At 29 February, adjustments within the Shell (LSE:SHEL) share value accounted for 8.49% of the motion within the FTSE 100. The oil large has the most important market-cap of any UK firm and subsequently has the largest affect on the index.

It was over a yr in the past — on 16 February 2023 — that the Footsie recorded each its highest intra-day (8,047) and shutting (8,013) values.

At the moment, it’s at 7,952 — 1.2% under its peak. Assuming all different share costs stay unchanged, Shell’s must enhance by 14% for the index to set a brand new document.

I’ve been looking on the firm’s prospects to see how doubtless that is.

Vitality costs

At the moment, the corporate’s share value is roughly 6% under its personal all-time excessive, which was recorded in October 2023.

Again then, Brent crude was comfortably above $90 a barrel. Now it’s round $86. However the important thing Henry Hub wholesale fuel contracts had been twice as costly as they’re now.

Specialists say the autumn in fuel costs is because of one other gentle winter in Europe coupled with over-supply in america. With storage services near capability there’s nowhere to place any surplus, so the inevitable final result is a fall in value.

And this isn’t good for Shell’s earnings. The desk under exhibits the 2019-2023 weighted common costs that it acquired for its power provides. Its adjusted earnings are additionally included.

Impressively, there’s a 96% correlation between the realised oil value and the corporate’s income. For fuel, it’s 98% implying a near-perfect statistical relationship.

So to work out whether or not Shell can elevate the FTSE 100 to a document stage, I have to know what the long run value of wholesale power will probably be. And to be trustworthy, that’s a little bit of a guessing recreation.

Forecasting the long run

The consensus forecast of the analysts masking the corporate is for adjusted earnings of $24bn in 2024, and $24.6bn in 2025. Of their calculations, they’ve assumed Brent crude will probably be $81.3 (2024) and $79.1 (2025). That’s 7-10% under the place it’s at this time.

For fuel, these ‘specialists’ are assuming Henry Hub costs over the following two years to be $3.26 and $3.73. It’s at the moment $1.75, significantly decrease than these forecasts. Not even probably the most pessimistic analyst has assumed a value this low.

With spring approaching within the Northern Hemisphere the demand for fuel will begin to fall. Costs are subsequently prone to stay depressed for a number of months to come back. Because of this, I can’t see Shell performing in addition to the analysts are predicting. And I believe traders would possibly react badly when its first quarter outcomes are launched on 2 Might.

In a nutshell

As a result of their dependence on commodity costs, the earnings of power corporations may be extremely risky.

And due to this uncertainty, I’d want a beneficiant dividend to be persuaded to personal Shell’s inventory. Based mostly on the corporate’s 2023 payout of $1.29 (£1.02) a share, it’s presently yielding 3.9%. That’s precisely the identical because the FTSE 100 common.

Nevertheless, I believe there are much less dangerous shares within the index paying a extra beneficiant dividend. I subsequently don’t need to make investments in the intervening time.

And in my view, I believe it’s unlikely that the oil large’s share value will rise sufficiently within the brief time period to assist the Footsie set a brand new document.