Introduction
Royal Dutch Shell plc is a British-Dutch oil and gas company listed on the London Stock Exchange and is part of the FTSE 100. It is a global company active in over 70 countries and operates in over 25 countries. As such, the company is exposed to a variety of external factors which can affect its performance. The two external factors considered in this essay are economical and technological (Royal Dutch Shell plc. (n.d.).
Factors affecting the performance of Royal Dutch Shell plc
Economic factors affect the performance of Royal Dutch Shell plc in several ways. The price of oil and gas is one of the most important economic factors as this is the main source of income for the company. If the price of oil and gas rises, the company will benefit as its profits will increase. On the other hand, if the price of oil and gas falls, the company’s profits will suffer. Another economic factor that affects the performance of Royal Dutch Shell plc is the exchange rate. If the US Dollar or Euro strengthens against the Pound, the company’s profits will be affected as it will receive less for its sales in other currencies.
The second external factor affecting the performance of Royal Dutch Shell plc is technology. Technological advances have increased the efficiency of the company’s operations and enabled it to reduce costs. For example, the company has invested in new technology, such as automated rigs and data analysis, which has reduced the costs of exploration and production. The company has also invested in new technologies to reduce environmental impacts, such as carbon capture, storage, and renewable energy sources. Technological advances have also enabled the company to expand into new markets and increase its customer base.
Moreover, Royal Dutch Shell plc’s performance is affected by various external factors. The two main external factors are economic and technological factors. Economic factors such as the price of oil and gas and the exchange rate impact the company’s profits. Technological advances have enabled the company to reduce costs and expand into new markets (Kumar, 2018). Both of these external factors can positively or negatively affect the performance of Royal Dutch Shell plc.
Economic Factors
Royal Dutch Shell plc is highly reliant on the economic environment for its success. The company depends on economic factors such as economic growth, inflation, interest rates, regulations, and exchange rates to determine its business strategies and operations. Economic growth can majorly impact the company as it affects the demand for oil and gas products. If the global economy is growing, this will likely lead to an increase in the demand for oil and gas, which will benefit the company. On the other hand, if the global economy is in recession or experiencing stagnation, this could decrease demand, resulting in decreased profits and potentially a drop in the share price (Kumar, 2018).
Inflation is another economic factor that affects Royal Dutch Shell plc. Inflation can lead to an increase in the cost of production and the cost of raw materials, meaning that the company may have to increase prices to maintain its profit margins. This could decrease demand for the company’s products, as consumers may be unwilling to pay the higher prices.
Interest rates are also crucial for the company. Higher interest rates can make borrowing more expensive, decreasing investment and profits. On the other hand, lower interest rates could lead to increased investment, which could boost the company’s profits. Regulations are also an essential factor for the company. Regulations imposed by governments can have a significant impact on the company’s operations. For example, if governments impose stricter environmental regulations, this could lead to increased costs for the company. Lastly, exchange rates can also have an impact on the company. If the US Dollar strengthens against other currencies, it could increase the company’s production cost as it operates in many countries.
Technological Factors
Technological factors can also have an impact on Royal Dutch Shell plc. The company relies highly on technology for its operations, and technological changes can majorly impact its business. For example, advancements in renewable energy technology, such as solar energy, could decrease the demand for traditional oil and gas products. This could result in decreased profits and the company’s share price. In addition, the rise of electric cars could also impact the company. If more people switch to electric cars, this could lead to a decrease in the demand for gasoline, which could lead to decreased profits and a decrease in the company’s share price.
Overall, economic, demographic, and technological factors can majorly impact Royal Dutch Shell plc. The company needs to be aware of these factors to develop strategies that can help protect the company from any potential negative impacts.
Impact of low-interest rates.
The performance of Shell is heavily influenced by economic factors such as the global demand for oil and gas, the price of oil, the cost of production and distribution, and the exchange rates. The demand for oil and gas is cyclical, meaning that demand increases when the economy is booming, and when the economy is in a recession, demand decreases. Shell’s performance is, therefore, highly dependent on the state of the economy and its ability to adjust to the changing economic conditions.
Oil price is also an essential factor for Shell, as it affects the company’s profitability. When oil prices are high, Shell’s profitability increases, but when the price is low, profitability decreases. The cost of production and distribution is another factor that affects Shell’s performance, as it affects the company’s ability to keep its costs low while still providing quality products. Low-interest rates can have a significant impact on the financial activities of Royal Dutch Shell plc. Since Royal Dutch Shell plc is heavily dependent on the global demand for oil and gas, the price of oil, the cost of production and distribution, and the exchange rates, the company’s investment activities are greatly affected by changes in interest rates (Barclay’s Equity Gilt Study, 2020).
Firstly, low-interest rates can affect the demand for oil and gas. When interest rates are low, the demand for oil and gas tends to be higher, as consumers are more likely to purchase and use oil and gas. This, in turn can have a positive effect on Royal Dutch Shell plc’s revenues and profits, as the company is able to sell more of its products.
Secondly, low interest rates can have an effect on the price of oil. When interest rates are low, the demand for oil tends to be higher, which can lead to an increase in the price of oil. This in turn can have a positive effect on Royal Dutch Shell plc’s revenues and profits, as the company is able to sell its products at a higher price.
Thirdly, low interest rates can affect the cost of production and distribution. When interest rates are low, businesses tend to be more willing to invest in production and distribution activities, which can lead to an increase in efficiency and a decrease in costs. This in turn can have a positive effect on Royal Dutch Shell plc’s margins and profits, as the company is able to decrease its costs and increase its margins.
Finally, low interest rates can affect the exchange rates. When interest rates are low, investors tend to move their money from one currency to another in order to take advantage of higher interest rates. This can lead to fluctuations in the exchange rates, which can have an effect on Royal Dutch Shell plc’s revenues and profits. For example, if the exchange rate between the US Dollar and the Euro is favorable for the company, then the company will be able to sell its products for a higher price in the US, resulting in increased revenues and profits.
At the same time, low interest rates can also be a double-edged sword for Royal Dutch Shell plc. low interest rates can have both positive and negative effects on the business activities of Royal Dutch Shell plc. Low interest rates can provide the company with an opportunity to finance their investments more cheaply and to expand their operations. At the same time, low interest rates can also reduce the company’s profits and their ability to raise capital (McGee, J. 2017).
In conclusion, low interest rates can have a significant effect on Royal Dutch Shell plc’s financial activities. Low interest rates can lead to an increase in the demand for oil and gas, an increase in the price of oil, a decrease in the cost of production and distribution, and fluctuations in the exchange rates, all of which can have a positive effect on the company’s revenues and profits.
References
Barclay’s Equity Gilt Study. (2020). The FTSE 100 index. Retrieved from https://www.barclays.com/markets/equity-gilt-study/ftse-100
Kumar, S. (2018). 10 Examples of Operational Excellence. Retrieved from https://www.simplilearn.com/examples-of-operational-excellence-article
McGee, J. (2017). What are the external factors that affect an organization? Retrieved from https://www.investopedia.com/ask/answers/06/external-factors-affect-organization.asp
Royal Dutch Shell plc. (n.d.). About us. Retrieved from https://www.shell.com/about-us.html
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