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BP (LSE: BP) and Shell (LSE: SHEL) shares are prone to struggle when the oil price is falling, but that’s not the only factor affecting performance. If it was, their shares would bob up and down, in line with energy costs and each other. And they’re not.
Brent crude has fallen from $76 to $68 a barrel in a year, a drop of roughly 10%, and that’s weighed on both stocks. Yet BP has struggled more, with its shares down 12%, while Shell has slipped a milder 4%.
BP’s dividend has cushioned some of the blow. With a trailing yield of 6%, the capital loss shrinks to around 6%. So a £10,000 investment one year ago would be worth roughly £9,400 today. Shell’s yield of 4% means its shareholders have pretty much broken even. They’d have hoped for more.
FTSE 100 energy plays
Over five years, Shell’s outperformance has been far more dramatic. BP has delivered a decent 45% total return, but Shell has soared 140%. All dividends are on top.
BP is still drifting, after its pivot to renewables ended in a humiliating retreat to its fossil-fuel safe place. Shell has managed the energy transition more cautiously and consistently. Both remain oil-and-gas heavy, which leaves them exposed if the net zero shift accelerates. The opposite seems to be happening today.
Shell posted a $23.7bn pre-tax profit in 2024, down 16% on 2023. But that was miles ahead of BP’s dismal $381m profit, down 97% from £15.2bn.
Dividends and buybacks
On 11 July, BP warned weaker oil and gas prices would knock Q2 earnings, despite a rise in upstream production. Shell’s Q2 numbers, released on 31 July, showed adjusted earnings beating forecasts to hit $4.26bn. That’s down 24% year-on-year but it still had the firepower to launch another $3.5bn share buyback over three months.
Shell’s price-to-earnings ratio is 9.6, which looks tempting if oil prices rebound. BP, by contrast, trades on a staggering P/E of 222, thanks to collapsing earnings.
Shell may be the steadier hand, but BP has more catch-up potential if its turnaround gains traction, as management pledges to “reallocate capital to drive growth from our highest returning businesses”. That makes it riskier, but possibly more rewarding in time.
Income potential still strong
BP may also appeal to income seekers, given the higher yield, but Shell’s monster share buybacks ($13.9bn in 2024) suggest underlying strength.
For long-term investors, these two energy giants both remain worth considering. Oil prices are cyclical, so now could be the time to consider buying. Waiting for brighter days could involve missing the first leg of the recovery.
At today’s valuations, Shell looks the safer bet. BP might tempt contrarians hoping its strategy reset will succeed. Either way, they’re both still cash-rich FTSE 100 giants with a central role in the energy system. Unless we get a colossal renewables breakthrough, but I can’t see it today.
There are no guarantees in investing, but for those taking the long-term approach, both FTSE 100 giants could still be worth a closer look. Shell looks the surer choice, in my view.
