By Geoffrey Smith
Investing.com -- Shares in Shell (LON:RDSa) rose to their highest in seven months in London on Monday after the oil and gas giant was upgraded by analysts at Goldman Sachs to "buy" from "neutral."
"We believe the company has the highest quality combination of assets in the sector, with a leading global LNG and marketing businesses and strong chemical presence," Goldman said, raising its 12-month target price for the company's ADRs to $85 from $74.
The analysts said they see "material upside to operational performance in both deepwater and LNG assets," and also noted that the company's "strong" balance sheet may allow it to pay out more of its profits in shareholder distributions than others in the sector.
Shell stock is trading close to a post-pandemic high after last year's spike in energy prices drove it to a record net profit of nearly $43 billion, a number that was some 14% ahead of market forecasts. The company has forecast another strong year, even though prices for natural gas, in particular, have come well off last year's highs as warm weather throughout the winter ensured that widespread fears of gas rationing in Europe failed to materialize.
Benchmark natural gas futures in Europe are trading at a 17-month low, as Europe prepares to emerge from the winter heating season with exceptionally high levels of gas still in storage.
However, Goldman analysts see the benchmark TTF contract doubling again by the summer, as the need to refill storage for the coming winter changes the seasonal dynamic. They also see U.S. natural gas futures as oversold and exposed to a sharp rebound as utilities replace coal with gas in their power generation mix. As for oil, Goldman sees crude prices of $100 as likely by the end of the year as the ongoing demand recovery in China exposed the structural level of undersupply in the global market.
By 04:40 ET (09:40 GMT), Shell stock was up 1.8% in London, outperforming a FTSE 100 index that was up only 0.9%.