the two European rivals in the year till date.

This presents a fascinating picture: despite Shell’s caution with regard to sinking profits into currently-unproductive green energy assets and BP’s relatively aggressive push into green energy assets, the latter has been the best performer between the two while effectively monetizing on rising Brent prices.

In fact, BP had gone from strength over the past few quarters, registering £3.2 billion in profits in Q1 2021. Shell, in comparison, had registered £2.3billion for the same period.


In Conclusion

When comparing against the stock market benchmark – the S&P 500 – both companies’ stock performance had a roaring start to 2021.

Near the end of Q1 2021, both companies had the second of two falls in the year till date, from which Shell didn’t regain its earlier outperformance, unlike BP. However, as Q2 2021 is coming to a close, Shell is drawing up par with the benchmark. Whether it goes on to heights like BP remains to be seen.

It may be a little premature to hold a short in either company for a long period of time but localized falls and recoveries could provide a shrewd investor with ample opportunities to turn a quick profit.

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

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Sandeep Rao


Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.

Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.

Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.

Violeta Todorova

Senior Research

Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.

Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.

Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.

Julian Manoilov

Senior Analyst

Julian joined Leverage Shares in 2018 as part of the company’s premier expansion in Eastern Europe. He is responsible for web content and raising brand awareness.

Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.

For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.

Oktay Kavrak


Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.

He joined LS from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.

Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.

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