Is Shell’s Short Interest on the Rise in Q4?

Royal Dutch Shell (RDS.A) stock has risen 1.2% in the current quarter driven by surging equity markets, soaring crude oil prices, and increasing natural gas prices. Let’s review how Shell stock’s short interest position has changed in the fourth quarter.

Short interest in Shell stock

Short interest in Shell stock has risen from 0.18% on October 1 to the current 0.20%. Its short interest has marginally increased. The rise is likely the result of the decline in the company’s earnings in the third quarter. Also, Shell’s uncertainty about the completion period of its share buyback program didn’t go over well with equity markets.

In the third quarter, Shell’s earnings slumped 15% YoY (year-over-year) led by a 52% YoY plunge in its upstream profits. Though the company’s integrated gas earnings rose 17% YoY in the quarter, its total hydrocarbon production declined. Shell’s global hydrocarbon output fell 0.9% YoY to 3.56 million barrels of oil equivalent per day. The company’s total liquids production has slumped 18% YoY, and its natural gas output has plunged 15% YoY in the quarter.

Shell has a significant natural gas portfolio after its merger with BG Group. The decline in its total hydrocarbon output has disappointed Wall Street.

Shell stock affected by concerns over shareholder returns

Shell is in the midst of a $25 billion share buyback program. The company initially intended to complete the program between 2018 and 2020. Since the launch of the program, the company has closed nearly $12 billion worth of buybacks. However, due to macro headwinds, the program could stretch beyond that timeframe. Management revealed the possibility of a delay in the company’s latest earnings.

On Shell’s third-quarter earnings conference call, CFO Jessica Uhl said, “With the prevailing weak macroeconomic conditions and challenging outlook, including refining and chemical margins at below mid-cycle levels, the ability to reduce gearing to 25% and completing the share buyback programme may take additional time.”

To learn more, read Shell Stock: Are Its Shareholder Returns in Danger?

Stock supported by oil and markets

Though short interest in Shell has risen, it hasn’t surged sharply. The sentiment in the stock is supported by the rise in crude oil prices and equity markets.

In the quarter, WTI prices have risen 6.8%, pumping up integrated energy stocks. Shell isn’t alone: Chevron (CVX), BP (BP), and Total (TOT) have risen 1.7%, 3.2%, and 4.6%, respectively. Plus, the rise in natural gas prices has further boosted the stocks. In the quarter, natural gas Henry Hub prices have risen 14%.

The rise in crude oil and natural gas prices means higher upstream profits for integrated energy companies. Short sellers may be factoring in the impact of the surge in hydrocarbon prices, which has prevented a sharp surge in short interest.

Further, equity markets have been soaring led by optimism related to US-China trade talks. The fact that both sides are moving positively toward reaching an agreement has boosted investors’ sentiments. Plus, corporate earnings have supported the markets. While Wall Street expected a worse set of numbers from corporates, they reported decent performances, lifting the overall sentiment. The Fed’s rate cut push further supported Wall Street.