Royal Dutch Shell PLC (LSE:RDSB) is again the most valuable company in the FTSE 100, taking its crown back from drug maker AstraZeneca PLC (LSE:AZN), as oil shares have been bought up amid rising fuel prices.
Shell has made a strong start to the New Year, up 6% in London since the turn of the year, as crude oil advanced over US$80 per barrel.
Most industries have been pressured in recent months on supply disruption, cost inflation and Covid concerns, but the old economy of gas and oil has nonetheless prospered – partially due to returning demand and partially due to constrained supply.
Renewable and other forms of energy are, at the moment, simply unable to supply the required energy to meet the rising demands, according to Mould.
Shell’s newly recovered share price strength has propelled back to the top spot after it was overtaken by Astra as crude prices collapsed in the onset of the pandemic in 2020.
“It may not be what environmental campaigners, politicians or the wider public want to hear, but oil prices are firm,” said AJ Bell investment director Russ Mould.
As Shell’s price languished, and as its management team began working on ‘energy transition’, Astra and Unilever battled it out to be top of the blue chip leaderboard.
The FTSE All-Share Oil & Gas producers sector makes up just 8% of its total £2.5tn market capitalisation, and the vast majority of that comes from Shell and BP.
For context, this is significantly lower than the prior all-time high of 22%, set nearly thirteen years ago, in March 2009, when the commodities and natural resources the asset classes left standing as market valuations plummeted in the wake of the financial crisis.
AJ Bell, in a note, highlighted that the Oil & Gas sector has typically made up some 13% to 18% of the total All-Share index weighting, by market cap.
Whether such weightings can be repeating the future is unclear as AJ Bell looks to the future, given the emphasis placed on the environment (the E in ESG), yet, the broker hints that the investment case may prove too compelling for some investors.
“If oil prices surprise by staying firm – or even going higher – it will be interesting to see if any investors decide to put aside their environmental, social and governance (ESG) principles in favour of profit,” said Mould.
AstraZeneca shares hit an all-time high in early November but have since fallen almost 12% to cap off what was a rollercoaster year for the company led by Pascal Soriot.