A stagnating oil price has seen investor appetite for Royal Dutch Shell(LSE: RDSB) seep away from recent multi-year highs.
The crude colossus saw its share price strike its highest since November 2014 a month ago, but fresh fundamental fears have seen Shell -- like many of its London-quoted peers -- retrace more recently.
Shale producers returning
Arguably the biggest driver behind Shell's decline has been a steady build in the US rig count.
With drillers across the Atlantic becoming ever-more-comfortable with oil prices anchored around the $50 per barrel mark, the number of units in operation has been steadily increasing since the autumn.
Indeed, latest Baker Hughes numbers showed the total rig count rise to 591, up eight week-on-week and representing another fresh high since October 2015. And the EIA expects US production to power steadily higher as the country's oilies return to work -- aggregated output of 8.9m barrels in 2016 is expected to rise to 9m this year before powering to 9.5m in 2018, the body said.
OPEC deal ineffective?
And signs of increasing Stateside production is likely to put stress on OPEC keeping the taps switched down after the six-month Doha deal expires in June.
Saudi Arabia has been forced to absorb bigger-than-planned supply reductions to make the accord work, with major producers like Iran, Nigeria and Libya being exempted from taking part and other cartel nations failing to cut as much as required.
While the IEA noted last week that 90% of the pledged oil output reduction has been observed, Iraq has slashed production by less than half of what it pledged to back in November, while other major member Venezuela is also failing to meet its agreed quota by some distance.
The news will hardly go down well with those nations meeting or even exceeding their allocated quotas given the huge economic and political considerations at play. And with production rising in the US, as well as in other non-OPEC countries like Canada and Brazil, the chances of a deal extension being drawn up stand at around slim-to-none.
Aside from hopes of the oil market being rebalanced later this year, as initially targeted, the scale of spending reductions by Shell casts doubt on when -- or indeed if -- the business will re-emerge as the earnings powerhouse of yesteryear.
The business forked out $26.9bn in organic capital investment in 2016, down $20bn from what it and the now-integrated BG Group spent in 2014 combined. And the total is expected to fall again, to $25bn, in the current year.
And Shell also has to secure tens of billions of dollars more of divestments over the next few years to soothe the stress on its balance sheet. It is certainly true that the BG acquisition has given a huge boost to the company's reserve base, but fears still abound that swingeing sales and budget cuts elsewhere could undermine long-term profits growth at the group as exploration activity falls.
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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.