HSBC Downgrades Shell to Hold, Citing Excessive 'Safety Premium'

HSBC downgraded Shell to Hold from Buy due to an "excessive safety premium." Shell's shares fell 0.4% as crude oil futures dropped following OPEC+'s decision to increase production in September. The downgrade was also attributed to the normalization in oil and gas trading, and LNG trading.

Shell's share price (LON:SHEL) has been under significant pressure, dropping by 0.4% on Monday, July 2, 2025, following a downgrade from "Buy" to "Hold" by HSBC analysts. The downgrade was attributed to concerns about the normalization of oil and gas trading markets, particularly in the liquefied natural gas (LNG) sector, which is expected to disproportionately impact Shell's profitability compared to its industry peers [1].

The downgrade comes amidst a period of strategic shifts for Shell, with CEO Wael Sawan actively seeking to close the valuation gap with U.S. rivals like ExxonMobil and Chevron. One proposed strategy involves repurchasing up to 40% of the company's shares over the next five years, signaling a shift from growth to value [1].

Shell's recent Q2 2025 results, which revealed weak revenue and earnings, likely contributed to the stock's decline. The company reported a 32% year-on-year decline in Q2 adjusted earnings, falling to $4.3 billion, primarily due to lower oil and LNG prices [1].

The oil market has also been volatile, with crude oil futures dropping following OPEC+'s decision to increase production in September. The decision to boost production by 547,000 barrels per day (bpd) reflects a strategic shift by the oil-producing alliance, but also introduces potential challenges related to oversupply and price volatility [2][3].

Shell's management is actively pursuing strategies to enhance shareholder value, but the challenges posed by market normalization and rising debt levels cannot be ignored. The company is set to report its second quarter results on Tuesday, August 15, 2025 [1].

References:
[1] https://www.asktraders.com/analysis/lon-shel-shell-share-price-negative-1-year0analyst-downgrades-rating-increases-pt/
[2] https://www.livemint.com/industry/energy/bp-makes-largest-oil-gas-discovery-in-25-years-offshore-brazil-shares-surge-11754314195912.html
[3] https://oilprice.com/Latest-Energy-News/World-News/Oil-Prices-Dip-as-OPEC-Pushes-Ahead-With-Output-Hikes.html
[4] https://www.asktraders.com/analysis/oil-prices-dip-as-opec-plus-boosts-output-amid-market-uncertainty/