This year it is up by one fifth Shell (LSE: SHEL) share price reacts to higher oil prices. With the possibility that oil prices will continue to rise – potentially A lot above – maybe it’s time for me to add some Shell shares to my portfolio again?

Oil has complicated economics, but also straightforward economics

When it comes to the profitability of oil companies, there are many factors to consider.

For example, exploration can be extremely costly and time-consuming. The fixed costs of infrastructure such as pipelines and drilling rigs can be enormous. Most operations cannot simply be shut down, even if demand drops or the price drops.

While assessing oil can be complex, it can also be effortless. Basically, when oil prices fall, producers do badly – some more than others.

Conversely, when prices skyrocket, you don’t even have to be a particularly good oil producer to make a lot of money.

Shell is one of the proven, long-standing and significant oil companies in the world. The rising price of crude oil is therefore good for earnings prospects.

Choosing among oil companies

Of course, other companies also fit this description. Another rival listed on the London Stock Exchange BPfor example, this year it also increased by 20%.

But look across the pond, and oil stocks have been doing even better lately. ExxonMobil the company’s shares are up 28% so far this year, Chevron increased by 30% i Western crude oil increased by 43%.

Some have wondered why Warren Buffett has been investing in Occidental in recent years. They probably have fewer questions now.

But why have BP and Shell stocks – while performing well – underperformed their US rivals so far this year?

I think part of the answer is that the UK’s two huge drilling companies are less focused solely on oil than some rivals because they have both spent time building non-fossil fuel businesses in recent years.

The results were uneven, and oil became more vital to them again. Both cut their dividends in 2020 – in Shell’s case, it was the first dividend cut since World War II. Currently, the profitability is 3.2%.

In turn, ExxonMobil maintained its decades-long streak of annual dividend increases. Like other major U.S. oil and gas companies, it has less of a focus on fossil fuels compared with many British and European rivals.

If I wanted to buy oil stocks right now, Shell is not what I would go for.

It may not be the peak of the price cycle, but it’s not the lowest either!

For now, however, I will not invest in this industry at all.

Could oil prices rise? Could this aid boost shares of companies like Shell and ExxonMobil? Either way.

We don’t know how high oil prices can go, but it could still be a long way up. However, we are almost certainly not even close to the bottom of the current oil price cycle.

Buying oil producers is most attractive to me when selling prices are low. That’s definitely not the case now.

So I will stay arid so that I can invest in other sectors.